The impacts of COP 18 in Doha on the South African carbon market.

Transcription

1 EcoMetrix n EcoMetrix Africa (Pty) Ltd Building 1 43 Peter Place, Bryanston Johannesburg 2060, South Africa The impacts of COP 18 in Doha on the South African carbon market. Date: 28 th of February 2013 By: Henk Sa (EcoMetrix) and Andrew Gilder (ENS) Summary With the global carbon market in a slump the positive outcomes of the Eighteenth Conference of the Parties of the United Nations Framework Convention on Climate Change (UNFCCC, COP18 held in Doha in late 2012), provided a much needed boost to reinvigorate the global and national activities towards combatting climate change. The most significant outcome of COP18 is the agreement to extend the Kyoto Protocol into a second commitment during which certain developed country Parties have taken on Quantified Emissions Limitation and Reduction Objectives (QELROs the legally binding emissions reduction targets provided for in the Protocol). For the local carbon market the continuation of the CDM as part of this extension has created certainty around the medium term future of the most common carbon standard used in the country. In addition to this the majority of developed countries that are parties to the COP reiterated their commitment to provide long-term and additional climate finance support to developing countries in responding to climate change. At the national level the combination of these two outcomes of COP18 in Doha has the effect of incentivising South African business to increase and continue the development of projects under the CDM, and of encouraging government to improve its activities to attract the committed climate change financial support from developed countries and work towards the national voluntary pledge to the UN to reduce the country s greenhouse emissions profile by 34% reduction by Background EcoMetrix Africa operates at the forefront of the fight against climate change and specializes in climate change mitigation activities applied in Southern Africa. In addition to providing strategic climate change mitigation advice, one of its main activities is the development of projects and Programmes of Activities (PoAs) under the Clean Development Mechanism (CDM). Carbon Management Improving a company s carbon performance Ambition External and scope assessment I - GAP Analysis II Carbon Footprint Preliminary Internal assessment assessment Carbon Management Strategy Performance Strategy Control Options IV Implement III Carbon Strategy Strategy Action Plan Selection EcoMetrix Africa has designed a stepby-step process for defining, implementing and updating a carbon management strategy that guides organisations through the process illustrated in the Carbon Management Strategy Wheel (above). After first guiding organisations with the carbon management process, we then shift focus to integrating carbon management processes into business systems such that the organisation learns to manage and control its carbon performance autonomously. ENS (Edward Nathan Sonnenbergs) is Africa s largest law firm. The firm benchmarks itself according to international standards whilst retaining a uniquely African focus, making it well-equipped to advise clients wherever they may choose to do business. ENS currently has over 550 practitioners and was established over 100

2 years ago, making it one of the oldest full-service law firms in Africa. The ENS Environmental Department has a particular specialisation and depth of expertise in climate change and the carbon market. This paper looks at the implications of the outcomes of COP 18 for the South African carbon market, going forward. History of the Conference of Parties The formal international legal and political response to climate change began with the United Nations Framework Convention on Climate Change (UNFCCC, 1992). The UNFCCC provides a framework for action aimed at stabilizing atmospheric concentrations of greenhouse gases to avoid dangerous anthropogenic interference with the climate system. The UNFCCC entered into force on 21 March Within the larger structures of the United Nations the UNFCCC is grouped under the Secretariats of Conventions together with the Convention on the Rights of Persons with Disabilities and the United Nations Convention to Combat Desertification (UNCCD). The secretariat of the UNFCCC is seated in Bonn, Germany in the Haus Carstanjen Villa (which has historic significance as the location where the Marshall Plan was signed after the end of the Second World War). During a COP delegates from all the country Parties to the UNFCCC (194 States and 1 regional economic integration organization, being the EU) gather to attend a range of meetings during the annual, two week gathering, including 1 : The plenary Conference Of the Parties (COP): which is the highest decision-making authority under the convention and consists of all the country Parties to the convention. The COP focuses on the realisation of the overall objective of stabilizing atmospheric concentrations of greenhouse gases to avoid dangerous anthropogenic interference with the climate system; The COP serving as the Meeting of the Parties to the Kyoto Protocol (CMP): which consists of the subset of country Parties to the convention that have also ratified the Kyoto protocol as adopted by the COP during its third session in the city of Kyoto; Subsidiary Body for Scientific and Technological Advice (SBSTA): provides the COP with advice on scientific, technological and methodological matters. Two key areas of work in this regard are promoting the development and transfer of environmentally-friendly technologies, and conducting technical work to improve the guidelines for preparing national communications and emission inventories; Subsidiary Body for Implementation (SBI): gives advice to the COP on all matters concerning the implementation of the UNFCCC. A particularly important task in this respect is to examine the information in country Parties National Communications and emission inventories submitted in order to assess the UNFCCC s overall effectiveness; Ad hoc Working Group on Further Commitments for Annex I Parties under the Kyoto Protocol (AWG- KP): The objective of the working group is to discuss issues relating to further commitments for Annex I Parties (e.g. industrialised countries with a cap under the protocol), including quantified emission 1 Source: predominately from

