A proposal paper published this week by the EU’s Czech presidency this week has cast light on what may be some of the main features of a post-Kyoto deal.

At the beginning of June, negotiators will gather once again in Bonn to discuss the future of global climate policy beyond 2012. The meeting will be one of the key staging posts on the road to the Copenhagen conference (COP-15) in December.

In preparation for the June meeting, the EU has submitted a paper that contains a suite of proposals for discussion, which top my knowledge is the most comprehensive policy document issued by the EU since its post-Pozna? Communication at the beginning of the year.

The question at the heart of the document is about how the concept of ‘Common but Differentiated responsibilities’, which is central to the UNFCCC framework, can be implemented beyond 2012. The EU emphasised back in January that this would need to involve some kind of commitment by ‘middle income’ developing countries (such as China and India) to limit their emissions. But now it is proposing two possible mechanisms designed to achieve this.

The first proposed mechanism is called ‘sectoral crediting’, or ‘no-lose’ targets, which relies upon defining an emissions threshold for specific industrial sectors in each of the relevant countries. This threshold would be lower than the projected emissions under a ‘business-as-usual’ projection of that sector’s emissions. There is no ‘stick’ in this mechanism – developing countries wouldn’t be penalised for failing to keep emissions below the sectoral threshold (hence ‘no-lose’). But there is a ‘carrot’ – if emissions are below the threshold, developing countries would be able to earn credits for those further reductions that they could in turn sell to developed countries, much like the CDM operates at the moment.

The second mechanism is called ‘sectoral trading’, which is more like a conventional ‘cap-and-trade’ system. Under this type of mechanism, an emissions cap would be set at a level lower than the ‘business-as-usual’ projection for a sector. If the sector keeps its emissions below the cap, it is able to sell the remaining credits on the international market. However, unlike the ‘sectoral crediting’ approach, there is a ‘stick’ as well as a ‘carrot’: if the sector exceeds its cap, it has to buy in the equivalent number of credits from other sectors or countries.

I’ve created some charts to show the mechanisms side-by-side (clicking on the thumbnail should make them bigger).

To my mind this raises some interesting questions, including:

  • How would this affect the value of emissions credits generated through the CDM?
  • How will developing countries approach the negotiation of their sectoral targets, if this route is taken in a post-Kyoto deal?
  • Under the sectoral crediting approach, if there are no penalties for failing to reach the threshold, and if the threshold really is ambitious, how likely is it that developing countries will judge the revenue from the ‘threshold-plus’ credits will be sufficient to make it worth reaching the threshold? The EU intends that developing countries will be able to use ‘low-hanging fruit’ – cheap abatement opportunities – to reach the threshold, but presumably this would require fairly careful setting of the threshold level.

If anyone has any ideas about the answers to these, please leave a comment!

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