By Climatico Contributor: Jean-Benoit Fournier

Delegates huddle to resolve outstanding issues (Source: IISD)

The last COP in Durban ended in a success for the UNFCCC process, but has more nebulous implications for the climate itself, with Kyoto put on artificial respirator and a more comprehensive agreement being pushed back to a later date.

The most significant progress at Durban for climate change adaptation came in the form of an agreement on – and thus official “launch” of – the Green Climate Fund (GCF). The GCF has been discussed since the last COP in Cancun as a funding/financing mechanism for both mitigation and adaptation efforts from developing countries and, most particularly, the least developed countries (LDCs). It was hoped that the shape and form of the fund could be agreed upon this year, as it was expected that countries would not be ready to commit to more funding for adaptation in such uncertain economic context: and it was.

As reported by IISD, the COP17 “designates the GCF as an operating entity of the financial mechanism of the Convention, with arrangements to be concluded between the COP and the Fund at COP 18 to ensure that it is accountable to and functions under the guidance of the COP to support projects, programmes, policies and other activities in developing country parties.”

The GCF will operate under the guidance of the Conference of Parties, or more simply, the UNFCCC, marking a big win for developing country negotiators. This has been a long-standing issue, with the EU and the US on the other side of the fence arguing that the Global Environmental Facility (GEF) and agencies such as the World Bank should have been responsible for the handling of the climate change adaptation (and mitigation) funding. The workings of this final decision are eminently complex, but one might posit that the vanishing of the negotiating power of the EU/US on the adaptation funding issue (due to growing economic uncertainty), the lack of significant mitigation action on the part of the US, and the structure of the UNFCCC decision process have created a quasi-insurmountable pressure on the proponents of a GEF/World Bank-handled fund to give in (if they were not to be the last nations to stand in the way of an agreement at Durban, that is).

However, the process of creating the GCF is not over yet: there still remain significant issues to be agreed upon such as the fund’s host country, its trustee(s), and its link(s) with the Adaptation Committee and Technology Executive Committee. Several difficult discussions and meetings are to be expected in the coming years on these topics.

In addition, the question of adaptation funding remains pending. With a bid to impose carbon tax on aviation and maritime transport for the purpose of generating revenues for the GCF rejected by developing countries, the responsibility could likely be passed again to cash-strapped sovereign treasuries. The struggle in defining country roles with just and substantial results while still adhering to the principle of common but differentiated responsibility thus continues.

By Climatico Contributor: Sabina Manea

Although much work remains to be done, Durban has ended on a hopeful note (Source: IISD)

The outcome of the UN conference in Durban has been more positive than initially indicated by the complexity of the negotiations. It is particularly laudable that a second commitment period of the Kyoto Protocol has been secured. This result translates into a continued existence of the international emissions trading mechanism.

Despite detailed discussions on the matter, the parties have postponed reaching a firm conclusion on the continued surplus of AAUs in the market and their carry-over into the second commitment period. Although not addressed centrally at Durban, the future linkage of national and regional emissions schemes has emerged as a clear goal of parties such as the EU, Australia and New Zealand.

Carry-over of the AAU surplus

As the Kyoto Protocol is set to continue beyond its current end date of 2012 until 2017 or 2020, AAU trading remains in force as a market-based mechanism of climate change mitigation under the Protocol.

Discussions over how to address the surplus and carry-over of AAUs into a second commitment phase took place throughout the Durban conference. Responsibility for the deliberations was assigned to the AWG-KP spin-off group on numbers. Parties in the group presented a number of possible options, of which limiting the carry-over of surplus AAUs was the subject of particular focus. The final outcome of the discussions signalled a firmer resolution to select the most appropriate avenue for the treatment of the AAU surplus. The CMP instructed the AWG-KP to assess the implication of the AAU carry-over on the desired scale of emissions reductions in the second commitment phase, to be completed by AWG-KP 17.

A promising outlook for linkage between emissions trading schemes

The issue of linkage between national and regional emissions trading schemes was not addressed during the official Durban negotiations. However, encouraging signs emerged in parallel with the conference as to the willingness of countries to work together towards creating more connectivity.

