By Ciara Shannon
COP25 was stymied by a failure to agree on market mechanisms and a failure to agree on financing loss and damage for countries being impacted by climate change. Reaching consensus on these decisions has been pushed to next year under “Rule 16” of the UN climate process. Although, this COP was not supposed to announce increased climate pledges, there was still hope that Parties might send a strong message of the need to enhance ambition. This didn’t happen – revealing instead a deep and dangerous disconnect between the UN process, the climate crisis and the loud calls for action from around the world.
Greta Thunberg summed it up well when she said: “Finding holistic solutions is what the COP should be all about, but instead countries find ways to negotiate loopholes, double count and do clever PR to avoid raising their ambition.”
Outside of the negotiating rooms there were many positive announcements. The EU Commission announced it will formally unveil a “Sustainable Europe Investment Plan” on January 8th, 2020 outlining a Green New Deal, that includes one trillion euros of investment over the next decade and a lengthy taxonomy on green standards. One aspect of this is the Just Transition Fund, a mechanism of at least €35 billion that would support “regions most exposed to decarbonisation challenge”. In the future, the Commission plans to mobilise €100 billion worth of investment to help the EU’s economies transition away from fossil fuels. The announcement that revenue from Germany’s carbon emissions from heat and transport will be used to pay to support the country’s just transition was also welcome news.
Plus, some 73 governments, 14 regions, 398 cities, 786 businesses, 16 investors and 2,100 signatories of the ICC Chambers Climate Coalition committed to achieving net-zero CO2 emissions by 2050 through the Climate Ambition Alliance.
Tricky Negotiating Points at COP25
A difficult negotiating point was Article 6 – the rules for “the use of internationally transferred mitigation outcomes” also known as carbon trading. A key aspect of this is how to deal with existing credits in the Kyoto Protocol’s Clean Development Mechanism (CDM). Australia, Brazil and the US blocked progress on Article 6 (note the US is leaving the Paris Agreement, but remains a (blocking) party until next year). The draft final text proposed that Kyoto-era credits could be accounted against climate pledges until 2025, a view that many countries found unacceptable and many of the details of what this means remain vague with many saying: “No Deal is better than a Bad Deal”.
Australia (the third biggest fossil fuel exporter and 16th largest emitter of absolute emissions ) is a good example of a country wanting to use a double counting ‘loophole ‘ to claim its 367 Mt of Kyoto Protocol credits and ‘carryover’ these over towards meeting their Paris commitments. Including carryover credits could cut Australia’s 2030 target to a 14% cut, even though their emissions from transport, industry, deforestation and fossil fuel extraction continue to rise. According to Climate Analytics, if Kyoto carryover units are allowed to be used to meet the #ParisAgreement they could lead to an additional 0.1˚C of warming or more, that what would not have otherwise occurred.
To counter this, 31 countries led by Costa Rica published the ‘San Jose Principles‘ minimum standards for carbon markets that rule out double counting and use of Kyoto-era credits.
Despite the uncertainty of the rules governing carbon markets, some 40 countries (including the US, EU and China), 20 cities, states and provinces already use carbon pricing mechanisms covering about half their emissions or equal to about 13% of annual GHGs. Carbon markets are often favoured as they enable countries to decarbonise their economies at a lower cost. All emissions trading markets operate in a similar manner: – the regulating body sets a cap on emissions and divides this into allocations for each smaller division, a state for example. The state then determines the levels each individual polluting company can emit.
Applying meaningful carbon pricing – be that tax or trade, is critical to reducing GHGs and it has been said that a carbon price of between US$50-$100 per tonne will be needed by 2030 to deliver on the Paris commitments. (Stern, 2017).
Whenever I think about carbon trading, I think first about carbon “cowboys” and then John Maynard Keynes who once famously dismissed an optimistic view of market forces by arguing that classical economical theory might be right in saying that, in the long run, markets would always find a way to solve problems and regulate themselves. But, he added, in the long run, we are all dead.
I also think, so far, the rule of thumb has been that ‘polluter profits’ rather than ‘polluter pays’. In the past, in addition to cap and trade, the CDM did not represent an “emission reduction”, as there was no global benefit because offsetting became a “zero sum” game. An example being that if a Chinese mine cut its methane emissions under the CDM, there was no global climate benefit because the polluter that bought the offset avoided the obligation to reduce its own emissions.
I will write more on this once the new rules on Article 6 are clearer on ways the new market, referred to as the “Sustainable Development Mechanism” (SDM) will replace the CDM. In the meantime, see Carbon Brief’s good overview here.
Loss and Damage
Another tricky negotiating point was financing the Warsaw International Mechanism for Loss and Damage (WIM), that was created in 2013 at the Warsaw COP to address climate liability of developed countries in addressing the damages already incurred by developing and vulnerable countries. A technical point was whether the WIM is under the Paris Agreement’s Green Climate Fund, Adaptation Funds or the UNFCCC Conference of Parties (COP). However, a US-led group, blocked it from becoming a financial instrument, fearing it would open a Pandora’s box.
