Retreating Lake (image by: suburbanbloke)

Just last week, the United Nations’ Clean Development Mechanism (CDM) reached a monumental milestone of delivering reductions of 400 million tonnes of CO₂ (equivalent) sourced from developing countries all over the world.

Critically, market participants are disappointed by the progress of the CDM so far, but should we be dejected by what we have seen?

Stunted Growth

It should not come as a surprise that the mechanism is receiving some questionable commentary.  The main direction of criticism comes predominately from the numbers of the emission reductions made through the project-based mechanism.  The main unit of currency for the CDM is the Certified Emission Reduction (CER) where one CER equates to the reduction of one tonne of CO₂(e).

Initial forecasts by analysts expected the CDM to generate at least 1.4 billion tonnes of emission reductions up to the end of 2012.  Since CERs are the main source of income for most emission reduction projects, they are important for the whole operation of mechanism.

Projects have been issuing CERs from sometime in October 2005, this meant that at the beginning, the CDM was anticipated to generate at least approximately 200 million per year.  So why has it only generated 90 million per year on average and what is now expected going forward?

Complex Simplicity

The beauty of the CDM, when it was born out of the flexible mechanisms in the Kyoto Protocol (KP), was that it brought a new direction to reducing emissions.  Simply, it allowed rich, developed countries to offset their emissions whilst ensuring that poorer, developing countries took a sustainable path to development and additionally received a flow of cash from rich to poor.

However with its simplistic basis, it was essentially a unique and complex creation that bridged political, regulatory, development and economic ideologies.

All bases had to be covered, and all parties involved had to benefit equally which brought with it a host of teething problems:  procedural delays by the administration of the CDM; projects under-delivering on their expected emission reductions; poor market prices for CERs discouraging project owners from issuing CERs; the recession limiting CDM output and other issues relating to auditors and developers lacking knowledge coupled with a steep learning curve.

Importantly, the official link between the project proponents (developers, owners, etc.), the auditors and the body charged with oversight of the CDM requires a great deal of attention.  Fortunately, looking ahead, this reform is beginning to receive the consideration it needs- see previous blogs on this subject.

Timing is Crucial

Since the CDM began, over 2,100 projects have been registered.  This is perhaps the most crucial stage on the project timeline – it means that the project can begin to keep track of its carbon reductions.

Of these registered projects, almost 700 have actually issued CERs.  It is from these projects that the 400 million tonnes of emission reductions have originated.  We are waiting for around two-thirds of the registered projects to issue, which potentially leaves a lot of reductions in the pipeline.

Positively, the future is bright for the CDM.  So far, almost 40 developing countries are benefiting from transfers of technology, expertise and the sustainable development criteria that all projects have to meet, not to mention monetary flows.  Secondly, the carbon market is also immature relative to other, more established markets and problems in its operation are likely to occur but can be fixed.

A point to mention is that presently, around 75% of the emission reductions in the CDM originate from only two project types: the industrial gas projects.  This is because these projects were the cheapest and easiest to carry out, with the largest return – the so-called ‘low-hanging fruit’.  What this means is that the rest of the projects are going to deliver relatively smaller reductions, hence limiting the potential output of the CDM in the long-term.

In addition, an overarching issue with the CDM is that it is directly linked to the Kyoto Protocol.  Unfortunately the KP is only technically valid until the end of 2012; the first commitment period being 2008-2012.  Consequently, the CDM is also only technically valid until the end of 2012 bringing with it a wide range of uncertainties that could stifle any prolonged investment.

Should we see 500 million before the end of 2010, it will mark a significant response of the CDM to the challenges mentioned above.  The extension of the flexible mechanisms beyond 2012 is a major concern that current UNFCCC negotiations are aiming to tackle among other things.  Watch this space.

The United Nations Framework Convention on Climate Change (UNFCCC) meetings continued in Bonn, Germany from 9 – 11 April 2010. This marked the eleventh session of the Ad Hoc Working Group on Further Commitments for Annex I Parties under the Kyoto Protocol (AWG-KP 11) as well as the ninth session of the Ad Hoc Working Group on Long-term Cooperative Action under the Convention (AWG-LCA 9).