3 limitation and reduction objectives whose work was completed at the end of 2012 and has been dismantled; Ad hoc Working Group on Longterm Cooperative Action under the UNFCCC (AWG-LCA): was established as a subsidiary body under the convention to conduct a comprehensive process to enable the full, effective and sustained implementation of the convention through long-term cooperative action, now, up to and beyond 2012, in order to reach an agreed outcome to be presented to the COP for adoption. The working group presented its final result in Doha during COP 18 and has since been dismantled; Ad hoc Working Group on the Durban Platform for Enhanced Action (ADP 1): which has been given the mandate by the COP to develop a protocol, another legal instrument or an agreed outcome with legal force under the Convention applicable to all Parties, effectively to negotiate the future climate change legal regime to be adopted at COP-21 and to come into effect and be implemented from It is self-evident from the above list of meetings and working groups that providing a summary of the outcomes of a COP is as complex a task as the meetings and their interdependencies, themselves. None the less the below diagram provides a high level summary events timeline 2 of the outcomes of the plenary COP meetings from COP1 in 1995 to COP18 in Doha. COP1(Berlin, 1995): Berlin Mandate agreed to establish a process to negotiate strengthened commitments for developed countries.(berlin Mandate) COP 3 (Kyoto, 1997): The Kyoto Protocol, was negotiated for ratification. The Kyoto Protocol includes legally binding emission targets for developed country Parties for the six major greenhouse gases, which are to be reached by the period COP 5 (Bonn, 1999): adoption of the guidelines for the preparation of National Communications. COP 7 (Marrakech, 2001) : The meeting adopted the Marrakech accord defining the workings of the flexible mechanisms of the Kyoto Protocol in more detail. COP 9 (Milan, 2003): Adopted decisions focusing on the institutions and procedures of the Kyoto Protocol and on the implementation of the UNFCCC. COP 11 (Montreal, 2005): The Global Environment Facility was established and a process for considering future action beyond 2012 under the UNFCC was agreed. COP13 (Bali 2007): The Bali Action Plan was adopted. This plan set the scene for the negotiations leading to COP15 to reach an agreed outcome to the climate change negotiations. COP15 (Copenhagen, 2009): The only agreed outcome was the politically significant Copenhagen accord. In which it was reiterated that to cap the global temperature rise there is a need for significant emission reductions. COP17 (Durban 2011): The Durban Platform provides for the continuation of the Kyoto protocol until either 2017 or COP 2 (Geneva, 1996): The Geneva Ministerial Declaration was noted, but not adopted. COP 4 (Buenos Aires, 1998): The Buenos Aires Plan of Action, focusing on strengthening the financial mechanism, the development and transfer of technologies was adopted. COP 6 (The Hague, 2000): Consensus was finally reached on the so-called Bonn Agreements. COP12 (Nairobi, 2006): Technical details regarding the Kyoto Protocol were agreed. COP 10 (Buenos Aires, 2004): The building blocks of the process and to discuss the framing of a new dialogue on the future of climate change policy where reassess. COP 8 (New Delhi, 2002): The Delhi Ministerial Declaration on Climate Change and Sustainable Development reiterated the need to build on the outcomes of the World Summit. COP14 (Poznan, 2008): Details on the operationalisat ion of the Adaptation Fund where agreed. COP16 (Cancún 2010): The Cancun Agreement called for a large "Green Climate Fund", and a "Climate Technology Centre" and network. COP18 (Doha, 2012): The Doha Gateway agrees to extend the life of the Kyoto Protocol, which had been due to expire at the end of 2012, until 2020, and to clarify the 2011 Durban Platform, meaning that a successor to the Protocol is set to be developed by 2015 and implemented by Figure 1: Summary event timeline from COP1 to COP18. 2 Source: United Nations Convention on Climate Change and EcoMetrix team analysis.