Several parties have already taken the initiative and have begun negotiating to link their emissions trading schemes. Australia plans to go ahead with its trading scheme, which is due to start in 2015, and there are plans in the pipeline to link it with the EU ETS as well as with New Zealand’s mechanism.

The future of emissions trading post-Durban

It is of paramount importance that the AWG-KP follows up on the task entrusted to it by the CMP in order to reach a conclusion on the most appropriate solution to the carry-over issue. The success of the second commitment phase in combating climate change is closely connected to the treatment of the AAU surplus. If emissions trading is to remain a viable means of environmental regulation under the Protocol, it is essential to maintain the functionality of the AAU market so that it can help achieve the necessary levels of emissions reductions.

Harnessing the AAU market at the centralised, international level can be usefully supplemented by closer cooperation and linkage between national and regional emissions trading schemes. Given the continued popularity of this market-based mechanism with regulated entities, especially as exemplified by the EU ETS, emissions trading is likely to take precedence over other more prescriptive solutions (such as taxes) for the foreseeable future.

By Climatico Contributor: Nick Oakes

Durban has mixed meanings for REDD+ finance (Source: UNclimatechange)

Durban finished with the now commonplace but contradictory sense of achievement and disappointment. Achievement that something has been agreed, disappointment that because expectations are so low, any agreement seems like an achievement. REDD+, however, has finished COP17 with a less pessimistic sentiment: plenty was agreed in terms of the technicalities, with accord on the measurement of reference levels of emissions, on environmental and social safeguards, and on MRV; but, as discussed last week, the accord between Parties on these issues has caused disquiet among NGOs.

Technicalities aside, it is perhaps more interesting to think about what COP17 means for REDD+ in bigger picture terms – how can it reengage with the discussions of a legal agreement, how will it be financed and what does it mean looking towards next year?

Stranded at sea

REDD+ has for some time been stranded from the mainland of negotiations, with little clarity on how the mechanism relates back to an international agreement. Or in a more literal sense, it sits in the COP texts on its own as a mitigation action separate to NAMAs. Alas, Durban has presented a slightly clearer picture of the direction and merging of the AWG-LCA track of the AWG-KP track over the next few years, and consequently some more clarity on the context in which REDD+ will form part of a future agreement.

Although still abstract, by “context” we mean that REDD+ could, for example, function largely in the same way as the flexible mechanisms do, the CDM and JI, as addendums to a protocol, or it could be a separate, additional mitigation theme, spanning multiple sources of funding or mechanisms. The latter seems to certainly be the case following Durban, but aside from being – quite literally – separate to NAMAs within the texts, a lot more can be gleaned by looking at the dynamics of the finance discussions.

Finance creeping

Finance made a modicum of progress at Durban, although nothing much was to be expected. Various options for sourcing have yet to be formally considered and objections still arise on the inclusion of the private sector as a source of finance.

Nevertheless, there is agreement that finance should be results-based and, more interestingly, there is text referring to both market based and non-market based approaches to finance. It is generally understood that market based approaches would largely entail the sale of rights to carbon stored in or sequestered by the forest and, as we know, the development of these markets outside of the voluntary sector is moving at a sub-glacial pace.

But exactly what non-market based approaches are is less clear. It should be noted here that we talk about market or non-market based approaches largely in the context of delivery of money, not necessarily the sourcing the money, which could come, for example, from a maritime carbon tax in the non-market based approaches or, perhaps more obviously, the sale of carbon credits in the market based approaches.

Attention non-market based approaches

Envisioning non-market based approaches can be a little ambiguous, but clues can be garnered by thinking about the expenditure patterns of major REDD finance programmes, such as the UN-REDD and the FCPF.

These programmes have spent the majority of money on the development of domestic policies for REDD, whilst also providing help on MRV, reference levels and safeguards infrastructure. At the same time, it is taking – and may continue to take – many years to ensure forest countries, donor countries and the mechanisms themselves are on the same page with regard to expectations of results and finance, thus delaying implementation of REDD+ activities.

Nevertheless, based on these experiences, it seems sensible to conclude that REDD+ finance is going to spend some time yet directed towards early stage technical and human infrastructure, and policy development.

