Sustainable Development: Nowhere to Hide - Latest Legal Developments

Dr. Anita M. Halvorssen Global Legal Solutions, LLC March 1, 2005 Copyright © 2004 by Anita M. Halvorssen

I. Main Focus

• 1. What is sustainable development?

• 2. Corporate Social Responsibility • 3. UN Framework Convention on Climate Change (UNFCCC)

and Kyoto Protocol (KP)

• 4. Emissions trading • 5. How will the Clean Development Mechanism (CDM) work?

I. What is sustainable development?

• • • • • • Brundtland definition - WCED Economic growth is the means to meeting the needs, but not with “business as usual” in other words, sustainable development is the integration of economic, environmental and social elements.

Sustainable development – principle of reconciliation (Case Concerning Gabcicovo-Nagymaros Project – 1997 – ICJ decision) Rio Conference - Rio Declaration Principles and how these are reflected in newer legal instruments New Delhi Declaration - Declarations of Principles of International Law relating to Sustainable Development World Summit on Sustainable Development (WSSD) – 2002 Johannesburg Plan of Implementation

Sustainable development-1

• • • • Sustainability of ecosystems on which the global economy depends must be guaranteed, sustainable development necessitates respect for the environmental life-support system of the planet and its renewable capabilities, living off of nature’s “income” rather than dissipating its capital. Conserving the capacity to produce economic well-being for the very long term.

Economic growth is based on energy. A safe and sustainable energy pathway is crucial to sustainable development.

We need to produce more energy without destroying the environment. To prevent dangerous climate change we need to move toward a society with significantly reduced emissions of greenhouse gases WSSD Johannesburg Plan of Implementation – “substantially increase the global share of renewable energy sources with the objective of increasing its contribution to total energy supply…”

Rio Declaration

• • • • • • Principle 4 – environmental protection shall constitute an integral part of the development process and cannot be considered in isolation from it.

Principle 3 – The right to development must be fulfilled so as to equitably meet developmental and environmental needs of present and future generations Principle 5 – eradication of poverty – an indispensable requirement for sust. dev.

Principle 15 – precautionary approach – “threats of serious or irreversible damage, lack of full scientific uncertainty shall not be used as a reason to postpone cost-effective measures to prevent environmental degradation” Principle 16 – polluter-pays principle “ internalisation of environmental costs… polluter should in principle bear the cost of pollution” Principle 17 – environmental impact assessment

New Delhi Declaration

• • • Declarations of Principles of International Law relating to Sustainable Development • • • • 1. The duty of States to ensure sustainable use of natural resources 2. The principle of equity and the eradication of poverty 3. The principle of common but differential responsibilities 4. The principle of the precautionary approach to human health, natural resources, and ecosystems 5. The principle of public participation and access to information and justice 6. The principle of good governance 7. The principle of integration and interrelationship, in particular in relation to human rights and social, economic, and environmental objectives

Sustainable development-2

• • - IS FOSSIL FUELS A SUSTAINABLE ENERGY SOURCE?

Four ways to look at it : • - 1. Non-renewable. No more fossil fuels for future generations? Takes millions of years to replace, hence unsustainable • - 2. Fossil fuel extraction represents a natural asset that is converted to financial wealth for future generations (social and economic capital) • - 3. Impacts on environment and society are so great as to be non-sustainable • - 4. The problem being not that the fossil fuels will run out, but that the demand for the resource may disappear – consequences for the fossil fuel producer in developing countries; their dependence on oil & gas export combined with weak government, implies that the economy, the state, the social and economic system is dependent on the volatile commodity prices. There is a close correlation between the countries rich in natural resources and the countries with high levels of poverty. •

Sustainable development-3

• Best case scenario: governments establish a petroleum fund investing some of the surplus from the more profitable years and saving it for the less profitable years • Converting the extracted resource from the underground account of the nation into an equivalent or higher unit of social and economic capital, enabling the state to promote sustainable development.