4 Outcomes of COP18 in Doha COP18 was held from the 26 th of November to the 7 th of December 2012 the 18 th at the Qatar National Convention Centre in Doha, Qatar. By the end of the meeting the general consensus was that although progress was made a high level of let s agree to agree in the future remained imbedded in the agreement(s). The below list provides a snapshot of the main points on which agreement was reached by the parties during COP18: A second commitment under the Kyoto Protocol: The first commitment period under the Kyoto Protocol ran from the 1 st of January 2008 till the 31 st of December During COP18 a second Kyoto commitment period was agreed, commencing at the beginning of 2013 and ending in December Effectively, therefore, the Kyoto Protocol continues but in a more limited form. This limitation arises from the fact that a number of Kyoto developed country Parties have indicated that they will not sign-up to the second period, e.g., Japan, Russian Federation and Canada, and the QELROs of those developed countries Parties that have indicated that they will subscribe to the second period are more diluted than for the first period (although the ambition of the QELROs will be reviewed in 2014). The flexible mechanisms, including the CDM will continue to operate; Industrialised country commitment to provide long-term climate change finance: developed countries Parties confirmed their commitment to provide long-term and additional climate finance support to developing country Parties, with a view to mobilizing 100 billion USD both for adaptation and mitigation by 2020 and to ensure that contributions between remain, at least, at the average annual level for such contributions during the period. The context for this wording is that the promised level of fast-start finance committed by developed country Parties under the Copenhagen Accord and confirmed in the Cancun Agreements, namely 30 billion USD between 2010 and 2012 was never achieved. Given this reality and the continuing global economic crisis in many developed economies, it remains to be seen whether the reiteration of the more ambitious portion (100 billion USD) of the financial commitment made in Copenhagen will, in fact, be realised; A timeframe to reach a new global climate change agreement: the agreement is to work toward a universal climate change agreement in accordance with the timeframe established by the Durban Platform, and to find ways to scale up efforts to respond to climate change before 2020, beyond the existing QELROs with a view to curbing greenhouse gas emissions to ensure less than a 2 degrees Celsius global average temperature change over the pre-industrial average. To put these words in context, civil society has expressed the view (for some years) that the negotiations are becoming increasing irrelevant to the geophysical reality that is facing the planet. In short, notwithstanding the text agreed to under the UN auspices, the world is already set to exceed the 2 degrees Celsius hurdle during the course of this century, the consequence of which is likely to be catastrophic global environmental change. Although the above list of topics is only a small snapshot of the range of issues on which agreement was reached all of them have material implications for the South African carbon market going forward. The next section provides an overview of these implications and potential actions that could be taken on the by South African business and industry.

