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Climate Action? Warsaw 2013 to Paris 2015

Assaad W. Razzouk

21st December 2014

The Warsaw 'COP-19' climate negotiations were a widely acknowledged failure. But Assaad Razzouk sees a small silver lining among the dark clouds. There is a real prospect of effective action on climate in the run up to COP20 in Paris, 2015.

The response from Governments seems to be: 'how do I negotiate the biggest slice of atmospheric space for my growing economy?'

There was precious little to celebrate at the 19th Conference of the Parties in Warsaw ('COP 19') in November 2013, where some 200 countries met over two weeks for the annual UN climate talks carnival.

In what is now a tradition, the talks concluded by kicking all substantive issues down the road to the next annual meeting and beyond to Paris in November 2015.

In another tradition, everyone agreed that we needed to do more and that next year will be different - even though "next year" is never any different and that in the meanwhile, the climate catastrophe is upon us.

Key non-outcomes at COP 19 included first, the establishment of an aspirational 'Loss and Damage mechanism' to help developing countries, and particularly small islands, cope with climate change, though this mechanism somehow omitted mentioning finance.

Second, the source of funding for the Green Climate Fund remained undefined, despite the pressing need for multilateral commitments. Third, the work program on long-term finance continued with little progress towards reaching the $100 billion per year promised in the Copenhagen UN Climate Talks in 2009.

The last two of these 'non-outcomes' are linked to the Green Climate Fund (or GCF), conceived in Copenhagen in 2009 and established in Cancun in 2010.

GCF: no signs of life

Now five years in the making, the Green Climate Fund continues to show no signs of life. It is supposed to mobilize an ambitious $100 billion per year, on top of existing Government climate finance flows (estimated by the Climate Policy Initiative at $12 billion per year) but to date has mobilized no funding at all.

In all likelihood, it won't mobilize anywhere near $100 billion over the next few years.

Politically, the GCF governance structure is a recipe for not getting things done: The Board is evenly split between developing and developed countries which means that consensus is pretty much required for every decision. As we know from the UN climate talks, little ambition can be realized when consensus is required.

Developing countries have divided interests

In addition, the world has changed since the GCF was conceived. In particular, developed economies have tighter purses since the 2008 crises; and developing economies are no longer a homogeneous group.

Some are responsible for the majority of the growth in emissions going forward (China, India), others are increasingly vulnerable to the effects of climate change (small island states, less developed countries).

Their needs are therefore different today and as was apparent in Warsaw, they no longer want the same thing. Finally, it would be difficult to envisage vehicles like the GCF securing funding without the US and China paying their fair share and others playing ball.

Enter the awkward squad

There is no indication whatsoever that these countries intend to do so. The US and China continue to hide behind headline grabbing countries such as Japan, the 5th biggest polluter worldwide, who announced they were dramatically decreasing their climate ambition targets; and Australia who continued to flex their new climate-denying muscles, cheered on by Canada.

India and Saudi Arabia will also continue to earn a special commendation for generally being not constructive whenever they can, India behaving as if it were the 1950s and Prime Minister Nehru was marshalling the non-aligned movement; Saudi Arabia mistaking the UN climate talks for an OPEC meeting.

This said, two minor bright spots to take from Warsaw were commitments of $100 million for the Adaptation Fund and $280 million for results-based finance for forest protection in tropical countries - but together, that's not even half of 1% of what is intended to be in place by 2020.

But it's not all failure

But there were two other bright spots of potentially much more significance over the next few years.

First, one of the few successes of the 20-year UN process, the Clean Development Mechanism (CDM), showed some signs of life. The CDM enables emission reduction projects in developing nations to sell carbon securities to developed country polluters. 

Buyers use the carbon credits to offset their emissions while sellers receive new investments, technologies and jobs.  According to a report by the Center for American Progress, the CDM succeeded beyond expectations, unleashing more than $356 billion in green investments. 

The CDM was on track to deliver $1 trillion in financing but is currently delivering none at all because the carbon price signal it is sending is zero. In a sign that conditions should improve, a decision in Warsaw invited countries to promote the voluntary cancellation of carbon credits without double counting, as a means to close the pre-2020 ambition gap.

