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 CO 2 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 CO 2 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

14 13 12 550 11 10 9 8 7 6 5 1970 1980 1990 2000 2010 2020 2030 2040 450 Source of stabilization paths: IPCC WGIII chapter 2, post SRES scenarios, CO2 only

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 Target emissions level for CO 2 stabilization Short term

2015

Mid term Time

2030

Long term

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

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

Financial Flows to Developing Countries from Industrialized Countries, 2000

Other Multilateral Institutions 4% These flows are the financial footprint of industrialized countries in developing countries and a means of influencing the technologies used in the future.

Development Banks 6% Bilateral Aid 12% International Finance Corp.

2% FDI 43% 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 Other private 27% FDI covered by ECA investment insurance 6%

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 [email protected]

, [email protected]

http://www.ccap.org