Good-bye Annex 1 Non Annex 1, Hello Durban

On Friday December 9th a group of us went for dinner at a sushi bar in Durban. We were quite subdued and when a table at the other side of the restaurant started cheering, I said “I’ll bet they’re not part of the Durban crowd”. Little did we know then that we did have something to cheer about:  The climate change negotiators made very significant progress over the weekend to conclude a truly historic agreement and had I been watching the negotiations instead of the in-flight entertainment on Sunday, I would have been cheering too!

So, what’s there to cheer about?

Continuation of the Kyoto Protocol – pretty much everyone except the EU and Japan wanted the KP to stop at the end of 2012 unless Parties agreed to a second commitment period and we certainly did not expect that a second commitment period would actually be agreed. KP2 (more correctly CP2, but it doesn’t have the same ring to it) has several significant impacts:

  1. It secures the continuation of the CDM. Many argued that this was a foregone conclusion but there is no substitute for seeing it in black and white
  2. Several Parties have already submitted their intentions on “quantified emission reduction limitation obligations”. The EU has indicated 20 to 30 per cent below 1990 levels. The biggest remaining question is if and when they will confirm a -30 per cent target (more on this below). Australia should join. Perhaps even Japan could have a change of heart. Targets are to be submitted to UNFCCC by 1st May 2012, so not long to wait.
  3. Continuation to 2017 or 2020, to be agreed next year in Qatar. Continuation to 2017 is already a good result and with the Durban Platform starting in 2020, a gap in activity is unlikely – continuation would be simplest, otherwise a 3 year KP3 would make sense.
  4. Overall, the continuation of the KP is a huge morale boost for the climate sector. The KP has been the driver of almost all significant actions to date and, through the CDM, has reached out to both Annex 1 and Non-Annex 1 countries. The KP has galvanized real action in many countries and crucially contains the basis for common accounting unit – an alphabet soup of acronyms including AAUs, CERs, RMUs, ERUs and others.  By securing the future of the KP, we secure the continuation of the accounting framework and of fungibility, with every likelihood that the AAU can continue to be the accounting standard in the long term.

Good-bye Annex 1 Non Annex 1, Hello Durban. The Annex 1 / Non-annex 1 split has well and truly spoilt the party to date. It has been impossible to get the US and BASIC to talk seriously about climate change because of the built-in assumption of guilt and the belief that the Annex 1 Parties should do all the work to atone for their past excesses. The Durban Platform has erased this fundamental divisor. Eight years to 1st Jan 2020 seems like a long way away but in climate change negotiation terms, it’s short.  Quite alarmingly in fact, the nature of the protocol, legal instrument or agreed outcome with legal force must be agreed in 2015 –only 3 COPs away!!

Against this time scale, Parties must start to act, and soon. China’s experimental internal Emission Trading Schemes look well timed. If China starts a nationwide scheme in 2015 or even after that, we can expect that they will look to start consuming their own CERs. Australia’s CPL gets real in mid-2015. The question is, what will the USA do?

Furthermore, the Durban Platform undermines the Japanese Bilateral Offset Mechanism. I guess Japan may be wondering now about the future of a bilateral scheme at a time when the multilateral process has just gotten back on track (the failure of the multilateral process was their main reason for trying to abandon the Kyoto Protocol in the first place).

Post 2012 CERs now look likely to be fungible across a wide range of schemes in the run-up to 2020 and with that should come increased demand and increased value. This could also lead to interesting developments regarding whether all CERs are equal, and how CERs from industrial gas projects, “green” CERs, large scale renewable energy CERs etc. should be priced and where they should be sold, not to mention the fate of hot air AAUs from Russia and Russian Track 1 ERUs.

EU move to -30 per cent? This really would be a crowd pleaser and would cause cheering all around. Even capped industry would be pleased to get a clear signal that the European Commission is really behind this flagship EU policy. It should happen, because the EC was clear that they would move to -30 per cent if other parties took on commitments, which is what they did at Durban.

There is already significant momentum behind the shift to -30 per cent; 26 out of 27 Member States voted in favor and the European Parliament came out strongly in favor in a non-binding debate. Plus, as analysis has shown, the cost is only marginally greater than the predicted cost of moving to -20 per cent and we are practically there already. This move should also be accompanied by several other steps including a transparent mechanism to cancel excess allowances and a clear and final statement on qualitative restrictions on CERs. Now is not the time to hesitate.

It would be unfair to describe the rest of the decisions in Durban as side shows. Perhaps better to think of them as trailers for what’s to come. On the basis of the Durban Platform, a wide range of topics which seemed homeless now have a focus – NAMAs, REDD+, the Green Climate Fund, the Technology Executive Committee, new market based mechanisms etc. With the certainty of a truly multilateral program, all of these now look set to mature into fully functioning initiatives, each of which will provide loads of jobs for … oh sorry, new opportunities to tackle GHG emissions!

Gareth Phillips is Chief Climate Change Officer at Sindicatum.

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