ClimatSphere. Cancún: reaffirming and building on the Copenhagen commitments. Contents. E ditorial. The newsletter on the economics of climate change

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1 ClimatSphere The newsletter on the economics of climate change Cancún: reaffirming and building on the Copenhagen commitments E ditorial It is essential to look back to the Copenhagen Accord in order to understand the challenges facing the Cancún negotiations. Although it was widely seen as a failure, the Accord does have some interesting features, continuing in the footsteps of the Kyoto Protocol as well as taking new directions. In terms of continuity, the Copenhagen Accord reiterates the distinction between developed countries and developing countries, along with the principle of common but differentiated responsibility. However, it also contains a number of new positions. Firstly, it has the huge merit of having succeeded in ratifying a target figure for temperature rises, which must not increase more than 2 C compared with the preindustrial era. It also gained commitments from States representing 8% of world emissions compared with barely more than a quarter for the Kyoto Protocol. Developed countries adopted emissions reduction targets for 22, ranging from cuts of 12% to 18% compared with 199. And for the first time developing countries pledged to limit their emissions. Two elements remain crucial to achieving these pledges financial resources and operating tools under an international monitoring system. What are the financial resources? In the first instance, funding promises from developed countries, a reminder of which is provided in our key figures compiled by : 3 billion dollars in , then 1 billion a year by 22. In the long term these funds will mainly be channelled through a green fund which is still under construction, as is the future international verification system which will lend credibility to States commitments regarding funding and emissions reductions. discusses the essential role of such a system in our third article. What about the operating tools? Two mechanisms are explicitly mentioned in the Accord: the fight against tropical deforestation and the carbon markets. Mariana Deheza Estimate of emissions from developed countries and emerging countries by 22 according to their Copenhagen commitments tco2eq. (in billions) Total 2 15 Developed countries 1 5 Emerging countries Total emissions in the 'low pledges' scenario Developed countries - high emission reduction pledges Developed countries - low emission reduction pledges Emerging countries - high emission reduction pledges Emerging countries - low emission reduction pledges Total emissions in the 'high pledges' scenario The Copenhagen Accord made progress by including commitments from developing countries to limit emissions. It is essential that commitments are strengthened if global warming is to be limited to 2 C which, according to the IPCC, would require a 25% to 4% cut in emissions from developed countries by 22 compared with 199. Source: Casella, Delbosc and de Perthuis, Cancún: Year One of the Post-Copenhagen Era, Climate Report no. 24, CDC Climat Research, October 21. Contents summarizes progress made in relation to the former. An agreement over technical aspects may emerge at Cancún, which would provide the international community with a new tool encouraging emissions reductions. Carbon markets, on the other hand, represent a tried and tested tool, whose effectiveness has been demonstrated but could still be improved. For example, Kyoto Protocol project mechanisms have already facilitated technology transfers. These technology transfers need to be improved in the future in order to combat climate change more effectively. This is underlined by Letha Tawney and Mark Radka, who I would like to thank for agreeing to be interviewed. To achieve this, ideally there would be a confirmation that these project mechanisms will continue to operate after 212, in anticipation of a future international agreement coming into effect. Valentin Bellassen provides an update on the uncertainty surrounding these project mechanisms and presents a possible solution. One thing is now almost certain. Barring a miracle in Cancún, 1 January 213 will see the start of a very uncertain arrangement: the beginning of the gap period between the Kyoto Protocol and whatever comes next. l Benoît Leguet benoit.leguet@cdcclimat.com Tel.: N 2 4 th quarter 21 The challenge of improving technology transfers Interview with Letha Tawney and Mark Radka CDM and JI in 213: decisions needed at Cancún to end uncertainty Valentin Bellassen Towards more transparent commitments Finally an all clear for a REDD+ agreement? Mariana Deheza Key figures

