The U.S position on Climate Change is overshadowing all other discussions in the lead up to Copenhagen, even at a conference I recently attended in Melbourne Australia - the 5th Australia-New Zealand Climate Change & Business Conference, August 24-26th. The Australian position requires global consensus for a greenhouse gas emissions target by 25% with a successful Post 2012 Agreement in place, but only 5% if that is not concluded. It all depends on what the U.S does in Copenhagen according to their minister Penny Wong.

The European Union is the only group that will continue with strong commitments independent of the U.S position with a 20% reduction of greenhouse gases on 1990 levels by 2020 and 30% if a global agreement is concluded.

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India’s environment minster has announced that his government plans to invest $200 million in the conservation of forests in the country. His ministry will also measure and report the amount of carbon the forests capture.

While announcing the scheme, the minister reiterated his government’s stance that conservation and protection of forests is one of the most important aspects in the global fight against climate change. In addition, stopping deforestation and reforestation are the simplest and one of the most cost efficient methods of offsetting carbon emissions.

The Indian government carefully timed the announcement of such plan given the increasing pressure from developed countries to commit of some kind of emission reduction goals. China is already in talks with the United States for a potential deal on reduction of sectoral carbon emissions and India, being the other major developing country, is feeling the mounting pressure.

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During one of the many meetings preceding the Copenhagen round of talks scheduled to take place in December, the developed countries have tentatively agreed on a plan to collectively raise $100 billion per year in order to provide financial support to the poor and developing nations as they try to make the transition from fossil fuels to clean energy sources.

Funding for the international adaptation fund has been one of the contentious issues during the negotiations for the next climate treaty and the global recession has made it even worse with many countries showing reluctance in providing monetary support to developing and poor countries citing problems like unemployment and dropping GDP back home.

The problem is not only ‘who would pay how much’ but also ‘who gets how much’. As far as the first issue is concerned, the European Union had pledged monetary help for the developing and poor nations but failed to reach a final decision since there were no signs of support from the United States. While the EU has its Emission Trading System, the United States is yet to start its carbon trading scheme.

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China is building four to six coal reserves each with capacity exceeding 20 million tonnes in order to address the problem of shortage of the fuel. Meanwhile, Chinese officials also called upon the leaders of developed nations to set ambitious carbon emission reduction goals.

China is the world’s largest coal producer and consumer but lately the demand has outpaced supply, a trend likely to continue into the next year. To address this gap in demand-supply China’s National Development and Reform Commission (NDRC) has planned to build coal reserves in the the eastern province of Shandong which will be ready within three to five years. According to the officials of the NDRC, the stockpiles are meant for use with the province only and China has substantial coal supply on the national level.

Coal remains China’s primary source of energy and it is also exported to many neighboring countries as well. Easy and plentiful availability of coal is one of the major reasons behind China’s strong resistance to any kind of emission reduction targets. Instead, officials from the NDRC itself called upon the developed nations to commit to more ambitious emission targets closer to 25 to 40 percent by the year 2020 from 1990 levels.

Reports about shortage of coal reserves have been doing the rounds lately with some of them predicting a peak in coal supplies by 2025. India, too, has been facing shortage of coal.

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China has indicated that it is willing to give ground on the issue of reduction of its carbon emissions. First indications of change in China’s stance on this issue were noticed by the British Climate Secretary Ed Miliband during his visit to Beijing.

The change in China’s stand on the issue of controlling its carbon emissions came after President Obama admitted that the United States has a historical responsibility for reducing carbon emissions and promised bold actions to do the same. President Obama has already set a goal of 14 percent reduction in US’ carbon emissions by 2020 from 1990 levels apart from the billions of dollars of investment plans in renewable energy.

China, the world’s largest polluter, had maintained that the developed nations must do more to reduce their carbon emissions before asking the developing nations to join any mandatory emission cuts deal. And with EU, which has a 20 percent reduction goal by 2020, and now US promising to cut emissions China had no other arguments left. Still the Chinese officials maintain that the developing countries must go for ambitious reduction goals while the developing countries are allowed to opt for smaller but significant reductions.

China has always maintained that it would require monetary and technical help to reduce the carbon emissions from its industrial sector. China is the biggest beneficiary of the Clean Development Mechanism and receives investments for green projects by selling emission rights to developed countries. Now the developed nations have come forward with more assistance for China.

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The Copenhagen round of talks aimed at building a consensus about the features of the next climate treaty is scheduled to take place this December however, there seem to be no signs of consensus over how the world should proceed to reduce its carbon emissions. Which tool would be most effective? Clean Development Mechanism, a global carbon tax or maybe a global carbon labelling law?

Clean Development Mechanism has been tried, tested and, well, has been branded somewhat ineffective by not only the people outside the system but the people who are actually a part of it, the United Nations Framework Convention on Climate Change (UNFCCC). Bureaucratic delays, procedural wrongdoings in approval of projects and failure to make any difference at the grass-root level are some of the well known problems with this scheme.

