Transcript Copenhagen Accord - Climate Action Partnership

Copenhagen: A Global Assessment
Carbon Markets North America 2010
Miami, Florida
January 21, 2010
Ken Newcombe
CEO
C-Quest Capital
Washington, DC
cquestcapital.com
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“plans,” “believes,” “scheduled,” “estimates” and variations of these words and similar expressions are intended to identify forwardlooking statements. These statements are not guarantees of future performance or actions and involve certain risks and
uncertainties, which are difficult to predict.
Setting the Scene for Copenhagen
Premier Wen and President Obama dramatically lowered expectations for COP15 outcomes at the
November APEC summit by making clear that it was not possible to reach agreement on binding
targets in the time remaining
Copenhagen Outcomes were G2 Dependent:
•
First:
•
•
•
China would not make further emissions reductions commitments without the US passing a
credible, binding carbon cap consistent with long term global targets
The US was not in a position to deliver needed commitment, given domestic constraints
Second:
•
The Obama Administration needed to convince Congress that China is serious. The only way to
do this was by obtaining transparent verification of China's mitigation efforts
• China was not about to allow anyone to measure its activities, certainly not those responsible
for the problem – those who have done little over the past 8 years
These two facts explain the Chinese position in negotiations through the conclusion of COP15.
Mexico Too…
•
•
•
No agreement on binding emissions reductions in Mexico City if the US has not passed a
comprehensive climate bill
US is unlikely to ever ratify a post-Kyoto Treaty, making domestic legislation with globally
consistent long-term goals critical to an international Accord
BASIC countries know the US won’t ratify and will condition further commitments on credible US
domestic action before they advance their negotiating position
What Could We Have Expected?
At Best Copenhagen Would:
• Firmly commit Parties to reach agreement in Mexico, in December 2010
• Define the parameters of an agreement to be worked towards in the interim
• Agree on the design of new elements in the global framework: forest conservation/REDD,
financing for adaptation and mitigation, technology transfer, CDM continuity and reform,
sectoral crediting
The Dual Challenge:
1. Accommodating the US and protecting the Kyoto Protocol
2. Getting around the Catch-22: Deep cuts in OECD versus expanded offset trade
By Copenhagen the Process was Trapped In:
1. The North-South equity dilemma: i.e. “You caused the problem, so you pay for it.”
2. An extremely cumbersome UN process – reaching agreement in a one country-one vote
framework
When 115 heads of State reached Copenhagen there was no text to agree despite two
years of negotiations and 3-4 major meetings a year.
Copenhagen Accord
Given these substantial constraints, the achievement of the Copenhagen Accord (and CoP15) is
significant and has far-reaching consequences for climate – and how future agreements are reached
within the UNFCCC framework. But will it stick?
One Agreement – Breaking the Deadlock




Developed by 30 countries representing 80-85% of global GHG emissions
Explicitly built on the scientific consensus of 2 degree Celsius temperature limit
Offering unprecedented international funding for adaptation and mitigation
Achieved extraordinary support from Parties, despite falling short of adoption: 188
signaling for and 5 opposing following open debate
Global Leadership


United States leadership was essential to break the UN deadlock and construct the
Accord . Without President Obama there it would not have happened
A new US + BASIC (Brazil, South Africa, India, China) dynamic emerged. Is it durable?
Credibility of the Accord is Being Tested Immediately

By January 31, 2010:
 Annex I Parties agree to submit commitments to implement economy-wide
emissions targets
 Non-Annex I Parties will communicate mitigation actions
What will be the level of response?
Source: UNFCCC, C-Quest Capital
Copenhagen Accord – The Details
“The Conference of the Parties, takes note of the Copenhagen Accord of 18 December 2009.”
Global
• Hold global temperature increases below 2 degrees Celsius
Temperature
Target
Emissions Cuts
• Industrialized Parties to submit by January 31st 2010 economy-wide emissions targets
• Developing Country Parties shall report mitigation activities every 2 years
Reducing
Deforestation
• “Crucial role” of REDD plus recognized
• Agrees need for immediate establishment of REDD-plus mechanism and to mobilize
financial resources from developed nations
Market
• Agreed to explore “opportunities to use markets”
Mechanisms
Funding
• “Scaled-up, new, and additional, predictable, and adequate”
• Listed Funding for REDD-plus, adaptation, technology development and transfer, and
capacity-building explicitly listed
• New resources approaching $30 billion total from 2010-2012
• Goal of $100 billion annually by 2020 for developing countries
NAMAs
• Nationally appropriate mitigation actions will be recorded
• Supported NAMAs will be subject to international monitoring and verification
Assessment
• Implementation of the Copenhagen Accord shall be assessed in 2015
• Consideration of strengthening long-term goals, including global temperature increases
Source: UNFCCC, C-Quest Capital
Copenhagen Accord: Last Minute Changes
What was almost agreed in the Accord is just as important. It was a clear signal of intent and would
have been published if China had not signaled disapproval
Final Accord

