Flexible mechanisms update on JI, new markets mechanisms, 3.7ter

NGO WG strategy meetingKiev, 13-14 December 2013

Anja Kollmuss, Carbon Market Watch info@carbonmarketwatch.orgNature Code – Zentrum für Entwicklung und Umwelt

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Carbon Market Watch: scrutinises carbon markets and advocates for fair and effective climate protection.

Network: Connects more than 800 NGOs and academics from the Global North and South to share information and concerns about carbon offset projects and policies.

People & Forests: active on issues related to forestry, especially where the rights of local communities and indigenous peoples are concerned.

‘Mother Ship’ for several projects related to carbon markets:

Capacity-building initiatives: strengthening the voice of civil society in the Global South, with the aim of making local voices heard at the international policy level.

A few climate change facts Impacts associated with 2°C have been revised upwards and are now considered ‘dangerous’ and ‘extremely dangerous.’

The recent IPCC report stresses the importance of a carbon budget.

The 1.5°C pathway: Global emissions peak in 2014 and then decline by as much as 7.1% per year. has a significantly greater than 66% probability of staying below 2°C. The 2°C pathway: Global emissions peak in 2014 and then decline by as much as 3.4% per year. less that 50% chance of holding warming below 2°C. The G8 pathway: Emissions peak in 2021, decline by a maximum of 4.5% per year. Chance of keeping below 2°C is far less than 33%.

Stockholm Environment Institute discussion brief 2013. The three salient global mitigation pathways, assessed in light of the IPCC carbon budgets.

The window of opportunity to prevent catastrophic climate change is rapidly closing. We are now on an emissions path that could lead to warming of 4°C or more.

http://www.informationisbeautiful.net/visualizations/how-many-gigatons-of-co2/

Carbon markets at a cross roads

Established markets are in crisis• In 2012, the markets for both the Clean Development Mechanism

(CDM) and Joint Implementation (JI) prices well Euro 0.4• EU-ETS allowances below Euro 5 • May not recover any time soon. Reasons: • Low demand due to the

economic downturn and weak emission reduction targets.

• Significant over-supply of carbon offsets in large part due to lenient rules.

Carbon markets at a cross roads cont.

Nevertheless new markets emerging• New market schemes emerging in China, California, Korea,

Chile, Quebec, Japan etc.

• Some of them are offsetting schemes (e.g. Japan) most of them are ETS with offsetting component.

• The World Bank’s Partnership for Market Readiness (PMR) is fostering the development of such new market schemes.

Existing and Emerging ETSSource: http://icapcarbonaction.com

Joint Implementation

JI: Hot Air high issuance

Embedding the CDM Infrastructure in FVA and NMM

For each JI credit a country issues, it has to convert an AAU. Countries with a lot of hot air have little incentive to limit the number of JI credits they issue.

Without strict rules and international governance countries will likely maximize credit issuance and not quality.

JI pre-2020 • JI rules are to be reformed this year by Parties under the

UNFCCC SBI.

• Parties decided to join the two tracks.

• The new track will likely be less stringent than current track 2 and more stringent than current track 1.

• Despite the reform of rules, JI will likely remain a mechanism with limited environmental integirty.

• Currently no JI credits can be issued for emission reductions achieved after 2012, because countries have not received their AAUs for the 2nd KP period.

JI in WarsawReview of the JI guidelinesCountries could not agree on the details. The discussion was postponed to SBI40 (FCCC/SBI/2013/L.11).

Current draft text includes:Functions of the JISC as setting minimal technical requirements for the single Track, provide criteria for the demonstration of additionality, overseeing the issuance of ERUs

Continued issuance of ERUs before AAUs for CP2 are issuedCountries also discussed separately whether it should be possible to issue ERUs before they will get their respective AAUs for the second commitment period of the Kyoto Protocol (CP2).

This discussion is significant because each ERU is shadowed by an AAU but AAUs for CP2 have not yet been issued. Also this discussion was also postponed to SBI40 (FCCC/SBI/2013/L.12). Eligibility for Belarus and KazakhstanParties did also not agree on how to establish eligibility in relation to JI for Belarus and Kazakhstan who were not in the first Kyoto commitment period but are planning. This decision was also postponed to SBI40 (FCCC/SBI/2013/L.14 &Add.1 and Decision -/CMP.9) Guidance to the JISCFurther guidance to the Joint Implementation Steering Committee (JISC) for the year 2014. Final decision does not contain any substantive content that would improve the environmental integrity of JI.

JI post 2020 • For each JI credit a country issues, it has to convert an AAU.