The European Union has proposed that the CDM be replaced by a global carbon tax. United States saw a national carbon tax bill introduced in the Congress. The bill calls for levying an ‘carbon equivalency fee’ on imported products, in addition to the nationwide carbon tax in order to neutralize the losses incurred by domestic manufacturers. China has opposed this move saying that the developed countries are in part responsible for the emissions as they are the end users. 

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A week ago, Rep. John B. Larson introduced the America’s Energy Security Trust Fund Act of 2009 in the US Congress. The bill which has evolved from its previous version has advocated a nationwide carbon tax in addition to an ‘equivalent’ tax on the imported carbon intensive goods. The bill also proposes to neutralize the impact on the working class by giving out carbon tax rebate.

Calls for a carbon tax have been increasing ever since President Obama took office. In order to achieve energy independence and reducing carbon emissions due to the country’s ‘historical responsivbility’, President Obama proposed the implementation of cap and trade scheme. The administration feels that such a scheme would not only check the nation’s carbon emissions but would also generate much needed income.

The European Union also proposed that the Clean Developments Mechanism be replaced by a global carbon tax. Citing the drawbacks of CDM, like lack of transparency and beaurcratic delays, the EU proposed that a carbon tax seems to be the simplest and most effective method to meet emission targets and help getting developing countries access to the clean technologies.

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With eyes on the Copenhagen talks for discussion on the next climate policy, the European Union plans to propose a tax on the carbon emissions of the developed nations, a move which could generate more than $200 billion by 2020. These funds will be used in helping developing and poor nations move from fossils fuels based energy systems to those based on renewable sources.

The European Union proposes that carbon offsetting through the trade of carbon credits under the Clean Development Mechanism be phased out and replaced by a scheme under which the developed nations would commit to cut their carbon emissions but would also pay taxes for extra emissions. The proposal also calls for a similar scheme for the ‘advanced developing nations’ like India and China but fails to clarify its nature.

Carbon offsetting cannot be pursued as a long term solution to mitigate the global carbon emissions and thus the Clean Development Mechanism should be seen only as a transformational step and not the solution to the problem. Replacing carbon offsetting with binding emission reductions seems to be the obvious next step but one has to ask if the world can afford a climate tax at this time of economic meltdown.

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While reporting a 50 percent increase in the number of projects approved under the Clean Development Mechanism (CDM), the administrators at the U.N. Framework Convention on Climate Change (UNFCCC) acknowledged that the carbon trading system requires an overhaul. This is the first time that the UNFCCC has conceded to the fact that the CDM has loopholes which need to be filled in order to make the next climate treaty a success.

CDM is a tool incorporated in the Kyoto Protocol which helps industrialized nations to meet their emissions-reduction targets through investments low-emission projects in the developing world. It has been an instrument to spread clean energy use across the world and providing monetary assistance to the developing countries to reduce their carbon emissions. But the mechanism has had its fair share of criticism.

Critics say that projects which could have been set up without any monetary help have also been incorporated in the CDM. Many other projects which pose potential environmental threat have been approved to sell carbon credits. While approving projects like wind farms for selling carbon credits it must be ensured that the ecology of the area is not going to face any adverse effects, that no trees are cut to make space for the wind mills and that the local population has no objections with the project. These aspects have been ignored so far.

If a project has been established then it should not be considered in the application process. Thorough checks and extensive studies about the ecological, environmental and socio-economic effects must be made mandatory before the any project is approved for selling carbon credits.

For instance, for a hydroelectric project, it must be check if the displaced people have been successfully relocated to new areas, what biodiversity has been lost due to the submergence of land and what are the plans initiated to replenish it and whether the company/government has any plan about managing the methane emissions generated from the project.

Companies in India and China, which sell the lion share of global carbon credits, try to find ways of convincing their respective environmental ministries which further their recommendations to the approval agencies hired by UNFCCC. Therefore, it is important that more transparency brought in the manner in which these agencies go through the procedure of approving projects.

Taking yet another example, the Delhi Metro Rail Corporation (DMRC) sells carbon credits under the CDM scheme for using the eco-friendly regenerative braking system in its trains. Now, the DMRC is one of the very few metro projects in the world which manage to generate profit so why does it require money to finance this braking system. More than half of this long-term metro project has been completed and Japan has provided a major portion of the funds but now DMRC is planning to get CDM approval for the whole project itself. The DMRC wants to get approval for selling carbon credits as commuters have shifted from buses/cars thus reducing carbon emissions.

The developed nations are least bothered as they are concerned only with meeting the set emission reduction goals while the developing countries are happy to receive practically free funding for their projects. But if transparency and responsibility is not brought into the system, this whole carbon offsetting scheme would be reduced to a mere eyewash.