A view to reduce global
emissions by 50 percent
below 1990 levels, taking
into account the right to
equitable access to
atmospheric space.

A view to reduce
global emissions so
as to hold the
increase in global
temperature below
2 degrees Celsius.

Annex I Parties to the
Convention commit to
reducing their emissions
individually or jointly by at
least 80 per cent by 2050.

Annex I Parties agree to
implement individually or jointly
the quantified economy-wide
emissions targets for 2020… by
31 January 2010.

We call for a review of this 
Accord and its
implementation to be
completed by
2016…”consideration of
strengthening the long term
goal to limit the increase to
1.5 degrees Celsius..
We call for an assessment of the
implementation of this Accord to
be completed by 2015….to
include strengthening the long
term goal referencing various
matters, including in relation to
temperature rises of 1.5 degrees
Celsius
Implementation
Annex I Cuts
Global Cuts
Draft Accord
Source: UNFCCC, C-Quest Capital
Copenhagen Conference – Clean Development Mechanism
CDM reform measures approved are sweeping and comprehensive enabling CDM to become the
anchor in global offset trade at scale with potential post-Kyoto period demand
Market Capacity
Building: Third-Party
Verification by Private
Sector Entities (DOEs)
Accountability: An
Appeals Process
• To avoid market disruption from suspensions and to remove the
bottleneck of third-party validation and verification:
• Streamlined and continuous monitoring and performance reporting of
Designated Operational Entities (DOEs)
• Proactive cooperative measures to increase capacity and performance
of DOEs and to enhance transparency on guidance
• Continuous training on CDM project cycle and increased guidance
• To enable arbitration and recourse against the “Regulator” and its
agents:
• For DOEs under performance improvement measures
• Against decisions by the CDM Executive Board itself
Streamlining:
Registration and
Issuance
Source: UNFCCC, C-Quest Capital
• To make offset project registration and issuance faster and more
predictable
• Speeding up registration and issuance of projects and credits (CERs)
• Making Programmatic CDM easier
• Allowing and encouraging consultation and feedback between the
Regulator, DOEs, and private sector market participants
• Quality assurance on the Regulator – Independent technical
assessment of secretariat analysis
Copenhagen Conference – Clean Development Mechanism
CDM reform measures approved would make CDM to be truly scalable to meet post-Kyoto period,
including North America , Japan and Europe, but reform will take years to fully implement
Extending: Market
• To make CDM easier for low offset supply countries
Reach of CDM by Asset
• Tailoring methodologies to local needs, deferring registration costs, making
DOEs collaborative
• Increased study of CDM potential in low offset supply countries (<10 CDM
projects)
• Agriculture /Soil Carbon, revegetation, wetlands, and grazing lands to be
eligible activities. Replacing temporary credits with buffer reserves, and
insurance mechanisms to cover risk of impermanence (KP draft text, no brackets)
Class and Geography
Sustainable land use
and Agriculture
Standardizing:
Baselines
• To reduce uncertainty and increase efficiency within CDM project approval
process
• Developing broadly applicable baselines
• Considering specific national circumstances as well as environmental
integrity
Simplifying:
Additionality
Source: UNFCCC, C-Quest Capital
• To increase transparency and objectivity in additionality assessment
•
•
•
•
New guidelines for demonstration and assessment of barriers
Standardized calculations of financial parameters
Guidance for project participants on first-of-a-kind barriers
Simplified modalities for renewables projects under 5 MW and energy
efficiency projects under 20 gWh per year
Copenhagen conference – REDD Plus
The REDD agenda was addressed on multiple levels, including the essential link to markets and
private sector investments, including increases in forest stocks (REDD-plus)
Copenhagen Accord