2 I nterview The challenge of improving technology transfers transfer of equipment and knowledge has been a part of only about one third of the CDM projects. Beyond this, the uneven distribution of CDM projects frustrates smaller countries. It may be In order to meet the growing needs of developing countries in terms of acquisition and adaptation of low carbon technologies, technology transfers must be improved. Two experts, Letha Tawney1 and Mark Radka2, give us some insights on the weaknesses and challenges of current technology transfer systems. economically efficient that CDM projects What is understood by technology transfer in the current international negotiations? consists of both hardware and software, for How can bilateral agreements facilitate technology transfers to those developing countries which need them? Letha Tawney: The IPCC definition evaluate and adapt the technology and to be LT: Bilateral agreements can be tailored in the 2 report Methodological and able to reproduce it to meet a specific need. very specifically to the Parties needs and Technological Issues in example skills, that allow a party acquiring a technology to make wise choices, to Technology have clustered in countries like China with low cost mitigation opportunities, but the CDM was perceived to be addressing equity concerns when it was negotiated in Kyoto. The overall lack of technology or financial transfer to smaller or less developed countries has been a raw issue. thus can have more domestic buy-in. They can be more comprehensive and include and equipment for mitigating and adapting So far, what has been the impact of the CDM regarding technology transfers to developing countries? to climate change amongst different MR: The Project Design Documents research and commitments to implement Transfer is, a broad set of processes covering the flows of know-how, experience stakeholders. sharing, financing arrangements, joint emphasize of CDM projects suggest that technology policies different aspects, creating tension. Some transfer is occurring, the evidence being maintaining momentum behind focus on advanced equipment and the the technologies used and companies technology agreement, bilateral capacity to operate it, or on enabling local involved in projects. We believe the CDM multilateral, can be challenging. Bilateral production through the transfer of know- is useful but more useful in some areas agreements may also leave many countries how and intellectual property. Many also than others. It s important to recall that which need technologies out in the cold, stress that it is primarily a North-South the CDM provides incremental funding for if they aren t attractive partners. Equity transfer catalyzed by government action. sound underlying projects. Technologies and effectiveness in technology transfer indeed are transferred all the time anyway and it is remains a challenge. a number of different understandings. I very difficult to put a number on what the have a personal definition which is very CDM specifically has contributed. Mark Negotiators trade liberalization, as well as knowledge Radka: There are similar to that used in the IPCC s report: It LT: According to a recent study3, the creating demand. However, any or MR: Bilateral agreements involving the private sector are certainly the most common means by which climate relevant technologies are transferred (e.g., through Technology transfers in relation to wind power, from developed to developing countries between 1988 and 27 joint-ventures, licensing agreements, and so on). Most technologies in western countries are held by the private sector, in particular the intellectual property associated with technologies and manufacturing processes. Governments can often play a useful role in creating the sort of conditions where technologies are more likely to flow, underwriting in a sense some of the up-front costs of the transfer. l Interview by Nicolas Stephan nicolas.stephan@cdcclimat.com Tel.: Over 25 patent filings Between 5 and 15 patent filings Between 15 and 25 patent filings Less than 5 patent filings It may be in technology owners interests to file a patent in a country other than their own, despite the cost involved, if they believe that a potential market exists there. This figure shows the scale of patenting activities in developing countries for wind power technologies (turbines and motors) designed in developed countries. Source: OECD, L etha Tawney is a Senior Associate at the World Resources Institute s Climate and Energy Program. 2. Mark Radka is Head of the Energy Program of the United Nations Environment Programme (UNEP). 3. A. Doranova et al. ; Energy Policy 38 (21)