The meetings were focused on the organization of each of the working groups in the coming year. The main goal was to prepare for a successful conclusion of the groups’ work during the upcoming Conference of Parties (COP) 16 in Cancun later this year.

During the three day meeting there was much reflection on the COP 15 negotiations which took place in Copenhagen last December. Criticisms of COP15 have been extreme in the past months. At the Bonn meeting, 10 April, Pablo Solon, Bolivia’s ambassador to the UN, condemned what he called “continued attempts by some developed countries to impose a deeply flawed Copenhagen Accord as the basis for future negotiations.”

In order to combat the failures Solon has identified in the process, Bolivia will host the World Peoples’ Summit on Climate Change and Rights of Mother Earth on 19-22 April 2010. More than 15,000 people and 70 governments are expected to attend. The object of the Summit is to bring “civil society back into the process of climate change negotiations.”

In the wake of COP 15 there has been a call from many developing nations towards more industrialized ones for increased trust. To this point, at a press conference, Solon called for a return to the full UNFCCC process, and to strengthen what had been agreed in COP15. He stated that “the central aim of any climate summit is not to save itself and accept any outcome, but to come to an agreement that will save humanity.”

In the wake of criticism and the launch of the World Peoples’ Summit, the USA has begun to slice millions of climate change support dollars from Bolivia. These cuts in funds were not stated as being directly related to the Summit launch. However, funds are also being cut from Ecuador, which is the first nation to recognize the legal rights of Mother Earth. Commenting on the cuts in funding from the USA and Denmark, Solon commented: “what kind of negotiation is it where you lose money if you disagree?”

Only time will tell if the actions like the World Peoples’ Summit on Climate Change and Rights of Mother Earth will affect the goals and tone of COP 16.

The body charged with the administrative oversight of the United Nations’ Clean Development Mechanism (CDM) is showing signs that a critical transition in the technical framework may be coming.

The CDM Executive Board (EB); currently the judge, juror and executioner of the Kyoto Protocol’s cornerstone carbon offsetting mechanism, could receive a much needed shake up, and not a minute too soon.

CDM-EB Meeting

Pressure Points

The demands from the mechanism until the end of 2012 are sure to be intense as the UN (and its climate policy body, the UNFCCC) are placed under pressure to deliver on international climate policy.

Providing the framework to extend the life of the CDM beyond 2012 is one of the crucial outcomes required from UNFCCC negotiations.  The lack of any concrete resolutions on this matter from Copenhagen in December did little to allay the vast uncertainty that currently resides in the CDM.

Without the Kyoto framework, which technically ceases to exist from 2013, the CDM is in danger of failing simply because of regulatory and political uncertainties.  In order to survive, the challenges in the next few years need to dealt with head on if expectations are to be met, and criticism subdued.

Meeting the Challenge

The EB’s recent 52nd meeting (taking place approximately every six weeks) was the first one following December’s negotiations.

Among the usual list of actions which required their attention (project approvals, issuance reviews, methodology considerations, etc.) were a wide range of important topics that had to be considered; including appointing a new chair and vice-chair and establishing an independent committee to assume technical responsibility for project approvals et al.

The EB was also urged to speed up processes and to increase the volume of emission reductions delivered from projects.  The daunting task to improve the overall time it takes projects to enter the pipeline and issue the all-important Certified Emission Reductions (CERs) falls to one person.

Clifford Mahlung, lead climate negotiator for Jamaica, was promoted from vice-chair to resume control of the EB during what will arguably be the most important two years of its existence.

The proposed improvements are anticipated to increase the scope and scale of the CDM, especially in terms of volumes of CERs issued and the regional distribution of the projects to countries that are yet to benefit from the CDM.

Balancing Point

Mahlung is expected to steer the CDM towards equilibrium of the three central inputs to any project-based mechanism: quality, time and cost, whilst ensuring the emission reductions in the CDM remain environmentally credible and uphold the integrity of the mechanism.