This could help to promote demand for the CDM and puts another plank on the bridge between the pre-2020 Kyoto Protocol and the post-2020 Durban Platform.

Politically, the CDM is of critical importance to developing countries who will continue to push for its revitalization over the next 2 years: They have been the principal beneficiaries of the $356 billion in green investments and know that any future agreement is highly unlikely to provide them with a mechanism as effective.

Furthermore, levies from the CDM replenish the Adaptation Fund and any increase in CER prices directly translates into more adaptation dollars for vulnerable countries, a far more promising avenue than waiting on the GCF.

Carbon market set for recovery?

What this means is that contrary to conventional wisdom, realistic expectations now exist for a recovery in CDM carbon prices over the next 2 years. Voluntary cancellation may appeal to both developed and developing countries intending to provide contributions in the first quarter of 2015, and in time, to the aviation and shipping industries.

In addition, because of the importance of the CDM to developing countries, investment funds and other initiatives are already under way (led by the World Bank and some European countries) to rescue stalled mitigation efforts by focusing on buying carbon credits from sectors (for example methane abatement) or countries (for example least developed countries).

Another possible turning point

Second, in trying to advance the Durban Platform agreed in 2011 in South Africa, Governments decided to accelerate activities on enhancing mitigation ambition by turning to the sharing of best practices and experiences of sub-national and city authorities.

This makes sense because after 19years of UN climate talks, it became clear in Warsaw that certain Governments simply won't agree legally binding commitments to reduce emissions.

Led by China, India and Saudi Arabia, potential commitments were watered down to "contributions" - a code word for doing very little or indeed nothing at all.

Counter-intuitively perhaps, this could be a turning point, placing hopes of decisive climate action around the propagation of a carbon price worldwide, away from centralized and ineffective forums like the UN climate talks.

Indeed today, climate action is principally dependent on the private sector (which already accounts for 62% of climate finance flows according to the Climate Policy Initiative) and crystallized around carbon pricing.

According to the Brookings Institute, from 2013 onward, 3 billion people in 36 countries, 11 sub-national jurisdictions in the United States and Canada, and seven cities and provinces in China (and from 2016, all of China) are covered by Emissions Trading Schemes.

Other countries are considering market options or have already implemented them, for example India via the introduction of traded renewable energy certificates.

In the next two years, expect that policy options and reforms needed to connect these heterogeneous carbon markets and ensure low-income countries benefit will be explored and developed, with some implemented.

States cannot or will not agree

It is now evident that the signatories to the UNFCCC either cannot or will not agree to take the steps needed to address the impending climate catastrophe: The process of multi-lateral negotiations is too complex to avoid a tragedy on a global scale.

In his 1968 essay entitled 'The tragedy of the commons', Garett Hardin recognizes that individuals will continue to contribute to the depletion of a shared resource - acting independently and rationally according to their own self-interest - despite being aware that depleting the common resource is contrary to the group's long-term best interests.

The carbon budgets presented in the IPCC's 5th Assessment Report focused attention on the threat facing the world's last remaining 'common' and predictably, the response from Governments seems to be "how do I negotiate the biggest slice of atmospheric space for my growing economy?"

Consequently, it's time for the UNFCCC to be vastly scaled down to an institution providing technical input on monitoring, reporting and verification and accounting of greenhouse gas emissions.

Expect two dynamics over the next two years: First, baby steps - in other words no major initiatives, short of a climate change-induced calamity which mobilizes action on a big scale and overcomes the current political inertia.

Second, a bottom-up approach anchored around the private sector, countries and sub-national entities, slowly taking over the failed top-down approach pushed by 20 years of UN climate talks.

 


 

Assaad Razzouk is the CEO and co-founder of Sindicatum Sustainable Resources, a world leading clean energy company based in Singapore.

He is a leading expert in global carbon markets and the policy structures that underpin them, such as the UN’s Clean Development Mechanism and the EU Emissions Trading Scheme. Assaad is passionate about creating an efficient framework for global sustainable investment and global multilateral approaches to mitigating the effect of climate change.

Twitter: @AssaadRazzouk

 

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