3 P roject mechanisms CDM and JI in 213: decisions needed in Cancún to end uncertainty It now appears unlikely that the Kyoto Protocol will be extended at the end of the first commitment period on 31 December, 212. The mechanisms and tools established by the protocol will then fall into a gray area of international law 3 Kyoto Protocol infrastructures: an uncertain future Any discontinuity between the first Kyoto Protocol commitment period and a new international agreement could threaten the survival of the Protocol s underlying infrastructures which have taken a considerable amount of time, money and expertise to set up. This is because countries commitments and the corresponding national CO2 quotas Assigned Amount Units will no longer exist. Their disappearance will be followed by that of the national registries on which they are recorded and doubtless the information systems used to draw up greenhouse gas emissions inventories. The future is also uncertain for the Clean Development Mechanism (CDM) and Joint Implementation (JI), which will have prevented the world emitting the equivalent of a year and a half of emissions from Japan by 212. One of their specific targets under Kyoto is to help countries Millions of CER 7, 6, 5, 4, 3, 2, 1, Issued CER CER projected issuance from 211 to 213 to achieve their commitments. In the absence of a subsequent commitment period, the obligation to maintain these mechanisms in operation is open to legal interpretation. What does the future hold for CDM and JI? The graph below provides an estimate of emissions reductions achieved by the CDM according to three possible scenarios: Shutdown of the CDM on 1 January, 213: no reduction after that date benefits from certified emissions reduction (CER) credits, even pre-registered projects. Continuity of supply: the CDM is maintained but the discontinuity between the two commitment periods limits demand for CER credits and no registration of new projects will occur. Projects already registered continue to receive credits but do not apply to renew their registration after the end of the ongoing accounting period. Continuity of demand: the continuity Total number of certified emissions reduction credits generated by the CDM Crash scenario Continuing demand scenario Continuing supply scenario Contingent on the scenario, the CDM could reduce emissions by between 1 and 65 million tonnes of greenhouse gases by 22. Source: CDC Climat Research model based on UNEP-RISOE data. of the two commitment periods ensures both supply and demand for CER credits. New projects continue to be registered at the current pace and existing projects renew their registration at the end of their accounting period. Guaranteeing supply to encourage demand A decision at the Cancún conference setting out the future for CDM and JI would provide transparency to project coordinators and investors who fund these mechanisms. Keeping these mechanisms in operation would double the number of CDM credits generated between 27 and 22. In the context of regulatory uncertainty created by the lack of a second period, generating demand for credits is harder than ensuring supply. A report from the United Nations suggests an interesting solution: provisional application. This legal notion enables the effective entry into force of a treaty to be anticipated. Ratifying countries each voluntarily sign up to an agreement applied provisionally and therefore non-bindingly until the threshold required for the formal entry into force of the agreement is reached. This is a familiar scenario in some ways, since implementation of the project mechanisms themselves began provisionally four years before the Kyoto Protocol came into effect. l Valentin Bellassen valentin.bellassen@cdcclimat.com Tel.: Legal considerations concerning a possible interruption between the first commitment period and subsequent commitment periods ( fre/1f.pdf)

4 M RV Towards more transparent commitments The credibility of a climate agreement relies on the coordinated and harmonized establishment of international instruments for the monitoring, reporting and verification of emissions. Commonly known by its acronym MRV, this aspect of international climate governance is at the heart of negotiations in 21. Current systems The United Nations Framework Convention on Climate Change (UNFCCC) and its implementing provisions, contained in the Kyoto Protocol, created a standardized system for recording commitments by developed countries and verifying their compliance. The commitments made by these countries, known as Annex B, took the form of absolute emissions reductions targets for the period They are subject to joint emissions reduction calculation rules, particularly in respect of emissions linked to Land Use, Land Use Change and Forestry (LULUCF). Verification that targets have been achieved is based on annual national inventories of greenhouse gases, validated by all Kyoto Protocol signatory countries under the supervision of the UNFCCC Secretariat. Developing, i.e. non-annex B, countries are only obliged to submit a national Current MRV systems and those envisaged by the Copenhagen Accord Developed countries Source: CDC Climat Research. Public-private funding of the CDM in return for carbon credits Registration of projects and monitoring of emissions reductions Report on reduction targets and measurements every two years Annual emissions inventories Strengthening of the monitoring of reduction commitments UNFCCC greenhouse gas inventory within three years of joining the