Designing Future International Actions on Climate Change

Ned Helme, Executive Director

Catherine Leining, Senior Policy Analyst

Center for Clean Air Policy* * *

Bonn, Germany

Eighteenth Session of the Subsidiary Bodies

June 2003

About CCAP

Non-profit environmental think-tank Founded in 1985 to develop, promote, and implement

innovative solutions to energy and environmental problems

Involved in international climate change debate for over ten years

Involved in design of CO2 trading system in EU and trading workshops in accession countries

Strong record of bringing together key gov’t and industry stakeholders to facilitate dialogue on major issues

Overview of the CDM/Future Actions Dialogue

Brings together negotiators from ~30 Annex I and non-Annex I Parties for informal discussions» Design and implementation of the CDM» International actions on climate post-2012

7 meetings since May 2000 Funded by Annex I governments

» Australia, Canada, Denmark, European Commission, Germany, Japan, Netherlands, New Zealand, Norway, Sweden, UK, USA

Partners & Collaborators

Foundation for International Environmental Law and Development (FIELD), UK

Energy & Development Research Centre (EDRC), South Africa

ECOFYS, Germany World Resources Institute (WRI), USA Additional research institutes and consultants

Stabilization Needs

Pre-industrial atmospheric CO2 concentration = 280 ppm

Current concentration = 360 ppm Future stabilization requires concerted effort

over short, mid, and long term» Eventually, global emissions must fall below 1990

levels for stabilization» Longer delay means higher stabilization level

Hedging strategy: Leave stabilization options open (e.g., 450, 550 ppm)

Possible corridors to stabilization

Source of stabilization paths: IPCC WGIII chapter 2, post SRES scenarios, CO2 only

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1970 1980 1990 2000 2010 2020 2030 2040

Glo

bal

an

thro

po

gen

ic C

O2 e

mis

sio

ns

(GtC

)

450

550

Post 2012 Framework

“Three-legged” policy platform

1. Annex I Parties in KP - Targets

2. Annex I Parties outside KP - Responsibilities

3. Developing countries - Programs

Menu of Options – Annex I

Continue with Kyoto Protocol Technological cooperation or technology

protocol Carbon intensity reductions Coordinated sectoral PAMs

Menu of Options - DCs Technology transfer, CDM, GEF (current options) Sectoral CDM Sustainable development policies and measures

(SD PAMs) Reducing emissions footprint from Annex I

investments (e.g., MNC caps, ECA / WB shift) Carbon intensity targets (sectoral, economy-

wide) or sectoral targets Absolute targets

Other Considerations

Menu or stepwise approach Binding versus nonbinding (pledge & review) Umbrella indicators versus target Hybrid – use overarching voluntary carbon intensity

as indicator and combine with CDM, SD/PAMS, etc. Holding developing countries harmless in terms of

cost of reduction or new technologies so their development priorities are not compromised

Creating incentives for long-term transition to low-carbon development and economic growth for both Annex I and non-Annex I countries

Technology RD&D 2nd track to complement KP targets and timetables

– RD&D “push” complements ET “pull”– Critical for long-term solution, but not a panacea– Could be based on Montreal Protocol model although key

differences exist

Pros of technology approach– Compatible with economic growth– Incentives to participate

Cons of technology approach– Less environmental certainty– Government picks technology winners– Difficulty in setting standards

Mitigation Policy Time Frames

Global GHG

Emissions

Time

Short term Long termMid term

Target emissions

level for CO2

stabilization

2015 2030 2050+

Annex I Emissions Footprint

Annex I GHG footprint in DCs is significant» Particularly in the power generation sector

Climate protection may be possible via institutions that generate financial flows» Many complexities exist

Policy options– Pool of concessionary funding– Financial set-asides– Special lending provisions– Climate-friendly portfolio standard– Increased transparency

Financial Flows to Developing Countries from Industrialized Countries, 2000

Development Banks

6%

Other Multilateral Institutions

4%

FDI 43%

FDI covered by ECA

investment insurance

6%

International Finance Corp.

2%

Bilateral Aid12%

Other private 27%

In 2000, about US$225 billion flows to developing countries from industrialized countries annually—about 4% of the GDP of developing countries.

These flows are the financial footprint of industrialized countries in developing countries and a means of influencing the technologies used in the future.

Sources of financial flows are both public (official) and private.

Export Credit Agencies (ECAs) are national financial agencies that support exports of goods and services from their origin countries—$85 billion in 2000

Project and Trade Finance for Energy-Intensive Sectors in Developing Countries Supported by ECAs, 1994-99

0

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15

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25

30

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40

45

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East andSoutheast

Asia

Latin Americaand

Caribbean

IndianSubcontinent

Africa Middle East

Bill

ion

US

$

Oil and Gas DevelopmentTransportation InfrastuctureAircraftFossil-fueled Pow erEnergy Intensive Manufacturing

Source: WRI, Maurer & Bhandari, The Climate of Export Credit Agencies (2000), based on Project Finance Ware , Capital Ltd. Copyright 1997-99).

Sectoral CDM

CDM currently is project based» Creates potential disincentive for proactive climate PAMs in

DCs (tougher baselines) » Link between project baseline and sectoral policy can be

complicated Enabling sectoral policies as CDM projects:

» Provide needed resources for policy implementation» Larger volume of reductions possible with lower transaction

costs from aggregation» Reduced potential for leakage» Challenges of additionality assessment and monitoring

SD PAMs DCs could undertake SD PAMs that reduce

climate impacts of development priorities» Could be harmonized or country-specific» Could be binding or nonbinding pledge» Could leverage climate and non-climate funding» Could be linked to trading system, or kept separate

Challenges: defining SD PAMs, baselines/ measurement, monitoring, uncertainty of emission reductions, capacity needs

Many DCs are doing this already

Carbon Intensity Targets

Different structure from hard caps; not more or less stringent by definition

Two approaches» Sector-specific (e.g, electric utilities)» Multi-sector/economy-wide

Largest benefit is correlation between emissions target and economic activity

Largest problems are lack of environmental certainty, measurement difficulties, transparency, and enforcement

“A La Carte” Menu

Annex I countries achieve absolute emissions reduction» With consideration of costs/benefits distributed

across constituencies DCs determine best approach based on

national circumstances and capacity» Rather than strict linear progression

Key Question» How do we link “a la carte” approach to the need

for real global progress in the 2020 period?

Discussion Questions

How can we differentiate among countries according to national circumstances and capacity?» Annex I (inside & outside KP)» Non-Annex I

Interest in stepwise progression versus “menu” approach for DCs over time?

Discussion Questions, Cont.

Interest in approaches that transcend the Annex I and non-Annex I divide?» Harmonized sectoral PAMs and SD PAMs» Greening financial flows from Annex I countries to

non-Annex I countries How can we create a structure that

incentivizes technological innovation and implementation and engages developing countries?

For more information….

Please contact:

Ned Helme or Catherine Leining

Center for Clean Air Policy

750 First St. NE #940

Washington, DC 20002 USA

Tel. +1 202 408 9260

Nhelme@ccap.org, cleining@ccap.org

http://www.ccap.org