Bridging climate change mitigation & economic

development

Li Lailai

Stockholm Environment Institute

Paris, 26 October 2009

Outlines

Global targets urge large joint mitigation actions.

Current global mitigation mechanism is insufficient.

Inter-country joint mitigation plan (ICP), an inclusive mechanism

ICP bridges mitigation and economy

Global targets urge large joint actions

Complexity of mitigation features following facts:

Concentrations of GHG have grown up to over 430ppm CO2e today, being added at a rate of 2.5ppm per year.

Developed countries are responsible for 70% of carbon dioxide accumulated in the atmosphere; developing countries are catching up.

To reduce poverty, developing countries need to speed up economic development while climate change is hitting the poor the first and most.

Global targets urge large joint actions

Holding below 500ppm CO2e requires bringing emissions down to below 20Gt CO2e, around 50% of 1990 and 2000 levels (Stern 2009).

Given the global population will likely be around 9 billion by 2050, emissions have to be around 2 tons per person in average.

Large-scaled reduction is needed urgently; joint, collective actions from developed and developing countries are the MUST.

Global targets urge large joint actions

Mitigation is estimated to require $100 billion each year and aggressive dissemination and deployment of available technologies.

Given the legitimate right of growth for developing countries, a fundamental solution is the shift of the pattern of growth toward low carbon.

Questions: Who will finance it, and where is the money from? How can we bridge climate change mitigation with shifting to a low carbon economy?

Current global mitigation mechanism is not effective CDM is the only mechanism for Annex 1 countries

and non-Annex 1 countries to take joint actions of emission reduction.

It is marginal in global carbon market, primary CDM making for 19% in 2006 and 12% in 2007.

Technology transfer is low: great disparity between the national need of technologies for mitigation and TT realized through CDM.

“Cap - trade” regime prevents developing countries from participating in global carbon market.

Current global mitigation mechanism is not effective – a case of China

China’s 5-year national plan with quantified targets of reducing 20% energy intensity and 10% pollution intensity is not recognized by the current cap-trade regime.

Implementation of such targets in 2 more FYP periods results in cumulative avoidance of 58.1 GtCO2e and peaks China’s emission b earlier before 2030 or much earlier depending on the growth rate without substantial slow down.

0

2

4

6

8

10

12

14

16

18

20

GtCO2e

w ithout anyreduction

w ith 20% in eachof the FYPs

If GDP grows at 10.04% in the 11th FYP, and 7.67% in 12th and the 13th FYP periods.

If GDP grows at 10%, 7.5% and 5% respectively

If GDP grows at 10%, 6% and 5% respectively

Current global mitigation mechanism is not effective – a case of China

To meet the targets of “20%+10% energy and pollution intensity reduction in 2006-2010, China has

Closed small power plants of 25.87 million Kw, production of cements by 100 million tons, steel by 50 million tons, coke 30 million tons and paper 5 million tons in 2.5 years; invested 21.3 billion in 2006, ￥ 23.5 billion in 2007 and ￥ 27 billion in 2008, not counting social costs from unemployment caused.

In 2007, 1000 enterprises spent ￥ 50 billion on technology updating to fulfill the contracts of energy saving signed with the Chinese government, in addition to ￥ 5.56 billion from the government finance.

Current global mitigation mechanism is not effective – a case of China In the current “cap and trade” regime, these

targets, investments and contributions are not recognized, which if continued would be the largest the climate change mitigation program in the world.

The reality is that China is doing this alone by itself. A crucial question is “can China alone afford to continue this ambitious plan for 2 or 3 more 5-year periods?” What if not?

Inter-country joint mitigation plan (ICP)

Given the urgencies of large-scaled joint mitigation actions, participation of developing country as MUST, financial flow and technology TT, and so little hope for a global deal to be agreed,

ICP is proposed as a middle-ground mechanism that can be put in operation based on bilateral or multilateral agreements.

Inter-country joint mitigation plan (ICP)

Under the principle of “common but differentiated responsibilities”, ICP has 3 pre-conditions:

The national voluntary intensity-based energy saving and emission reduction targets from developing countries should be recognised internationally.