5 Implications of COP18 for South Africa When looking at the three primary outcomes of COP18 the most significant for South Africa is the agreement to the second commitment period under the Kyoto Protocol. In practice this outcome ensures that the CDM activities currently on-going in the country will continue to benefit from an operational climate change legal instrument in terms of which Certified Emission Reductions (CERs the species of carbon credit generated by a registered CDM project activity) can continue to be traded into the international carbon market. In addition, increased clarity on the medium term future of the carbon market should spur project developers on to revive the CDM project ideas that may have been shelved between 2010 and 2012, as these can now benefit from a confirmed revenue streams resulting from the commercialisation of their CERs, at least up till The below diagram provides an overview of the implications of the main outcomes of COP18, the implications for South Africa and potential actions that could result from these outcomes and where activities in this direction already have been taken or are in the making. Mandate: Outcomes: Implications: Actions: Entity: A second commitment under the Kyoto Protocol: Increased visibility on the (medium) future of the carbon market: The continuation of the global carbon market as designed under the Kyoto protocol and the commitment to continue the operation of the relevant instrument for SA to supply into this market (the CDM) is now secured until Increase efforts to develop and register more projects under the CDM. Align local policies to the increased visibility (e.g. extend section 12K income tax exemption on sales of primary CERs to 2020, etc.) Industry Government COP18 Industrialised country commitment to provide longterm climate change finance: Instruments available to fund South Africa s 34% reduction pledge: Historically South Africa has been poor at attracting climate change funding. Now that the commitment to provide more funds has been reiterated the barrier to work towards its pledge has reduced and the expectations for SA to realise its pledge have increased. Develop the relevant frameworks and structures to be able to tap into long term climate change financing (e.g. NAMA s, bi-lateral agreements, etc.) Strengthen efforts to attract long term climate change finance. Government A timeframe to reach a new global climate change agreement: Clarity on the timeline and process towards a new climate deal: Now that SA is part of the BRICS the manner in which it is perceived has changed and therewith its role within the climate change negotiations has been enhanced. Clarify the country s global negotiation position within government and industry. Align local policy development to the country s global negotiation position and expect post 2020 out come (e.g. Carbon tax offset design, etc.) Government Figure 2: COP18 implications actions for South Africa. The national implications of the two other main outcomes of the COP tend to emphasise the role the South African government can play to improve on its ability to attract internationally available climate finance support and to realign and / or design policy and regulations that support the local carbon market. The National Treasury has already proven itself to be aware of the importance of policy realignment by the recent announcement, in the Budget Speech 2013 (delivered on 27 February 2013), that the tax exemption on income received from sales of primary CERs generated by South African CDM projects will be extended to the end of the decade. Initially the exemption was for the period of the first Kyoto commitment period and, consequently, was extinguished at the end of The extension of the tax exemption accords with the period of the second Kyoto commitment period. Policy / regulatory intervention that would tend to support the local carbon market is a provision of the (still to be designed) carbon tax architecture that requires / permits the use of locally generated carbon offsets as a contribution to a portion of the carbon tax liability. In a currently depressed international context for carbon, this

6 simple design-feature would create demand for locally-generated carbon offsets that does not rely on the vagaries of a commodities market. The Budget Speech 2013 indicates that the carbon tax is intended to be implemented from 1 January In summary, although the outcomes of COP18 in Doha were not the silver bullet that one might hope for they do show that material work and effort is committed to addressing the global climate change concern. In addition to that the outcomes of COP18 and their impact on the international and domestic carbon markets should be seen as a clear indication that the perceived doom and gloom surrounding the future of the carbon market is greatly exaggerated and predominately voiced by entities and individuals that intend making a quick buck in a new market rather than contributing to the development of an efficient and effective climate change mitigation framework. About the Authors EcoMetrix Africa has been at the forefront of the fight against climate change since its inception. The EcoMetrix team is made up of a group of highly motivated and capable individuals with diverse economic and technical oriented backgrounds. This paper was written by Henk Sa (EcoMetrix Africa) and Andrew Gilder (ENS): Name: Henk Sa Qualifications: BsC, MSc Profile: Henk Sa has been in the carbon industry for almost a decade of which most of his time has been spent on the African continent. He has been responsible for the development of several methodologies and registered several CDM projects. Name: Andrew Gilder Qualifications: BA LLB LLM Profile: Andrew, is an admitted South African attorney and has spent most of the last decade at the cutting edge of the new and dynamic practice of climate change and environmental law. He is now a Senior Associate at Edward, Nathan, Sonnenbergs (ENS). Disclaimer This Paper has been prepared by EcoMetrix Africa (Pty) Ltd (EcoMetrix Africa) in collaboration with ENS for the exclusive use by their Clients only. EcoMetrix Africa has taken all reasonable care to ensure that the facts stated herein are true and accurate in all material aspects. However, EcoMetrix Africa nor any of their directors, officers, employees, advisors or agents makes any representation or warranty or gives any undertaking of any kind, express or implied, as to the actuality, adequacy, accuracy, reliability or completeness of any opinions, forecasts, projections, assumptions and any other information contained in, or otherwise in relation to, this Paper, or assumes any undertaking to supplement any such information as further information becomes available or in light of changing circumstances. No liability of any kind whatsoever is assumed by EcoMetrix Africa any of its directors, officers, employees, advisors or agents in relation to any such opinions, forecasts, projections, assumptions or any other information contained in, or otherwise in relation to, this Paper. This Paper is confidential as it contains company confidential information as well as the intellectual property of EcoMetrix. Therefore, this Paper shall not be released to third parties without the express written permission has been given by all parties involved provided that the Client and EcoMetrix Africa may release the Paper, or parts thereof, to those of their directors, officers, employees, advisors or agents as may be necessary to complete the Paper or to progress future work items that may be based on the Paper.