The Accord recognizes the crucial REDD role; endorses mechanism for REDD-plus
Funding to be included for “substantial finance” for activities including REDD-plus
Subsidiary Body on Scientific & Technical Advice (SBSTA) text


Adopted by the Conference of the Parties (COP15)
Requests developing country Parties to:
 Identify deforestation drivers, and also identify REDD activities in-country
 Utilize latest IPCC guidance on REDD
 Establish national monitoring
Ad Hoc Working Group on Long-Term Cooperative Action (AWG-LCA) draft text
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
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Not adopted by the COP15, but hidden reference to market mechanisms and private
sector trade as “results-based activities” and
Bracketed text “flexible combination of funds and market-based sources
REDD-plus incorporates enhancing forest stocks as well as avoided deforestation
Funding

Australia, France, Japan, Norway, UK and U.S. agreed to total $3.5 billion fast-start
financing through 2010. France/Norway taking lead to establish REDD mechanism
Source: UNFCCC, C-Quest Capital
Sea Change in How Agreements are Reached in UN Framework
“You can’t underestimate the breach in the firewall between developed
and developing countries.”
- US Special Envoy for Climate Change Todd Stern on the Copenhagen Accord
Seismic change in global power balance in
evidence in Copenhagen: G2? US +BASIC
Emergence of a fragile consortium of North and South,
eroding historical North-South stalemate
Confusion reigns. COP15 also endorsed continued twin track of Kyoto
Protocol and Long-Term Cooperative Action. Plus Accord makes 3!
Meeting of BASIC countries in Delhi next week will send signal on Accord vs.
Twin Track. But process of reaching agreements has changed inexorably
If you’re confused, you’re not alone!
Country Level Initiatives to Maintain Momentum
The world may wait a long time for a global climate deal, but individual country actions will create
niche markets that will keep carbon trade and investment alive driven by energy security and widely
varying appetite to address climate change regardless of super-power intransigence
Australia
• Reductions up to 25% by 2020, from 2000 levels
• 60% reductions by 2050
China
• Up to 45% reduction in carbon intensity, from 2005 levels
• 15% increase proportion in renewable fuels by 2020
European
Union
• Up to 30% reduction by 2020, from 1990 levels
• Up to 95% reduction by 2050
India
• Carbon intensity reductions of 20% below 2005 levels
Japan
• 25% reductions by 2020, from 1990 levels
• 80% reductions by 2050, from 2005 levels
Mexico
• Reductions of 30% below Business as Usual by 2020
• 50% reductions by 2050, from 2002 levels
United
• Proposed reductions of 17% by 2020, from 2005 levels
• 83% reductions by 2050
States
Source: Sustainability Institute, UNFCCC, H.R. 2454
Opportunity: Containing Global Temperatures
(Increase From Pre-Industrial Levels)
Potential proposals flagged by major emitters North and South amount to a surprising 67GT/year
reductions of 100 GT/yr required reduction avoid a two degree C world
Source: Sustainability Institute, C-Quest Capital
What Does This Mean for the Carbon Market?
Deep US re-engagement in post-Kyoto negotiations is key to economic efficiency and private sector
resource mobilization to manage climate change. But no likelihood of a uniform global market
Unique national and regional paths to long term
targets. No harmonization for at least 5-10 years
Country-unique mitigation strategies, use of markets, and
eligibility of domestic and international offsets/credits
Scale up of domestic emissions reductions efforts will vary greatly,
resulting in constantly changing demand for tradable credits
Fragmented global market, few fungible carbon assets (such as CER’s, ERUs).
Key role for the unique domestic and voluntary market Standards
Long-only carbon positions just became much more risky given global market
uncertainty
Copenhagen Implications: United States
The U.S. has finally and fully re-engaged at the global climate negotiating table, while pressing
forward with a domestic climate agenda
“As the world's largest economy and the world's second
largest emitter, America bears our share of responsibility
in addressing climate change, and we intend to meet that
responsibility…. So America is going to continue on this
course of action no matter what happens in Copenhagen.