Instead of monetary investments technological help should be extended to the developing and poor countries because it is difficult to keep track of the funds. Every entity involved in the process - the project managers, the company involved, the environment ministry and the approving agency - must be made accountable for its actions. We must stop fooling ourselves by selling and earning credits because in reality we have to go a very long way before the rising carbon emissions could be curtailed.

Image source: lamusa at Flickr under Creative Commons License.

The developing world response

Alex Wyatt from Climate Bridge, articulated the fundamental approach of the developing world. China and India believe that historical emissions are the way to allocate the burden of responsibility, as they did not create the problem. “ It is a human rights issue - they have the right to lift their people out of poverty,” said Wyatt. He indicated that the developed nations are asking countries to take on responsibilities for greenhouse gas reduction, in nations where 40% of the population live on less than $1.25 per day and 50% on less than $2 per day.

China is not doing nothing, it is quite proactive and recognises the problem of growing greenhouse emissions. It has adopted renewable energy targets of 20% by 2020 and of the $586 billion stimulus package to be spent in the next 2 years, $260 billion is going to the Clean Tech sector according to Wyatt.

A compromise position is one whereby, ‘emerging’ developing countries would ‘graduate’ in terms of their greenhouse gas reduction responsibility.  Some least developed countries (LDCs) like Bangladesh concur. LDCs like Africa should not be treated on the same basis as the emerging nations of Brazil, Russia, India and China (BRIC nations). They should be assessed in the post-2012 period on the basis of their level of economic development; capacity to act; contribution to global GHG emissions per capita; GDP per capita; current OECD membership and mitigation potential.
Advanced developing countries measures could include national emission caps; intensity targets; energy efficiency commitments; and sectoral intensity targets. India, Saudi Arabia, and China are firmly against reclassification, rejecting the idea of differentiation based on contemporary levels of development, rather seeing differentiation based on historic responsibility.

National caps are unlikely, but the compromise could be that sector caps will be applied to the BRIC nations. If this occurred the Clean Development Mechanism (CDM) would remain outside the capped sectors in the BRIC nations but remain intact in the least developed countries like Africa, Bangladesh and the Pacific. ACES provisions allow for the purchase of international offsets (CDM) from developing countries in order for the U.S to reach its targets at the least cost of abatement.

A new program called REDD (Reducing Emissions from Deforestation and Forest Degradation) will assist the advanced developing countries move into the Post 2012 Agreement as well as adaptation measures, technology transfer, and finance. A REDD mechanism means developed countries pay developing countries to reduce deforestation, as de-forestation in the tropics represents about 50% of forest-related greenhouse gas emissions.  Brazil and Indonesia will be major beneficiaries of REDD credits. Brazil has also developed a large-scale hydro and bio-fuels industry such that sector caps are not taboo. It is moving towards the developed world position as a result.

The need for continued improvement in the offset market

The Conference also dealt with an evaluation of the Clean Development Mechanism (CDM) and a number of speakers like Michael Wiener of Perennia and Martijn Wilder of Baker and McKenzie in Sydney recommended changes to the management of the CDM and advice for creating new mechanisms like NAMAs and REDD going forward under Copenhagen.

Martijn indicated that there had been a lot of criticism of the CDM but reminded everyone that it is the only instrument that drives private sector development and is the global carbon currency. The CDM rulebook has established the global benchmark for offset projects and has become the de-facto standard for all offset projects in the compliance and voluntary markets.

The criticism is that the system is too complex with rules from the United Nations CDM Executive Board and in some cases additional host country rules as in China. Michael Wiener noted the lack of sustainability outcomes also. Complaints about the length of time the process takes from project origination to registration through validation and verification, including host country approvals were made by Mina Guli of Peony Capital, who finances CDM projects in China. “Two hundred days for a completeness check is too long - and that is just one part of the chain of getting a project through and a certified emission reduction (CER) sold into the market’ she said. Additionally, in the first phase China dominated the CDM market with industrial gas projects such as HFC 23 and N20. On the plus side there are 1700 carbon project entrepreneurs in India.

The criticism of CDM by Wiener and Wilder can be summarised as too few countries participated; not a broad enough range of project types were represented; a backlog of projects to be assessed in the CDM pipe-line; a lack of auditors and consistency of decision-making; lack of sustainability outcomes and Post 2012 uncertainty.

Michael Wiener stated that all these criticisms are process issues that need to be solved as the Post 2012 agreement will be relying heavily on the international revised CDM and REDD offset market to reach global greenhouse gas reduction targets. As a founder of Carbonflow Corp, I think technology can assist these markets evolve and adapt, become more reliable faster and efficient, more transparent and user-friendly.

Images Courtesy AdamSelwood and jimg944 via Flickr under Creative Commons License.