In an effort to reduce the time it takes projects to move through the milestones in the CDM pipeline, which has been the main drawback experienced to date, Mahlung is hoping to adopt a more automatic approach to project approvals.  However, the detrimental impact this may have on the quality of emission reductions and cost of projects needs to be accounted for.

The EB has so far been overwhelmed by the administrative demands on its members.  So the introduction of a Project Assessment Committee (PAC), a group of 12 technical experts, is expected to lighten the load on the EB from its technical approvals and reviews.

Whether this proposal aids processes, or merely increases the depth of bureaucracy in the CDM by adding another committee into the mix, remains to be seen.

In any case, signals of technical improvements could be just what potential participants are looking for.  There was a danger that a lack of clarity surrounding the CDM after 2012 was severely stifling potential investment.  After all, when the outlook for a healthy return on investment is uncertain, investors will be understandably discouraged.

Positively, what Mahlung has quickly accepted is that until the ‘post-2012 problem’ is figured out on the international arena, his immediate responsibility lies with improving the CDM now.  The opportunity for underlying growth in the CDM before the 2013 Kyoto deadline is considerable, but is matched in size by the challenges ahead.

As ever, time will tell whether Mahlung is up to the task.

Wind farm in Africa (Image by: lollie pop)

The United Nations’ Clean Development Mechanism (CDM) adopted a novel project approach to countering or offsetting developed countries’ emissions.  The most visible and controversial component of the Kyoto Protocol has made large political and regional advances since its inception.

However, when it comes to global distribution of the projects that are actually generating carbon offsets, it falls short.  Nowhere has this been felt more, than on the African continent.  But why should this be the case when the CDM was designed to be a means to transfer technology, finances and development to the poorest and most vulnerable countries on the planet?

Reasoning a Failure?

The barriers of CDM expansion in Africa surround emission reduction potential, financing and institutional stability.

Africa’s contribution to global emissions is minimal; UN data estimate that Africa accounts for only 4% (1,500 million tonnes of CO₂ equivalent) of annual world emissions.  Stunningly, 75% of Africa’s emissions originate from just four countries (Algeria, Egypt, South Africa and Nigeria).

Consequently, the carbon mitigation potential in the remaining 49 countries is clearly small.  Per capita emissions in sub-Saharan Africa are the lowest in the world at 0.77 tCO₂(e).  Relatively speaking, the financial costs that accompany these potential mitigations are more expensive than anywhere else, so why would a project developer choose an African country to invest in when better and faster returns can be sought elsewhere?

Potential From Nothing

In spite of the obvious low attribution to Certified Emission Reduction (CER) volumes generated so far in CDM projects on the continent, there is a potential for substantial growth.

A study commissioned by the World Bank, detailed the possible emission reductions which could be actualised by a mechanism such as the CDM.

Key areas include: fuel shifting, improved agricultural processes and industrial energy efficiency schemes.  Importantly, the CDM can accommodate these reduction areas – with small-scale renewable schemes and process changes being effectively undertaken within the CDM.

As it stands, only 120 projects are hosted in Africa; of that, only 65 are in 20 sub-Saharan countries.  It has been estimated that up to 3,000 CDM projects can be hosted in Africa – there is a great deal of development left to be done.

One setback is that a country must have a Designated National Authority (DNA) before any CDM project can be contemplated.  This body is responsible for the regulation of CDM projects in their country.  Unfortunately for most sub-Saharan Africa, there are only 21 DNAs, meaning that many reduction opportunities are missed.

Overarching responsibility for tackling this dilemma ultimately lies with the CDM’s administrative body, the Executive Board (EB) and the UNFCCC.  Only recently has any real progress been made with respect to this.

Delivering the Mechanism

The difficulty is that the CDM has been poorly refined for the special considerations that African countries require.

What progress they made was acknowledged at the UNFCCC negotiations in Copenhagen in December 2009.  Regional distribution was only briefly discussed (mainly due to limitations of actual negotiating time) but it was agreed that the DNA registration requirements would be reduced in countries that have difficulty hosting projects.  The reforms are expected to come into force sometime in the second half of 2010.