In this sense, the ambiguity surrounding non-market based finance becomes a little clearer. It is, at the moment, publicly sourced and grant-based delivery finance towards REDD+ readiness, purely because this is where it seems to be most needed. The assumption, however, that grant-based finance is inexorably channelled towards early stage REDD+ policy and infrastructure development is far from the truth. There could be non-market based mechanisms that focus on the implementation phases of REDD+, such as subsidy and concessional loan programmes, or guarantee and crediting schemes.

Innovating attendant approaches

Indeed this slight untruth about non-market based approaches, and its conflict between non-market and market based finance should guide the discussions of REDD+ over the coming year. Since there is a lack of a compliance market demand for REDD+ carbon, because most forest countries are in the early stages of REDD+ development, and as it takes years to progress through each stage, Durban could mean that non-market remains a synonym for ‘grants going to REDD readiness’. However, Parties could – and should – move it beyond this connotation and consider how non-market based approaches can evolve, financing the later implementation stages in order to keep momentum and avoid stagnation in REDD+, particularly because Parties now plan to spend four years wrangling over emissions targets and their “legal force.”

By Climatico Contributor: Shira Honig

Negotiators work on an agreement late into the night, 10 December 2011. (Photo taken by the United Kingdom's Department of Energy and Climate Change)

The Durban conference on climate change ended on a much better note than many expected, but continued to delay the toughest questions for at least three years.

The final outcome of the conference, COP-17, is a two-page, breakthrough document called the “Durban Platform for Enhanced Action” that commits all countries to a legally binding agreement to cut carbon emissions. The document satisfies the United States, who was looking for China and India to participate in a global agreement. Delays also work for the Obama administration, who as Politico reports, are looking to hold off on contentious details until after the 2012 election.

The document also meets China’s requirement of not joining a global treaty until 2020. India is also satisfied, having fought for the inclusion of the concept of equity between developed and developing countries in the Durban document, with strong backing from China.

The document even satisfies the European Union, who was willing to extend its current Kyoto Protocol commitments in exchange for a global agreement in force by 2020. In fact, there will be a second commitment period for Kyoto to remain in place as an interim agreement before the new deal is negotiated. The end of the second commitment period – either 2017 or 2020 – will be negotiated next year, at COP-18, in Qatar. Besides the EU, several other developed countries will also continue their Kyoto commitments.

While the creation of a “Kyoto II” is a win for developing countries, it is only a victory of sorts, given that the world’s largest emitters will not be participating in a legally binding agreement until 2020. Small island developing states in the Pacific, and other developing countries who were looking for an agreement at Durban, point out that this may be too late for them to avoid the worst of rising sea levels that threaten their existence.

One potential bright spot for the least developing countries is the agreement in Durban to set up a management and distribution body for the Green Climate Fund. No further details, however, were reached in the agreement.

By Climatico Contributor: Roddy Boyd

Indian CDM biomass (Source: UNFCCC)

The world’s largest carbon offset instrument made wholesome, if not stunning or substantive, progress at Durban’s 17^th Conference of the Parties. While Canada still faces considerable backlash from the hype surrounding its potential exit from 1997’s Kyoto Protocol, the EU has (at the time of writing) gathered more than 130 countries to sign on to its ‘roadmap’ to sign a new legal treaty by 2015. 

Participants of the UN’s Clean Development Mechanism have been following the negotiations closely as they expect any post-2012 uncertainties to be cleared up. As the COP continues into the weekend, the EU’s negotiating text outlines that a legal (non-binding) compliance period would start in 2020, but was deemed unacceptable to US, India and China: the latter refusing to accept the implied death of the KP. With several negotiators explaining that the CDM will die if the KP does, will wholesome progress alone save the CDM for 2012?

Post-2012 Supplementarity

New market mechanisms have been a point of attrition for many days of negotiations, as some view the CDM as a success that can be built upon, instead of replaced. In the AWG-LCA, negotiation texts for market mechanisms have been bogged down in procedural divides between countries that feel it is too early for new mechanism substance discussions (e.g. US), to those who feel they are necessary before gaining any second commitment period (e.g. EU). It appears that this discussion will continue throughout 2012 sessions.