Sustainable development-4

• Implementing sustainable development: – Treaties and other instruments that use sustainable development: – – – - WTO, EU Treaty, NAFTA, etc.

- Mulitilateral environmental agreements (MEAs) - Kyoto Protocol, Biodiversity Convention, etc.

Practice of international financial institutions (e.g.World Bank) Corporate social responsibility (CSR) Extractive Industries Transparency Initiative (EITI)

Good Governance

The developing countries must use modern forms of natural resource agreements (concessions, licenses), regulations, taxation systems, and have institutional structures in place in order to transform the revenues from natural resource exploitation into economic and social capital with a long-term societal rate of return. • • Extractive Industries Transparency Initiative (EITI) Goal: increase transparency in transactions between governments and companies within extractive industries. Initiative announced at World Summit on Sustainable Development (WSSD) 2002 by Tony Blair, Uk Prime Minister.

There is a close correlation between the countries rich in natural resources and the countries with high levels of poverty.

EITI

• Transparency over payments and revenues increases accountability and therefore the likelihood that the revenues generated by the development of natural resources are used in an efficient and equitable manner leading to sustainable development. It can also reduce the risk of diversion or misappropriation of resources. EITI Implementation • Azerbaijan, Ghana, the Kyrgyz Republic, and Nigeria are the first countries working to implement EITI. Discussions on possible implementation are ongoing in several countries including: Angola, Chad, the Republic of Congo, Gabon, Sao Tome and Principe, and Timor Leste.

II. Corporate Social Responsibility (CSR)

(also called coporate citizenship, ethics, etc.) • • • • • • • • • Sustainable development at the corporate level – voluntary codes or standards Starting point: Profit – if the company spends money that ultimately decreasing its profits – shareholders should sue the company However, need to take the long-term view in weighing the costs and benefits of the various activities - Making good economic sense for the company Holistic view - business as a stakeholder in society - Annual sustainability reports - measurement tools - determine whether it is making progress toward its sustainability goal - multinational corporations are increasingly focusing on the needs of all of their stakeholders, especially in the communities where they are located.

- environmental and social impact management - sustainability is a business philosophy - see also Equator Principles – affecting the banks lending for the projects

CSR - UN Global Compact - includes 2,000 corporations

• • • • • • • • • • • • • • • • –seeks to make globalization more equitable, thus more sustainable Human Rights Principle 1 : Businesses should support and respect the protection of internationally proclaimed human rights; and Principle 2 : make sure that they are not complicit in human rights abuses. Labour Standards Principle 3 : Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle 4 : the elimination of all forms of forced and compulsory labour; Principle 5 : the effective abolition of child labour; and Principle 6 : the elimination of discrimination in respect of employment and occupation. Environment Principle 7 : Businesses should support a precautionary approach to environmental challenges; Principle 8 : undertake initiatives to promote greater environmental responsibility; and Principle 9 : encourage the development and diffusion of environmentally friendly technologies Anti-Corruption (new in 2004) Principle 10: Businesses should work against all forms of corruption, including extortion and bribery.

CSR – success story - 1

• - Chevron – Kutubu oil field, Papua New Guinea • - importance of avoiding very expensive environmental disasters – save money in the long run • - public expectations - Papua New Guinea – weak centralized government - central government lacked the ability to prevent disruptions – (see Bougainville copper mine – shut down by landowners angry at environmental damage in 1989)

CSR -2

• shows the value of anticipating global trend of increasing government environmental standards • cheaper to build a clean facility than retrofitting later to comply with tighter government standards • competitive advantage – good envtl reputation – can be part of the reason for Chevron’s success in winning a bid for a contract for development of oil/gas field in the North Sea. • long range outlook of oil companies – predict likely alternative scenarios for the state of the world 30 yrs. from now

III. CLIMATE CHANGE - the Science

EPA

1. The Science

• • Latest: Two weeks ago leading US climate researchers at the Scripps Intstitute presented the “most compelling evidence” that human activities are responsible for global warming, not natural climatic fluctuations, using the oceans rather than the atmosphere.