A CDM concept that is expected to benefit Africa received little negotiating time also.  It is thought that the programmatic CDM (pCDM), or sometimes known as a programme of activities (PoA), could unlock the delivery potential of the CDM in Africa.

In an effort to reduce transaction costs and generating bigger revenues by facilitating larger economies of scale, the pCDM approach would gather a group of similar emission reduction schemes under the umbrella of one project.  Consequently, this could provide an opportunity to tackle small-scale project barriers.

The number of pCDM projects that have progressed is small, but there are some that have the opportunity to generate substantial emission savings in other developing countries.

The same opportunity exists in Africa.  The pCDM concept could resolve some challenges that currently bedevil the African CDM.  However, a large set of barriers still exist before the pCDM can really live up to expectations – including risks associated to the lack of administrative clarity of the pCDM, high upfront costs and lack of successful experience implementing these unique schemes.

So Africa’s CDM potential categorically exists, but toil is required before it can compete with the emission reductions that are possible in the cheaper and more accessible countries such as Brazil, India or China.   Once unlocked though, the CDM could evolve into the flexible mechanism that was anticipated from the very beginning.

(Image by: bslmmrs)

Founded in 1919, Société Générale de Surveillance, commonly known as SGS, are now potentially the world leading Designated Operational Entity (DOE) working within the remit of the United Nation’s Clean Development Mechanism (CDM).

But did they become so well established through raw business acumen, taking the ‘first mover’ advantage in a fledgling industry, or being at the right place at the right time with the right connections?

Experience Always Helps

SGS were fortunate to be in a position to possess all of the above.

The responsibilities of the DOEs are extensive: verifying the emission reductions of projects and ultimately ensuring that this verification leads to the all-important Certified Emissions Reduction (CER) issuance.

In many cases, CER issuance will be the principal income stream during a project’s lifetime, so the choice of DOE is an important one.  Historically however, this decision has been somewhat restricted, with the market taking on a distinct oligopolistic structure.

The most recent CDM performance data, supplied from the UNEP Risø centre, reveals that 93% of issued CERs came from five DOEs – from over 365 million CERs in total since 2005.  Interestingly, and rather poignantly, 49% of all issuances were verified by SGS, with the next largest holding only 23%.

The dominant share that SGS accounts for in terms of issuance volume can be partially explained by the fact that it holds most of the large industrial gas projects in the CDM as clients.  These sectors deliver around 75% of the total CER volume, and do so with relative frequency, i.e. once every 2-3 months.

Delving further into the CDM pipeline shows that SGS has projects operating in more countries than any other DOE.  Importantly, these are predominantly projects located in China and India, the two most productive locations in the CDM.

In the relatively short CDM lifetime, SGS picked up a wealth of experience in the right areas: sectorally and geographically.  It was a primary business aim to quickly establish themselves as the DOE of choice for any project in any location.  SGS were performing well and leaving many in their wake.

Does Experience Always = Best?

In September 2009 however, the legitimacy of the CDM suffered a severe shock following the CDM Executive Board’s decision to suspend SGS for three months, after it was unable to prove its staff had adhered to inspection rules or that they were qualified to do so in the first place.

During this time, SGS was not permitted to upload any further project reports to the UNFCCC website, or submit any further requests for issuances.  Despite this, it was only until 12 January 2010, after the suspension had finished, that issuances from SGS-verified projects ceased; such was the volume of their future issuance pipeline.

But this was not the first time that a large project auditor has been found failing to follow Executive Board procedures.  SGS was the second such company to be suspended.  Norwegian-based Det Norske Veritas (DNV) was found wanting during a spot check in November 2008 for comparable reasons as the above, and was similarly suspended for approximately three months also.

With a reputation comes a pressure to sustain business demand.  During this suspension, a ‘gentlemen’s’ agreement was installed to help prevent other DOEs from poaching clients from DNV.