Previously, there has been no additional financial support allocated for loss and damage and many developing countries think it should not be channelled from finance for adaptation or mitigation. Instead, finance for loss and damage needs to be its own funding mechanism – additional and predictable to allow countries to plan and respond effectively.
Groups such as the Least Developed Countries (LDC) Group, the Africa Group of Negotiators (AGN), the Alliance of Small Island States (AOSIS) and the Latin American group (AILAC) – wanted a bespoke funding facility set up to compensate the victims of climate change. However, many developed countries instead discussed insurance saying it is the only mechanism they will consider.
Tensions escalated when some developed countries threatened to invoke Paragraph 51 of Article 8 which says developed countries cannot be held responsible or accountable for the losses and damages that developing countries have, are, and will experience, either by way of compensation or by legal means.
Disappointingly, requests for additional finance to help developing countries deal with loss and damage were not included in the draft final of the text. Instead, the text called for finance to be scaled-up, a reference was made to ‘the importance of scaling up the mobilization of resources’, and the board of the Green Climate Fund was invited […] to continue providing financial resources. An expert group, the Santaigo Network was formed to explore further ways of supporting vulnerable countries.
Civil society groups (and others) for some time now have spoken about a Climate Damages Tax that are ‘polluter pay’ sources of finance including, for example, a climate damages tax on the fossil fuel industry, international aviation and maritime to pay for the transition to renewable energy, green transport and jobs etc.
A report by Climate Analytics (2015) for Oxfam estimates that economic damage for developing countries could be US$ 428 billion per year (about 0.61% of GDP) by 2030 and goes up steeply to US$ 1.67 trillion per year (about 1.3% of GDP) by 2050 for 3 ºC of warming.
In addition to loss and damage, climate finance was addressed in a number of the negotiation streams, in connection to Long-Term Finance ie. mobilizing US$100 billion by 2020, but there was no decision reached on this financial support from developed countries to developing countries. Understandably, this caused anguish among several developing countries who were concerned that some Parties were backsliding on the Paris Agreement. There was also discussions on the Green Climate Fund, reporting on climate finance and support for the implementation of the Gender Action Plan.
Country Rankings – Leaders and Laggards
The Climate Change Performance Index (CCPI, 2020), published by Germanwatch, NewClimate Institute and the Climate Action Network (CAN) was released at a side event at the COP. Top four performers on overall results are Sweden, Denmark, Morocco and the UK. Bottom four performers: Korea, Taiwan, Saudi Arabia and the United States sinking to the bottom of the ranking. Denmark is high up due to national policy changes including the adoption of a national climate law, a 70% emission reduction target by 2030 and an official coal-phase out target. Poland is the worst performing EU country due to its increase of GHGs and low level of investments in renewable energy, as well as its opposition to the EU’s climate neutrality by 2050 goal and its plans to open new coal mines. (see my next post for more on this).
The CCPI 2020 (considers 57 selected countries and the EU) and is based on a methodology covering GHG Emissions, Renewable Energy and Energy Use. The Index is useful as it provides a comparison of the climate performance of countries that together are responsible for more than 90% of global GHGs.
Is IEA Fit for Purpose?
Throughout the corridors of the COP, there was a growing chorus of criticism against the International Energy Agency’s (IEA) energy modelling as being too fossil-fuel friendly. In their World Energy Outlook (WEO 2019) report, their most ambitious scenario, the Sustainable Development Scenario (SDS) doesn’t go far enough in mapping the deep cuts in carbon emissions needed and models net-zero carbon emissions from energy by 2070 (ie. 20 years too late). Their modelling holds important sway as it is used by governments to inform (and justify) energy policy, investment and infrastructure decisions and it’s a real concern that the IEA only dedicated a few pages to a 1.5°C trajectory, while the rest of the report outlined unacceptable levels of warming with not enough on the potential of renewables. See Oil Change International’s analysis here.
UK Green Finance and Buildings
A new Coalition for Energy Efficiency of Buildings (CEEB) was announced by the Green Finance Institute which aims to develop the market for financing net zero and carbon resilient buildings in the UK. The CEEB will develop some scaleable demonstrators of new financial solutions and outcomes of the CEEB’s market review will be published in Spring 2020. This is another positive intiative as there are 29 million homes in the UK which need to become low carbon.
Another strong voice pushing for greater policy ambition came at the High-Ambition Day at COP25 from 177 leading businesses that signed the 1.5ºC pledge to set science-based targets across their operations and value chains. Business are seizing the opportunities of zero carbon and they are innovating and disclosing probably faster than any other sector.
Over 8,400 companies have disclosed their carbon through CDP, 732 major corporations have signed up to science-based targets and 211 companies have made a commitment to go 100 % renewable (RE100) (by no year). Over 50 companies in the fashion industry have committed to align with a 1.5ºC future through the Fashion Pact. Plus, traditionally hard to abate sectors such as cement and steel are making progress and trailblazers are thyssenkrupp AG, Royal DSM and HeidelbergCement.
Many large companies are already using internal carbon pricing as a shadow price which is added to future investments and operational costs and this is done to ‘price-in’ and prepare for climate policy decisions and carbon pricing mechanisms.