UNFCCC. The least developed countries are exempt from this. Progress made by the Copenhagen Accord The Copenhagen Accord of December 29 introduced two kinds of new commitments: Emerging countries agreed for the first time to target figures for limiting their emissions. They agreed to submit national emissions inventories every two years, based on guidelines adopted in the context of international climate negotiations. Developed countries committed to providing significant additional funding to developed countries for their climate policies up to 1 billion dollars a year in 22. In return, developing countries agreed to submit to joint MRV rules to demonstrate internationally financed emissions reductions. Monitoring via a registry of internationally funded emissions reductions Emissions inventories every two years Reporting on non-internationally funded measures every two years Fund management supervision Monitoring of funding commitments UNFCCC and Copenhagen Accord Funds Existing MRV systems New MRV measures envisaged in the Copenhagen Agreement Other MRV features under discussion Developing countries The UNFCCC created a sophisticated system for monitoring developed countries reduction commitments under the Kyoto Protocol. The Copenhagen Accord proposes to strengthen it to improve monitoring of emissions reduction and funding commitments. It also suggests extending it to voluntary commitments by developing countries. However, the Copenhagen Accord remains to be ratified by the UNFCCC. In Cancún, an agreement in principle could be obtained for an international MRV system, although the highly political debate is not without tensions. Developed countries, led by the United States, want at all costs to enshrine the Copenhagen commitments by emerging economies in a binding agreement, while ensuring the reality of their emissions reductions and, at an early stage, the suitability of their national inventories. Emerging countries, meanwhile, are reticent to concede on this point and claim sovereignty in implementation of their climate policies. A challenge proving difficult to overcome Under the future climate agreement, the United Nations monitoring system should be strengthened and its arbitration role confirmed in view of sometimes conflicting national interests. In particular, this change will depend on monitoring of Copenhagen commitments. Developed countries will have to harmonize their reduction targets, while clarifying the LULUCF emissions reduction rules and the use of carbon credits generated by emissions reduction projects in developing countries. They will also have to stipulate the terms of their financial transfers to developing countries and adopt joint criteria for determining how these funds add up. Developing countries will meanwhile have to specify and make transparent their systems for monitoring internationally financed emissions reductions. l marion.jeulin@cdcclimat.com Tel.:

5 F orests Finally an all clear for a REDD+ agreement? An agreement concerning reduction of emissions resulting from deforestation and forest degradation, including the carbon sequestration by forests, is presented as a possible area for progress at Cancún. A consensus is currently being reached on the technical framework for the allocation and control of funding. Uncertainty remains, however, as to the source of this funding. The current consensus An agreement on forests (Reduced Emissions from Deforestation and Degradation or REDD+) is one of the emissions reduction measures mentioned explicitly in the Copenhagen Accord. Progress has been achieved regarding funding, through the allocation of part of the fast-start funds earmarked for and practical implementation of the mechanism via an invitation from the UNFCCC to submit reference scenarios regarding national deforestation rates. Regarding the characteristics of a REDD+ agreement, a consensus is currently developing based around four points: 1. Scope: reduction of emissions resulting from deforestation, forest degradation, increasing carbon stocks and sustainable management of forests. 2. Voluntary participation of developing countries which will commit to drawing up an action plan, an emissions reference scenario and a system for monitoring, reporting and verification (MRV) of activities based on remote sensing and land measurement. 3. A gradual three-phase approach: i) drawing up of national action plans, ii) strengthening of capacities and technology transfer, and iii) financial incentives for emissions avoided or sequestered, once these have been reported and verified. 