It is credible to assume that this approach was also adopted during the suspension of SGS, much to the relief of the company shareholders.  Any delay in CER issuances as a result, particularly involving large volumes, would likely test the patience of sizeable project owners and their clients, who may not be as forgiving should it happen again.

As such, critics were quick to conclude that the suspension only further highlights the inadequacies of the CDM, and that such actions do nothing to allay any fears that the CDM is a risky venture.  After all, project proponents already have many risks to deal with that span political, regulatory and eligibility boundaries.

Conversely, supporters of the flexible mechanisms suggest that these suspensions emphasize that the processes installed are working and that the credibility of the CDM is upheld because of it.  Contracting is a required part of the project process and goes some of the way to safeguard CER buyers and in some certain circumstances, sellers.

In any case, until competition in the DOE market begins to show signs of improvement, it appears that SGS may yet hold onto their place as the most experienced of the CDM verifiers.  And with project developers holding onto their mantra of ‘experience experience experience’, who can blame them?

Authors: Nyla Sarwar & Sabrina Chesterman

Secretary General Ban Ki-moon during the final hours at COP15

As the climate demonstrators started to pack away their banners and the Christmas shoppers descended on a freezing Copenhagen (-7C), over 100 leaders and statesmen headed back to their various countries. Many are left to now ponder about what has actually been achieved, except a huge carbon footprint created by the tens of thousands of people who travelled to Denmark in the anticipation of being part of an expected key moment in history.

“The conference of the parties takes note of the Copenhagen Accord,” says a final decision on Saturday 19^th December 2009.

The Copenhagen Accord (see final text here) was negotiated on the basis of political superpowers asserting their national sovereignty and many have pointed the finger at China for being so dogged in their approach to the negotiations. The head of the Chinese delegation, Xie Zhenhua and Chinese Prime Minister, Wen Jiaboa, remained resolute in their refusal to discuss and put on the table figures for emissions cuts. Although Obama may hail the drafting of the Accord as a success over China, there are huge loopholes. Developing nation delegates, exhausted, frustrated and now worried, returning to countries on the front line of climate change with no clear guarantee or safeguard that climate change can be slowed or its worst effects abated.

The agreement, drawn up by US, China, India, Brazil and South Africa, lacks any legally binding commitments, or interim targets for developed or least developing countries, removed at the last minute to appease disgruntled negotiators.

Several texts had been presented to the delegations over the course of the 10-day conference in Copenhagen, including two surprise Danish texts, which were both angrily rejected by developing countries, which questioned the transparency of the proposal having worked on the same text over the last 2 years.

On Day 9, Hilary Clinton delivered a press conference to bolster hopes of a positive contribution from the US in ongoing negotiations. She announced that the US was in support of the $100bn/pa fast start fund for adaptation in developing countries, and the US’s contribution was later announced to be $3.6bn pa annum by 2020, to support the $10bn/pa from Europe and the $15bn/pa from Japan.

Day 10 began with optimism, as over 120 Heads of State gathered in one location, to discuss the threat of climate change, for the first time since the Second World War.

Obama’s 8am arrival on Air Force One, into Copenhagen fuelled hopes for a positive breakthrough in negotiations at the conference. As the world’s largest economy and second largest emitter, the US had (as always) a very powerful position in the negotiations. However, Obama failed to provide any further commitments in the chaotic final phase of negotiations, and knocked heads with the Chinese Premier Wen Jibao and Brazilian President Lula in intense meetings upon arrival. Saying he was “here not to talk but to act” he failed to provide any further commitments from the US and did not even press the Senate to move ahead on climate change legislation, which environmental organisations have been urging for months.

His disappointing, lackluster speech was frustrating for conference delegates and heavily criticized by many, including Venezuelan President Hugo Chavez.

Despite ongoing tensions and disagreements behind the scenes, Obama made the announcement of a ‘deal’ before his departure at around 6pm on Friday for his Christmas holidays. He delivered a press conference to highlight the ‘agreement that had been reached’, which China and many other developing countries vehemently rejected in the plenary session later.