• The likely impacts of climate change include more frequent severe storms and droughts, sea level rise, ice cap and glacier melt, large-scale species extinctions, spread of disease carriers (of malaria, etc.) to more northernly latitudes, and millions of refugees - environmental refugees by 2050

2. UNFCCC – adopted 1992 189 State Parties

• • • • A. Objective - Article 2 – achieve stabilization of atmospheric concentrations of GHG… B. Principles – Sustainable development Art.3(4) Precautionary principle Art.3(3) Common, but differentiated responsibilities Art.3(1) C. Commitments - Article 4(1) all Parties develop national inventories of anthropogenic emissions and measures to mitigate climate change D. Industrialized states to take the lead in reducing GHG emissions Art. 4(2) just aim – Annex I (industrialized) Parties - return GHG emissions to 1990 levels by 2000 (non-binding commitments)

2. UNFCCC (continued)

• E. Reporting requirement Art.12 – (binding commitments) - Annex I Parties and non-Annex I Parties (developing countries) • F. Financial mechanism Art.11 for technology transfer Art. 21 – Global Environment Facility (GEF) • G. Conference of the Parties - COP-1 Berlin Mandate (1995) more action needed to be taken – binding reduction commitments resulted in :

3. The Kyoto Protocol - Only just getting started

• • • • • • 141 Parties A. Adopted in 1997 at COP-3 B. Art.2, Art.3 – Core commitment – reduce overall emission by 5% below the 1990 level in the first commitment period 2008-2012 C. Art.9 – review of Protocol, D. Art. 10 – reaffirms commitments in UNFCCC, Art.4(1)(c) transfer of, or access to environmentally sound technology to developing countries E. Art.11 – financing by Annex II countries (OECD),

3. The Kyoto Protocol (continued)

• • • • • F. Institutions: Art.13 - COPs , Art.14 - Secretariat, Art.15 - Subsidiary bodies G. The Kyoto Mechanisms – flexible mechanisms Art. 6 joint implementation Art.12 clean development mechanism, Art. 17 – emissions trading H. Article 18 – Non-compliance mechanism I. Article 25 - Entry into Force – February 16, 2005 J. Marrakesh Accords at COP-7 operationalized Kyoto Protocol

IV. Emissions trading – Kyoto Art.17

• • • • Cap and trade – Kyoto Protocol, Annex B commitments Emissions trading - Annex I Parties (industrialized countries) acquire units from other Annex I Parties and use them towards meeting their emissions targets under the Kyoto Protocol. Enables Parties to make use of lower cost opportunities to reduce emissions, irrespective of the Party in which those opportunities exist.

Emissions trading -2

• Annex I Parties may therefore prepare to sell units when they do not require them for compliance with their own emissions targets • Annex I Parties required to hold a minimum level of units in its national registry to avoid “overselling” units and subsequently being unable to meet their own emissions targets • Emission trading “shall be supplemental to domestic actions”

Emissions trading -3

• Emission credits – - need a strictly enforced cap – make CO2 credits scarcer, hence more valuable, increasing incentive for business to control emissions • European Union Emission Trading Scheme (ETS) launched January 1, 2005 - $9 pr. ton carbon • The carbon price is the price of an allowance to emit one metric ton of carbon dioxide

V. Clean Development Mechanism (CDM) Kyoto Protocol Art. 12 • A. Projects carried out by Annex I Parties in non Annex I countries • B. Cost-effective way for Annex I Parties to meet their binding emission reduction commitments - issued Certified Emission Reductions (CERs) - use against their emission limitation commitments • C. Promote sustainable development for developing countries - transition to more sustainable energy use - capacity-building

CDM

• D. Involvement by private entities • E. Market mechanism - attract foreign investment • F. Additionality and supplementarity • G. CDM CERs generated from the year 2000 • H. 2% from proceeds from CDM projects (CERs) - to assist developing countries most vulnerable to climate change to meet adaptation costs

Implementation of the prompt start of the CDM

• • • • • A. Establishment of CDM institutions and procedures.