AAUs are the allowances of the Kyoto Protocoll. The new agreement will likely not have such AAUs.

• Yet some Parties are pushing for having a JI without AAUs.

• This would in many ways be similar to what some Parties would like to see under the FVA.

State of play:

New markets, FVA and NMM Framework for Various Approaches (FVA)

Countries are negotiating under SBSTA if and how new carbon markets should be governed internationally and how traded units should be accounted for so that their units can be counted for compliance of targets under the Kyoto Protocol and the Convention.

New Market Mechanism (NMM)Countires also decided to establish a new market mechanism which will be governed through the UNFCCC.

Countries that want very few UN rules and little to no oversight are especially interested in the FVA. (e.g. UMBRELLA)

Countries that want a «scaled up CDM», sectoral mechanism and more oversight are advocating for the NMM (e.g. EU)

FVA, NMA, NMM in Warsaw

Discussions took place under the SBSTA during the 1st week of negotiations and could not be continued under the COP during the 2nd week

No decision in Warsaw, continuation of discussion at next session (June 2014)

Elements for a possible draft text were collected, which may constitute the basis for discussions at the next session

Parties strive for a balanced decision for the 3 topics (framework for various approaches, non-market-based approaches, new market-based mechanism)

UNFCCC: carbon markets after 2020CDM and JI rules («modalities and procedures») are currently being revised under the UNFCCC SBI. Political willingness for extensive reforms is very low. It is unclear in what form these mechs will exist after 2020.

FVA and NMMRules and procedures currently under negotiation. This discussion is held under SBSTA. Weak rules for FVA/NMM will endanger an effective post-2020

agreement. It is unclear if any rules that will be decided will apply to pre-2020 or

post-2020 or both.

Ad Hoc Working Group on the Durban Platform for Enhanced Action (ADP):Parties aim to develop a new more comprehensive climate agreement by 2015 for the period starting in 2020. After 2020: It is still completely unclear what the role of carbon markets in general and international offsets in particular will be.

Hot air : update on 3.7terWhat happened at COP18 in DohaAAUs are tradable emission permits under the Kyoto Protocol. One AAU allows a country to emit 1 metric tonne of CO2e. Kyoto Protocol rules allow countries to carry over all unused AAUs into the next commitment period.

13 billion surplus of Assigned Amount Units (AAUs) that had accumulated during the first commitment period of the Kyoto Protocol (CP1).

In Doha Parties agreed to amendment of the Kyoto Protocol (Paragraph 3.7ter) to avoid the build-up of new surplus.

3.7ter was very contentious! The EU stated in Doha that 3.7ter would be applied to them as “a bubble”, meaning for the entire region and not for individual countries. This enables them to apply the Doha rules on 3.7ter and the AAU surplus from the first commitment period in a less stringent way because they are able to move around surplus within the EU.

Hot air: Doha DecisionsUkraine, Belarus and Kazakhstan had second commitment period reduction targets well above their 2008-2010 average emissions. 3.7ter would greatly reduce the number of AAUs available for them to use in the second commitment period.

In Doha, Ukraine, Kazakhstan and Belarus voiced clear opposition to cancellation or limitation of any surplus units. After the Doha package was passed, all three countries indicated that they may not ratify CP2.

For more information on the Doha decisions, see: Carbon market Watch Policy Brief: Doha decisions on the Kyoto surplus explained

in Russian: http://carbonmarketwatch.org/cop18-surplus-decision-russian/

Hot air in Warsaw: update on 3.7terBecause of these issues the details of how 3.7ter and the surplus decisions would be implemented remained undecided in Doha.

These same issues that made decisions in Doha difficult surfaced again in Warsaw. In particular, Ukraine and Russia raised procedural issues and stalled the discussion. Ukraine introduced several texts that would in effect have revoked the 3.7ter decision.

Parties did not reach a conclusion in Warsaw and decided to postpone to SBSTA40 in June in Bonn. The draft text mentioned in the footnote of draft decision L.11 is available here and will be the basis for discussion at SBSTA40.

No decision on implementation procedures under para 5, 7 and 8 of the Kyoto Protocol will make it difficult for Parties, in particular the EU, to ratify the second commitment period. It remains to be seen how this issue will develop in June at SBSTA40 in Bonn and in December at COP20 in Lima.

Thank you!NGO WG strategy meeting

Kiev, 13-14 December 2013

Anja Kollmuss, Carbon Market Watch info@carbonmarketwatch.orgNature Code – Zentrum für Entwicklung und Umwelt