Two important reasons for arguing against the CDM without a second commitment period have been suggested by law firm Baker & McKenzie: the politics behind developing countries wanting developed countries to sign up to further targets, in opposition to the latter wanting some of the former to do the same; and hints that the value of the CDM to these large developing economies is perhaps becoming clearer.

In its truest form, the CDM enabled developed countries to seek out emission reductions from other countries to be used against their targets – a process called supplementarity. The process automatically sought out the ‘lowest hanging fruit’; the cheapest and easiest reductions. Over time, this may become a stumbling point when the host country wants to undertake some emission reductions themselves, since the CDM has already brought to market the easiest reductions at the lowest cost. This means that Brazil, China and India (who have the most vested interest in the CDM) may have to undertake more costly abatement options at their own expense: an idea that has presented itself with the difficulty in extending the CDM without the KP. However, when these three countries host approximately 70% of all projects with US$160 billion total investment, many others have not had the same opportunities.

Food for Thought

One of the technological successes to come out of Durban has been the inclusion of CCS in the CDM, a discussion that has continued for some six years and not without controversy. The largely untested technology is seen by many to be against the principle of the CDM, by allowing carbon intensive industry and power sectors to continue without alternatives. Negotiations in Cancun at last year’s COP accepted CCS into the CDM, on the condition that a ‘shopping list’ of modalities and implementation issues are addressed. One of which forces project developers to hold back 5% of the offsets for ‘leakage’ purposes. An expert from Greenpeace explained that this agreement “is the weakest possible” since they were pushing for 20%.

Meanwhile, EU negotiators have been vocal on eligibility of offsets from the CDM and JI. Firstly, the EU asked the UN to officially review whether large-scale projects such as large hydro and ‘clean’ coal power plants should be able to benefit from the CDM – more expected on this next year. Secondly, Russia failed to negotiate an assurance that JI projects registered after 2012 will still be eligible to generate ERU offsets. Point Carbon quoted an anonymous source that explained this would give the EU an opportunity to impose further post-2012 EU ETS quality restrictions that they already have in place.

The End

With only one Kyoto year left, the Executive Board leaves with an ambitious work plan – an appeals process for both positive and negative decisions, stakeholder consultations at global and local levels, and the formalities to set up an independent review panel. Some are viewing the length of the list to be positive sentiment to the continuation of the CDM. But because of references implying the CDM in a post-2012 world, the COP was unable to move forward on the EB guidance document, and instead has left the decision to the next informal negotiations taking place in the first quarter of 2012.

As we move towards the end of COP17, Durban appears to have built on unexceptional operational successes from the modest Cancun and Copenhagen negotiations, especially with regards to the CDM. The fate of the CDM, however, still remains cloudy due to legal repercussions if the KP ends with no replacement commitment period: uncertainties which have been remarkably consistent throughout the two weeks.

By Climatico Contributor: Shira Honig

Garden Staircase, Kyoto, Japan (Source: Tran Vu Tuan Phan)

The end of the Durban conference is approaching, and in all likelihood, the end of the Kyoto Protocol along with it.

Developments in the last few days indicate the outcome is more likely to confirm a global disagreement, rather than agreement, over the idea of a second Kyoto commitment period, or “Kyoto II,” for all countries, both developed and developing.

Reports on Wednesday characterized the disagreement, at its heart, as between China and the United States. China will not participate in a global treaty until western countries acknowledge that it should not be bound by legal requirements since it is still developing and not responsible for historical emissions. America considers China to be a major player and will not participate in any global agreement without their involvement.

The disagreement, however, is not just between China and the U.S.

On Tuesday, Australia and New Zealand joined other western countries in saying that they will not sign a Kyoto II if other countries don’t opt in. The UK also added its voice to the chorus, saying developing countries such as China need to take on more responsibility.

This does not include Japan, Russia and Canada, who have all announced they will not rejoin Kyoto without emerging economies’ involvement.

It also does not include India, who, like China, will not commit to binding cuts.

The lone player in this divide is the European Union, whose proposal to consider an extension of current Kyoto commitments, in exchange for a broader treaty that includes emerging economies to begin in 2015, was roundly dismissed by China and India. Perhaps for this reason, the EU openly expressed frustration on Wednesday, likening the negotiating process to a game of ping pong between the world’s largest economies.