The Copenhagen Accord was reached from the depths of desperation on Saturday morning, stating that average global temperature increases should be limited to 2C, but no legally binding targets for emissions reduction were set to achieve this. This a major blow for many LDCs and small island states, who pushed for a global temperature increase to be limited to just 1.5C, which they believed to be crucial for their survival.

Developing nations, and notably Africa, have presented themselves as a key power force in an era of supposed global climate governance. The big emerging economies, India, China, Brazil and South Africa allied to prevent a developed country domination of the negotiations. Success was made in terms of the fast start finance of $30 billion/year from next year to 2012, and the long-term pledge of $100 billion/year to 2020. Although President Meles Zenawi of Ethiopia, representing the African country block was criticised for accepting this deal, his ‘compromise’ on this issue ensured it was formalised in the Copenhagen Accord.  The efforts of Chavez and the block of Bolivia, Nicaragua, Sudan and Saudi Arabia, attempted a last minute block to the talks just as it seemed the Copenhagen Accord would be agreed upon.  Although with the help of UK Energy & Climate Change Minister, Ed Miliband this move was averted, many question the viability of Chavez and others in their fidelity to finding a common ground to climate changes, instead using their speeches in the High Level plenary to lament on the silent ‘ghost’ of capitalism driven by Obama, Nobel man of war, that was the root cause of climate change.

Attempts to kill the Kyoto Protocol also dominated the negotiations at Copenhagen, with LDCs furious at the suggestion of a new agreement, which opens up the possibility of them being required to measure and report their emissions (which only Annex I countries are required to do under the conventions of Kyoto). Several developed countries have begun to back the idea of creating a new treaty which would clean the slate and start again addressing emissions from both developed and developing countries. These divergent views led to wasted hours of precious negotiating time at the conference and significantly weakened the Copenhagen Accord, with many agenda items simply postponed for discussion at COP 16 in Mexico City next year.

Some organisations felt that the deal was a positive start, and a successful outcome that we can strengthen in future negotiations.

“This deal provides a solid foundation for international action, including emissions targets, a new financial mechanism and transparent reporting and review to assess countries’ performance,” said Jennifer Morgan, Director of WRI’s Climate and Energy Program.

“But more is needed to ensure a functioning legal instrument, and the ambition of the emission cuts still falls far short of what the science indicates. The agreement will need to be strengthened over time.”

The UN process was also disputed, with many arguing that it had become totally unworkable and impossible to forge consensus among disparate countries fighting over environmental guilt, future costs, and who should referee the results. It might therefore be more likely going forward that discussions about tackling climate change are raised at other forums – the G8, G20 – where approximately 30 countries are likely to represent over 90% of global emissions. This smaller group of nations will tackle a narrower agenda of issues, like technology sharing or the merging of carbon trading markets, without the chaos and posturing of the United Nations process. A version of this already exists in the 17-nation Major Economies Forum, which has been a model of decorum and progress compared with what the world saw unfold at the climate talks.

We would argue that the whole concept of consensus agreement, as enshrined in the convention, is totally flawed and close to impossible for a contentious and political agreement of this sort. Majority votes may sideline those most vulnerable, but might encourage more unity in negotiations. However, Copenhagen has already represented some of the divisions and back-stabbing that prevails with deep disputes occurring within groups like the G77, Association of Small Island States (AOSIS), and the African Group. The process is fundamentally driven by politics, not the science, to deliver short-term economic and political gains, rather than what the planet demands.

The torturous path to the Copenhagen Accord was dismissed by speaker after speaker from the developing world, denouncing the deal as a sham process fashioned behind closed doors by a club of rich countries and large emerging powers. The NY Times reported that the heated debate even saw the Sudanese delegate likening the effect of the accord on poor nations to the Holocaust.

It is unclear how many delegates will sign up to the Accord. The EU, AOSIS, Japan and the African Group all urged delegates to adopt the Accord, though the Latin American countries and Sudan are believed to be in angry opposition.