4. Recognition of rights of indigenous peoples. Some disagreements to iron out Several additional points could be decided before an agreement is reached in Cancún. A mandate could be given to the UNFCCC Subsidiary Body for Scientific and Technological Advice (SBSTA) to identify contributing factors to deforestation and forest degradation and estimate their potential for reduction. Furthermore, a safeguard stipulation should set out provisions to prevent the conversion of natural forests rich in biodiversity into forestry plantations. Finally, the scale of the mechanism remains to be defined. Since a subnational approach risks delocalising deforestation elsewhere in the country ( carbon leakage ), a national scale should be the favoured option. The key question: funding At the Copenhagen conference, six developed countries committed to funding the early start of a REDD+ program during the interim period , for a total of 2.5 billion Euros. Promised funding currently totals 2.87 billion Euros, through a range of bilateral cooperation programmes or multilateral funds. The creation of a REDD+ section within the Green Climate Fund included in the Copenhagen Accord is also under discussion to ensure the long-term future and fair distribution of these funds. The use of private funding, particularly through carbon markets, is also considered. As Cancún nears, the total amount raised remains less than a tenth of the 13 to 25 billion Euros a year required by 22 to reduce net deforestation by 5% on a global level. The track and carriages of a REDD+ agreement are almost all set now. But will the train be able to move forward without the locomotive of funding? l Mariana Deheza mariana.deheza@cdcclimat.com Tel.: Funding commitments for REDD+ for the period and allocation conditions (in millions of Euros) Denmark 11.9 Spain Canada Australia 86.8 France United Kingdom 427 Japan Germany Norway United States Bilateral agreement Multilateral financing (FCPF, UN-REDD, GEF, etc...) Undefined The above commitments referred to amounts already partially allocated. In some cases they remain subject to approval by national legislative bodies. Source: CDC Climat Research, according to REDD+ Partnership and Forest Carbon Partnership Facility. 5

6 K ey figures Copenhagen Accord: funding and technology transfer challenges ahead The Copenhagen Accord confirms developed countries undertakings to allocate 3 billion dollars to developing countries by 212 and up to 1 billion a year by 22. It also recognises the need for better organization of adaptation and mitigation technology transfers towards developing countries. marion.jeulin@cdcclimat.com - Tel.: Fast Start Finance (FSF) The 3 billion dollars of FSF funds must be distributed in a balanced way between adaptation and mitigation and directed to the most vulnerable countries. They must also be new and additional and be managed by international institutions. A harmonized definition of these criteria is still lacking. Characteristics of Copenhagen s Fast Start Finance Breakdown of pledges by country (USD millions) Breakdown of commitments by criteria Australia: 583 European Union: 1,41 Canada: 389 Adaptation Forest Energy and Transportation Japan: 15, Norway: 1, United States: 3,29 Undefined (mainly towards mitigation) Source: CDC Climat based on data from the World Resources Institute and the website, October 21. The challenge of distributing funds Uncertainty remains over effective distribution of funding to developing countries. So far, contributions announced to the various climate funds, including certain Fast Start Finance commitments, have only enabled limited amounts to be paid out compared to the overall figures announced since the funds were launched (22 at the earliest). Source: CDC Climat based on data from the Overseas Development Institute s Climate Funds Update website, August 21. Terms of funding allocation Multilateral Bilateral Undefined % 1% 2% 3% 4% 5% 6% 7% 8% 9% 1% Status of international public climate funding by domain USD billions Disbursed Deposited Pledged Adaptation Energy and Transportation REDD Multicriteria Total Better distribution of low-carbon technologies Patent duplication requests mainly occur between developed countries. While intellectual property considerations are decisive in the non-inclusion of developing countries, other local obstacles are highlighted, such as the scientific infrastructure and expertise, market potential and institutional framework for business. Patent duplication filings for low-carbon energy technologies, by source and destination country Number of duplicate patent fillings from 1998 to 27 12, 1, 8, 6, 4, 2, Israel South Korea China Norway Australia Japan Nortf America European Union Source: CDC Climat Research, based on data from UNEP, the OECD and the European Patent Office, September 21. Technologies considered relate to renewable energies, biofuels and carbon capture and sequestration. North America European Union Japan Australia Norway China Technology source countries South Korea Brazil Taiwan Mexico 6 CDC Climat Research is the research department of CDC Climat, a subsidiary of the Caisse des Dépôts dedicated to the fight against climate change. CDC Climat Research provides public research on the economics of climate change. Head of publications: Benoît Leguet, tel: +33 () CDC Climat Research 47 rue de la Victoire 759 Paris, France ISSN :