It is not clear, however, if China and the U.S. were to leave the process altogether, the fundamental disagreement would disappear.

Certainly, their presence – given their status as the world’s top two emitters – is critical.

At a press conference Monday, China’s lead negotiator, Xie Zhenhua, vice chair of the national development and reform commission, announced that China is open to a legally binding agreement in 2020.

Xie, however, stopped short of saying whether China would participate. Instead, he outlined five conditions that would need to be met before it joined, including that all previous commitments by the industrial countries be met before they move on to the next phase. Other conditions included the extension of Kyoto commitments for industrial countries and delivery on immediate and long-term financial aid to poor countries and new low-carbon technologies.

The EU, the United States and other countries expressed skepticism over the announcement and that they were unlikely to change their own in response until new details emerged. China has always been in favor of a legally binding agreement, but that does not mean it intends to be bound by it, EU Climate Commissioner Connie Hedegaard reportedly said.

Xie himself said that the position was not new, and that the pre-conditions come from the Bali Action Plan, the Copenhagen Accord and the Cancun Agreement.

Indeed, China has held this position for years. Its leadership is fully aware that America’s diametrically opposed view – that all major players, including China, must be full partners of a global treaty before it participates – also has been held for years and will not change.

Todd Stern of the U.S. and Xie were scheduled to meet December 6.

By Climatico Contributor: Jean-Benoit Fournier

Container Ship (Source: Muhammad Mahdi Karim)

Much work has been – and is currently being – put into agreeing on the format of the much anticipated Green Climate Fund (GCF), a facility that would funnel public and private money to tackle both climate change mitigation and adaptation in developing countries. As mentioned in previous articles, the control of the funds (i.e. the precise mechanisms through which funds would be allocated) has been the subject of heated debates.

While an agreement on the format seems like the least one can expect from the intense negotiations at Durban, the actual funding of the fund is less straight-forward. Cash-strapped nations, and most notably those vulnerable to political pressure, are keen on calling on the private sector for investments. However, the funding of adaptation measures is of less appeal to the private sector than climate change mitigation ones, since they consist mainly of defensive expenditures (that is, expenditures that do not create conventional economic return on investment, but creates value through hedging nations, populations and environments from potential losses). It is unavoidable that the public sector has to chip in if necessary sums of money are to be leveraged.

Another difficulty that adaptation faces as an issue at Durban is the heavy attention that mitigation receives. In the words of one negotiator cited in IISD’s Daily Coverage (Dec. 5^th edition), “it’s time we start discussing adaptation”, as opposed to focusing almost exclusively on ways to reduce GHGs. While the two issues are not formally linked to each other in the UNFCCC arena, commitments on either issue are effectively used as bargaining chips by both developing and developed countries.

Some signs of hope came about recently, as a document circulated at the Conference mentioned the potential contribution to the Green Climate Fund of an international levy on bunker fuels used by be shipping industry. Thanks to the leadership of the International Chamber of Shipping (ICS), the shipping industry is reportedly “broadly supportive of such a scheme as long as it is applie[s] globally”. The contribution of the sector could be significant, providing the GCF with something near 10% of its $100b by 2020 objective.

Will other governments step in at this early stage to promise funding or wait for the precise GCF (fund control) mechanism to be agreed on? Will opening on mitigation efforts by developing nations constitute a big enough “carrot” for the developed nations to loosen up their wallets? As prior mentioned in this publication and elsewhere, the UNFCCC’s is a process where nothing is agreed on until everything is agreed on. The shipping industry’s recent move, however, has operated a breach in the catch-22 of the negotiations on adaptation funding. The end of the week will tell if this will have helped catalyzing international public investments in adaptation and thus provide some wind for the adaptation funding ship to sail at last. 

By Climatico Guest Contributor: Dean Rizzetti

Protests in Durban (Source: BBC World Service)

Protests at Durban have delivered neither the cacophony of Copenhagen nor the resort-inspired civility of Cancun. Instead, they have been a mix of anger and despair, with talk of occupation and the slightest glimmer of hope.  

Rallies through the streets

Activists took to the streets on Saturday, with more than 6000 people marching through Durban in a diverse procession of noise and colour. Reports said the rally was ‘lightly policed”, with NGOs, farmers, unions and even UN Climate Chief Christiana Figueres in attendance. 

