Ed Miliband hailed the G8 Declaration as a “real breakthrough”. For the first time, it seemed, the ‘Outreach 5′ states were putting aside their differences on international mitigation action and joining the G8 to commit to a 2 C warming target. However, in India these moves have not been universally accepted or endorsed, suggesting that the G8 Declaration has still failed to answer the key question: who is going to do what to reach the 2 C by 2050 target.

An article appearing yesterday in India’s centre-orientated Hindustan Times quotes a member of the Indian UNFCCC negotiating team suggesting that India has not modified its position on the need for Annex 1 mid-term targets. For the 2050 goal to be realistic, he argues, there must be mid-term targets by rich nations.

There has also been much consternation within the wider Indian policy-making community more broadly since Manmohan Singh signed the Declaration in Italy. A range of newspaper articles and TV items have pointed to the strong opposition to mitigation action that a) harms economic growth and b) is not part of a financial transfer mechanism from Annex 1 countries.

The Hindustan Times article, for example:

What this suggests, it seems, is that while India is happy to agree to the goal in question, the means of getting there is an issue on which there has been little movement, despite Manmohan Singh’s signature in Italy.  Indeed, as my colleague Ian Ross notes, Hillary Clinton’s visit to India has not been the smooth ride that her press secretary valiantly continues to tell us it has been.  Several media sources report that Clinton engaged in a blunt exchange with a member of India’s Ministry of Science and Environment, which houses the negotiating team.  India, Clinton was told, will not be accepting cuts or limits.

This is nothing new; I could have been writing this blog six months ago.  However, what has changed is the USA’s persistence that action by India is required for a “successful” negotiation in December, and that they remain confident they will get it.  From this week’s events in the media and in Hillary Clinton’s meetings, that does not seem immediately likely at present.

So, what would this mean?  What if India will not budge on the issue of burden sharing to reach 2 C?

Well, the ball would be back with the US.  Would they strap in and go for an agreement anyway, risking a rejection in the Senate when ratification comes around?  Would they push for a watered down treaty, preferring instead to focus efforts on the domestic legislation they have moving through?  I think that neither of these are politically palatable options–the first domestically, the second internationally.  The US Government have pledged action at both levels to both groups of stakeholders.

As a results, some kind of middle way may well be the most likely option.  And there are a number of opportunities here.  It is coincidental, for instance, that Hillary Clinton is also in India promoting American nuclear investment in India; could there be room for manauvering the much-discussed international ‘Green Fund’ (see Ian’s post) to send more US technology to India in return for an Indian energy generation target? This would have the advantage of pleasing both sides, especially the US nuclear lobby.  It may, though, not be possible when all 190 other parties are involved.

Another alternative maybe the ‘no-lose’ targets (which Dafydd Elis posted on last month).  If the US becomes a buyer of international carbon credits (which the draft domestic legislation would allow) then India potentially has much to gain from selling its ‘no lose’ credits on a presumably buoyant international market.  It would then set a mitigation baseline.  Again, though, we come back to domestic legislation that will not be finalised before December and on which India would be committing itself.

Should Barak Obama’s the worst case scenario come to pass–where no agreement can be reached in advance of Copenhagen–then much will rest on the political pressure in December itself.  Incidental media pressure, possible horse-trading with other policy areas, and the other domestic issues of the day.  From a climate policy perspective, this is not ideal, as it often takes several years to work out how to make last-minute ideas into workable policies (I think here of the CDM, which was added to Kyoto with hours to go and was not finalised until the Marrakesh Accords 2 years later).  And there is always the possibility that nothing will be agreed, although I think that unlikely.

The key issue here is what options are on the table that could serve as tools for a compromise–both now and then.  Nuclear, no-lose, US emission purchases, domestic legislation, a Green Fund: in some combination it is these that are likely to be the deal breakers.  Manmohan Singh’s coincidental state visit to the US in mid-November is sure to be an important date in the respective climate delegations’ calendars.

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-Poznań 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!