But we will all be stronger and safer and more secure if
we act together.”
-President Barack Obama
Copenhagen, December 18, 2009
Source: www.whitehouse.gov
Copenhagen Implications: United States
Efforts in the United States and global climate efforts are mutually dependent on each other
US draft legislation is tied a UNFCCC agreement outcomes in various ways:
 Funding of developing countries to implement a UNFCCC agreement
 Funding of multilateral instruments as part of a UNFCCC agreement
 US use of international offsets must follow UNFCC rules or be issued by UNFCCC entities
 US-approved REDD and A/R must satisfy the UNFCCC rules
What the US needs from global process:
 Improved mitigation transparency from China
and developing countries (major success for US
in Copenhagen)
 Commitment by other OECD States to
commensurate GHG reduction targets
 Adequate burden sharing within OECD of
funding commitments for developing country
adaptation and technology
 Clear and consistent rules for REDD
 Ample supply of CDM credits to lower cost of
compliance domestically
What the US can bring to a global process:
 Funding commitments as seen in Copenhagen
 Senate climate bill passage in the US will remove
major roadblock in negotiations
 Acceptance of international offsets – REDD, ARR
and CDM credits for US compliance
 Support for technology transfer
Copenhagen Implications: United States
International Investment:
1. Expanded Offset Supply: US investors can have increased confidence in
scalability of the CDM following 2-3 years of implementation of agreed reforms
2. Commitment to REDD: International commitment to REDD as a new element in
climate change management under the UNFCCC supports the US domestic
commitment to REDD as a source of international offsets. Bilateral and
Multilateral efforts to create the framework for REDD trade have gained
momentum
3. Markets and Market Continuity: Using markets to support climate change
management is recognized in the Accord, sweeping CDM reform provides defacto support for market continuity, as do long term funding promises
Support for Domestic Policy-Making:
1. Transparency in Implementing Commitments in Large Emitters: Obtaining a
commitment to a Monitoring, Verification and Reporting regime, focused on
China, was a key victory for the US
2. Central Role President Obama in Breaking UN Deadlock: Sends signal of
commitment of Administration to the Climate agenda, and US Climate Bill.
3. US Role in Catalyzing Change in UN Process: Potential sea change in how
agreements are reached in the UN framework should be seen favorably by US
lawmakers to move forward with a climate bill
2010 Challenges: US Climate Bill
“There will be a significant effort on the part of all in the [Obama]
administration to press forward. The president is focused on it…”
- US Special Envoy for Climate Change Todd Stern
An increasingly small window remains for a comprehensive bill in 2010, but we must ask
key questions…
•Kerry-Lieberman-Graham effort
-What are the specifics?
•Congressional Legislative Calendar
-Health Care, Financial Reform, Jobs Bill, Massachusetts?
•Mid-Term Congressional Elections
-No more “tough votes”?
•Economy
-Lingering fears of “jobless recovery”?
•“Cap-and-What”?
-Climate/energy effort re-branded to emphasize “green jobs.” Is
this enough to catalyze a 2010 success?
Source: C-Quest Capital and The New York Times
Meaning of Copenhagen to the US
What happens in the next 6 months in the US has huge implications for our ability to manage
climate change in any coordinated manner globally
This a G2 Game:
•Passage of US climate bill before Mexico is key to a global deal
•China will make no further significant commitments without it
• If no US bill in 2010, when? Will EPA action be seen as a substitute?
An Expedited UN Agreement Process Hangs in the Balance:
• Crucial role of new US+BASIC grouping to de-emphasize the LCA and
Kyoto agreements in favor of the Accord, in preparing for Mexico
The Global Carbon Market will Remain Fragmented:
• Expanded markets and trade is key to mobilizing private capital to
manage climate change
•Market expansion will be delayed further if there is no deal in Mexico
Long-only Carbon Positions are Risky:
• Ample opportunity for profit but diversification in investment strategy
is key
For additional information, please contact:
Ken Newcombe
CEO
Tel. +1 202.416.2400
[email protected]
Phil Ovitt
Sr. Policy Analyst
Tel. +1 202.416.2400
[email protected]
cquestcapital.com