As the air hung thick in the Bella Centre, one NGO representative commented, just as we emerged from the plenary, “You’re in there with the presidents, I work with the poor. We all know who the real heroes of climate change are.”

Yvo de Boer, UNFCCC Executive Secretary, highlighted that the challenges now remain in attempts to ‘move towards something real, measurable and verifiable.’ Watch out Bonn and Mexico City, the circus is coming.

There has been a huge amount of coverage of conferences so far this year, the G20 foremost among them. There was another conference that took place last week that was important to anyone interested in climate change policy but you would be forgiven for missing it. The Western press, in a fit of parochialism, ignored a meeting that could have far-reaching consequences for climate change policy, namely the World Ocean Conference held in Manado, Indonesia (read my previous post about the lead-up to the conference here).

Initiated by the Government of Indonesia, it brought together representatives from 80 developing and developed countries to discuss the role of the oceans in climate change. Among the topics discussed and pledges made:

• The current lack of knowledge about what role oceans can play in mitigating climate change. In this context the US announced plans to give a grant of 0,000 to Indonesia to support ocean exploration;
• To acknowledge that coastal communities are going to be adversely affected by climate change and that adaptation needs to start now. It was suggested that funding for adaptation and mitigation would go through the Global Environment Facility (GEF);
• The signing of the Coral Triangle Initiative between Indonesia, Solomon Islands, Malaysia, Timor Leste, Papua New Guinea and the Philippines to protect the coral reefs in their respective countries. The importance of coral protection should not be underestimated – the WWF estimates that around 100 million people’s livelihoods depend on these coastal environments, environments that are under threat from climate change.

Changing the rules of the game

Perhaps the most significant development from a climate change policy perspective however was the creation of a ‘roadmap’ to get the Manado Ocean Declaration (MOD) tabled in Bonn in June with a view to being incorporated into the Copenhagen negotiations. Indonesia, by taking the lead, has gained an enormous amount of prestige and by potentially adding oceans to the agenda, Indonesia stands to gain financially: not only will Indonesia gain from the REDD scheme but also by being the world’s largest archipelago, any financial deal that involves ocean as carbon sinks would benefit Indonesia enormously.

It is pleasing to see Indonesia take the lead in an issue which has been dangerously neglected. While the motivation maybe merely another source of revenue for the government of Indonesia, this conference can only be good for promoting climate change policies within Indonesia. There are a number of struggles ahead of course: it is by no means certain that the MOD will become part of the Copenhagen negotiations, and even then practical issues like the lack of scientific knowledge about the role of oceans as carbon sinks, could prevent them from becoming part of the post-Kyoto deal. Even so, this conference has helped raise awareness of this issue. Well in some places it has.

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!

© EFE

The G20 summit is in full swing and the world is looking to London for a whole range of solutions. The shouts of the protesters and the presence of high-level politicians eclipse the (admittedly less sexy) seventh session of the Ad Hoc Working Group on Further Commitments for Annex I Parties under the Kyoto Protocol (AWG-KP 7) and the fifth meeting of the Ad Hoc Working Group on Long-term Cooperative Action under the Convention (AWG-LCA 5) that are currently taking place in Bonn, Germany. This meeting is the first out of three planned negotiating sessions before the important 15th Conference of the Parties (COP) in Copenhagen in December 2009. In other words, these meetings will define the nitty-gritty parts of any future climate change commitments and will give actual flesh (or not) to the statements made by political leaders at the G20 summit. Ultimately, these meetings will show how prepared countries are to turn their grand words into actual responsibilities.