Tasneem Essop, head of international climate strategy at the World Wildlife Fund (WWF), said: “Today’s march was an amazing moment of solidarity that showed people want real action from their governments on climate change – not just talk. The will of the people is strong. The problem is that the will of our leaders is weak.”

These marches have become a mainstay of climate negotiations, and activists and delegates were reportedly buoyed by the energy of the marches. However, Saturday’s rally was a shadow of the massive rallies witnessed at Copenhagen, where as many as 100,000 took to the streets and cities around the world held rallies in solidarity.

Greenpeace pursues their ‘Dirty Dozen’

Meanwhile, Greenpeace has managed to create international headlines to promote their Dirty Dozen campaign, which aims to name and shame the 12 companies that Greenpeace claims are holding climate talks back through political leverage.

Six activists were arrested and fined for attempting to hang a banner at the Global Business Day Conference, while senior Greenpeace activist Tzeporah Berman managed to gain access to the Global Business Day conference to condemn the ‘dirty dozen for “their role in undermining global talks to tackle climate change, to save lives, economies and habitats”.

Canada’s youth raise their voices

Canada’s aggressive negotiation stance has also drawn the ire of Canadian youth delegates, with six activists to the conference turning their backs on Canadian Environment Minister Peter Kent during his opening statement.

Activists had printed phrases such as “Turn your back on Canada” and “People before polluters” on their t-shirts, but were quickly ejected from the conference and their accreditation revoked for disturbing the conference.

While talk of Occupying Durban spread in the early days of the conference, the shear scope of the task and the negotiators’ manifest failure to respond in a way that is as seen as appropriate is the overriding theme of protest.  While the Global Occupy Movement continues to generate momentum and headlines against bankers and corporate greed, the dashed hopes of past conferences seems to have limited the enthusiasm for wide scale climate protest.  While protesters from around the world plea for a global deal to control rising emissions, the gap between civil society and major governments seems to grow ever wider. 

By Climatico Contributor: Nick Oakes

REDD+ technicalities agreed, finance not. (Source: Oxfam International)

Recalling last week’s benchmarks for the success of REDD+ negotiations at COP17, we can take each in turn and assess state of the negotiations on each topic. As expected, much of the discussion has been focussed on the MRV text (and addendum) from the SBSTA, which has now been presented to the COP for adoption this week.

There’s agreement that forest countries should be able to choose whether to use Reference Emission Levels (RELs) or Reference Levels (RLs). Forest countries will also be permitted to use RELs or RLs in different regions and aggregate up to a national level, allowing some much desired flexibility to the mammoth task of national accounting of forest carbon.

On the verification of emissions reductions, the text does not specify a body that is responsible for the verification. This could be forest countries, donor countries or third parties. Given the political element to verification – namely the protection of national sovereignty – it seems likely REDD+ could proceed down the same lines as the CDM, meaning forest country bodies approved by the UNFCCC will verify emissions reductions, although we will probably have to wait another year before there is clarity on this issue.

The text puts forward requirements for the reporting of safeguards. Controversially, and attracting criticism from many observers, it does not do enough to measure how safeguards will be respected, and in the event that they are not respected, detail the punitive measure faced by those in violation of those safeguards.

The concern here seems to largely relate to social safeguards – ensuring the rights of local communities are respected and penalties enforced, and their inclusion in the benefits of REDD+. The current text asks only that forest countries submit information on how they are implementing safeguards, which can be compared against standards set for their implementation. It does not require that forest countries submit information on the impacts of REDD+ on local communities, or to put it another way, whether the safeguards that have been implemented are fit for purpose. As Louis Verchot, climate change scientist at the Centre for International Forestry Research noted, “what has been put forward here are standards for reporting, not standards for performance, and we need to see decisions on performance standards to move forward with REDD+.”

The AWG-LCA has drafted a note on the outcomes of a number of working groups, but for the REDD+ working group, tasked with looking in to finance options, the text, unsurprisingly, does not show much in the way of material progress. At the moment the text seems to simply push back a decision on finance by asking the secretariat to provide financing options before the thirty-eight meeting of the SBSTA.