B. Simplified modalities and procedures for small scale project activities (renewable energy projects < 15MW capacity) C. Procedures for accrediting operational entities (OE) and establishment of accreditation panel D. Procedures for approving new methodologies (baselines and monitoring) – of the 56 received, 11 were approved E. First version of Project Design Document (PDD) – 17 PDDs out for public comment (Georg Børsting, CDM, EB)

CDM

Institutions/actors • • • • • • • • • • A. COP/MOP (COP until Kyoto Protocol enters into force) B. CDM Executive Board (EB) – supervise the CDM, incl. registration of project activities and issuance of CERs C. Panels established by the EB: – Accreditation panel (w/ assessment teams) – Methodology panel – (Working group on Afforestation and Reforestation project activities) D. Operational Entities (OE) – validation and certification ------------------------------------------- E. Parties F. Hosts (Non-Annex I Parties or private entities in developing countries) F. Investors (Parties or private entities) F. Designated National Authorities (DNA) G. Stakeholders (from Georg Børsting, CDM, EB)

CDM Project Cycle

• • • • • • • Project design document (PDD) – document with information on a proposed CDM project submitted for validation Validation -Independent evaluation of a CDM project by an operational entity (accredited by the Executive Board) Registration –Formal acceptance by the Executive Board of a validated project. Monitoring -Collect and archive all relevant data for determining GHG emissions during the crediting period Verification - Determination of GHG emissions reductions as a result of the project by an operational entity Certification - Written assurance by an operational entity on achieved GHG emission reductions stated during specified time period Issuance of certified emission reductions (CERs) –On the basis of the certification report, the Executive Board issues CERs UNCTAD/DITC/TED/2003/1

CDM

SECTOR SCOPE FOR ACCREDITATION (Some Examples) • • • • • • • • • • • 1. Energy industries (renewable-/non-renewable sources) 2. Manufacturing industries 3. Chemical industry 4. Construction 5. Transport 6. Mining/mineral production 7. Fugitive emissions from fuels (solid, oil and gas) 8. Solvents use 9. Waste handling and disposal 10. Afforestation and reforestation 11. Agriculture http://cdm.unfccc.int/

CDM Approved methodologies ( some examples)

• • • Grid connected biomass power generation that avoids uncontrolled burning of biomass GHG emission reduction through landfill gas capture and flaring - baseline established by a public concession contract Methane recovery from landfill gas used for electricity generation • • • • Industrial fuel switching from coal and petroleum fuels to natural gas for landfill gas recovery Small scale (less then 60 MW) hydro replacing power from grid Oil field associated gas utilization (flaring conditions displacing energy in use) Biomethanation of municipal solid waste (less than 50% compliance with MSW rules) http://cdm.unfccc.int/

USEFUL LINKS

• • • • • • • • • http://www.iisd.org/ - International Institute for Sustainable development http://www.eitransparency.org

- Extractive Industries Transparency Initiative http://unfccc.int/resource/guideconvkp-p.pdf

-A Guide to the Climate Change Convention and its Kyoto Protocol http://cdm.unfccc.int/ - Clean Development Mechanism http://climate.wri.org/ World Resource Institute http://scrippsnews.ucsd.edu/article_detail.cfm?article_num=666 - Scripps Institute of Oceanography http://europa.eu.int/comm/environment/climat/emission.htm

- European Union Emission Trading Scheme http://www.ieta.org/ieta/www/pages/index.php?IdSitePage=431 - International Emissions Trading Association http://www.globallegalsolutions.org/ - Global Legal Solutions, LLC.