Mexico has moved into the spotlight of climate change negotiations. As first emerging economy announcing emissions reductions (50% by 2050), it caught international attention at COP-14 in Poznan. AND, it has reiterated this target in its long awaited and recently released second draft of its Special Programme on Climate Change. Of course, the realization of this commitment does not come unconditional. Yet, interestingly and in contrast to other countries, rather than making its emissions reductions conditional upon equivalent emissions targets from other (emerging) economies, Mexico demands an improved international system of climate change financing that sets the right economic incentives. In President Calderon’s words “The problem are the not the objectives themselves. The problem is that we do not have the right instruments for the job, meaning that there is no point wasting another five years discussing what the right objectives are.” In this respect, Mexico has repeatedly proposed a so called Green Fund, but for the first time, he actually specified details of this suggested mechanism on his visit to London: The fund would be financed through a system of quotas, similar to institutions like the International Monetary Fund, which would dictate how much each country paid into the pot. The size of a country’s contribution would be determined by factors such as income per capita, gross domestic product, total carbon emissions, or emissions per capita. Countries will then be able to draw money to cover costs of mitigation and adaptation programmes. Countries that lack environmental conscience will not get money back from their quota.

Taking this as starting point, subsequent blogs will focus on analysing Mexico’s determination to consolidate its leadership position in actual commitments, and its role and ability, as emerging economy, to move the international community towards a successful outcome in Copenhagen.

The good news

As reported in this blog last week, new rules governing the distribution of foreign donor aid under the REDD scheme had been delayed. It was however announced earlier this week that the new rules, as well as the new climate change fund, would be ready before the Bonn climate change talks in June. Agus Purnomo, former head of the WWF in Indonesia and speaking on behalf of the DNPI (National Board on Climate Change), stated that it was issues over taxation on profits and Indonesia’s bureaucracy that was putting investors, and especially private businesses, off investing in Indonesia but the new rules should address these concerns. Add to this the announced 70 approved CDM projects and it appears that the Indonesian government is finally building up some momentum in the climate change realm. While I share this blogger’s concern over how much of the money will be put into effective climate change policies, it is hoped that the rules will provide a clear explanation of how the money will be spent, thereby encouraging investments.

Now the Bad news

It has always been the presumption that billions of dollars will flow into the Indonesian economy once these rules had been formulated. However it appears that the global economic crisis could claim yet another victim. Mahendra Siregar from the Adaption Fund Board at the United Nations Framework Climate Change Convention (UNFCCC) was adamant: “the idea that Indonesia will finance its climate change programs on foreign money generated from the signing of the Kyoto protocol is a fantasy. No amount of foreign funding would be enough to deal with Indonesia’s climate change problems.” Add to this a collapse in the price of CO2 and a drive within companies to reduce operating costs, means payments into the UN Adaption Fund may not be what developing countries are hoping for. Indeed Mahendra speculates that instead of billions of dollars, the entire adaption fund would only amount to $150 million split between all developing countries. Indonesia’s budget for climate change in 2009 is Rp 1.8 trillion (US$ 200 million) and relied on a sizable investment from the Adaption Fund.

What to do? Local community engagement

So if international donor money does dry up, what can be done? One suggestion is engaging with local communities two ways. First of all, local engagement can reduce deforestation caused by palm plantation. And it need not be expensive. Yayasan Orangutan Indonesia, an Indonesian NGO dedicated to saving the orangutan, provides education and information to villagers explaining the dangers local communities face to their environment if they sell land to palm oil cultivators. Once explained what impact these plantations have, the communities are much more likely to refuse payments for land, thereby preventing deforestation.

Secondly, reforestation projects could utilize local labour and knowledge, along with direct private funding, thereby cutting out the multiple layers of government. A good example of this is the WWF NEWtrees scheme, created in conjunction with Nokia and Equinox Publishing. Originally launched in November 2007 in Sebangau National Park, Kalimantan, it initially planted 100,000 trees with Nokia providing the trees and tagging technology. This week, the scheme was extended to Mt. Rinjani, East Lombok hoping to replenish the 40000 hectares of deforested land. In collaboration with the local communities, the program hopes to help the 3 million people who have been directly affected by deforestation.

These programs and schemes highlight simple, effective ways to tackle climate change. By engaging with local communities and addressing their livelihood issues, climate change can be tackled at the local level at minimal expense. Whether schemes like this will be rapidly expanded in the coming year remains to be seen, but the global economic crisis should not be used as an excuse for inaction.