The remainder of COP17 will see the final adoption of the text presented to the COP by the SBSTA, possibly with some more clarity on a timescale and focussed discussions on the possibilities for finance options. With much of the technicalities agreed, however, getting REDD+ off the ground is now intimately dependent on reconnecting it back with discussions of international agreements and finance, to which the remainder of COP17 will be devoted.

By Climatico Contributor: Sabina Manea

Dais during the COP17 opening plenary (Source: IISD)

A week into the Durban conference, progress on the continued workability of the Kyoto Protocol emissions trading mechanism is slow. A number of parties to the negotiations have acknowledged that action needs to be taken to tackle the surplus of Assigned Amount Units (AAUs) in the international emissions market. The details of the action remain undecided, despite some proposals being put forward in various discussion groups. If a second commitment period is to go ahead, agreement on the carry-over of AAUs will have to be reached in order to give certainty to the market.

As to the issue of linkage, a centralised decision now appears unlikely, and separate negotiations have started to take place between different blocs as to ways of connecting national and regional emissions trading schemes.

Carry-over of AAUs and the emissions market

As previously reported by Climatico, emissions trading is a key pillar of the Kyoto Protocol, and is aimed at reducing greenhouse gas emissions by way of a participatory market mechanism. The viability of the emissions market is therefore vital to the smooth functioning of this system. The principal threats to the continuing functionality of the emissions market are the AAU surplus (caused by oversupply) and uncertainty over whether there will be a gap between commitment periods.

The Ad-hoc Working Group for the Kyoto Protocol (AWG-KP) has so far been the forum of choice in addressing the issue of the AAU surplus and the workings of the emissions market. The Least Developed Countries (LDC) bloc and the Alliance of Small Island States (AOSIS) were particularly vocal in expressing their desire to see a plan emerge for a credible second commitment period, which would necessarily involve the elimination of the loophole that is the AAU surplus. These blocs were joined by Australia and the EU, which is understandable given the former’s intention to have a national emissions trading scheme from 2015 and the latter’s already existing EU Emissions Trading System (EU ETS).

The proposed adjustments to the emissions market are of relevance only if the Kyoto Protocol continues into a second commitment period. This is in itself an issue currently debated in Durban, with different factions being formed over the contents of an extension of the Protocol beyond 2012. But if the Kyoto Protocol is to survive Durban, the problem of the surplus AAUs must be addressed if emissions trading is to remain an effective part of the UN climate change mitigation framework.

Linkage between national and regional emissions schemes

With several national and regional emissions trading schemes either up and running (the EU ETS) or in the pipeline (Australia), another key issue that the Durban conference needs to address is that of linkage between them. This has not formed the subject of direct discussion in the official negotiating sessions at Durban. However, Australia has announced that it intends to start work on linking its fledgling trading scheme to those in New Zealand and the EU.

This is an important step in improving market integration, and may well prove a viable alternative to the Kyoto emissions trading mechanism should parties fail to agree on or delay the second commitment period. It is somewhat disappointing that the driving force behind a system of linkages between schemes has not originated from the Durban negotiations themselves. However, given that parties are finding it challenging to agree on more pressing issues such as the continuity of the Kyoto Protocol, it is not altogether surprising that linkage is not at the top of the agenda. It seems that individual blocs or countries have been left to enter into their own bilateral or multilateral negotiations on this matter if they view emissions trading as a valuable regulatory tool of climate change mitigation.

Hopes for the second week of negotiations

Indications that many negotiating parties are keen to reach an agreement over the treatment of the AAU surplus are encouraging. It is hoped that this willingness to engage in discussions will materialise into a concrete solution by the end of the conference, and particularly one which can uphold the viability of the emissions market. The AWG-KP has already presented a number of possible avenues of action, ranging from no restrictions on the carry-over of AAUs to different options on limits. It is necessary that a sufficiently small amount can be carried over into the second commitment period, so that the environmental goal of emissions reductions is not compromised.

On the issue of linkage, it remains to be seen which other countries or blocs (if any) express a desire to work together to achieve a closer interconnection between their respective mechanisms, as centralised action in this respect appears overly complex to orchestrate.