Emission reduction targets, technology transfer and financial flows built into an ICP reflect international monitoring, reporting and verification (MRV) standards.

An international fund should be set up to fund the ICP.

Inter-country joint mitigation plan (ICP)

ICP formed by a host (non-annex 1) country and one or more partner (annex 1) countries.

The host country proposes an ICP featuring its national intensity-based reduction targets and needs of technology and finance inviting partner countries for joint implementation through negotiations to reach agreement.

The results of ICP count toward the emission targets of the participating countries based on the responsibilities committed.

Inter-country joint mitigation plan (ICP)

The partner countries have two to three basic responsibilities or rights to an ICP:

sharing the targets of emission reduction,

transferring the needed technologies required for realizing the target, and/or

allocation of finance required for realizing the target through investment or other forms.

Inter-country joint mitigation plan

Role of an UN body:

In assessing ICP proposals,

To support and facilitate negotiations, and

To evaluate ICP implementation.

Assessment of ICP proposals focusing on

Targets, joint actions of delivery, responsibilities and commitments, resources required, milestones and benchmarks for monitoring and evaluation.

ICP bridges mitigation and economy – incentives for participation

For host countries:

ICP places in the centre the national interests of sustainable development strategy, from which emission reduction targets are drawn.

ICP applies to particular sector, resulting in a shift to low carbon industrial sector through technology progress and infrastructure upgrading, in addition to emission reduction.

Operation of ICP enhances the capacity of economic coordination, which will benefit the economic development in a long run.

ICP bridges mitigation and economy – incentives for participation For partner countries: they gain

Low reduction costs in the host country

Large technology markets in the host country

Long-term leverage on CO2 emissions reduction with joint research for new technology demonstration programs

For both sides:

Operated transparently, the results of emission reduction, technology transfers and financial flows are measured, reported and verified.

ICP bridges mitigation and economy – incentives for financial flow Open policies and market incentives in the host

countries will attract needed technologies and investment, supporting an ICP – China’s 30 year reform.

Chain’s GDP soared from about USD$52 billion in 1978 to USD$3615 billion in 2007.

During 1979-2007, use of foreign capital in China reached $138.7 billion, of which FDI account for about $111 billion invested in 632298 projects.

ICP bridges mitigation and economy – incentives for technology transfer By 2005, 750 R&D centres had been set up by

foreign companies in China (Jiang X, 2007).

The percentage of foreign companies doing so increased from 6.7% in 2000 to 17.1% in 2007.

61.8% of transnational corporations selected China as their overseas R&D locations during 2005-2009 (UNCTAD).

It is not just the costs of in-action but opportunities of actions that will convince the actions. ICP provides them.

Thanks

Lessons from CDM: 55% of the projects >100,000tCO2e

Projects by scales (million tCO2e)

# of projects

%Estimated

annual tCO2e reduced

%

>10 3 0.19% 31,358,570 9.64%

1-9.99 37 2.38% 93,840,466 28.85%

0.5-0.99 58 3.73% 40,974,773 12.60%

0.1-0.49 599 38.55% 115,151,841 35.41%

0.05-09 402 25.87% 28,929,069 8.90%

<0.05 455 29.28% 14,970,865 4.60%

Total 1554 100% 325,225,583 100%

Lessons from CDM: Technology transfer level is very low

Types of new or renewable energy

# of projects

% of projects

Estimated annual tCO2e

reduced

% of tCO2e reduced

Hydro 803 72.67% 83462645 62.73%

Wind 237 21.45% 27,342,691 22.57%

Bio mass 49 4.43% 9,401,993 7.76%

Power from methane

5 0.45% 238,570 0.20%

Wastes to electricity

8 0.72% 936,230 0.49%

Solar stove 3 0.27% 107,461 0.09%

Total 1105 100.00% 121,151,000 100.00%

Lessons from CDM: One time deal at company level

CDM buyersEstimated annual

tCO2e reduced%

Carbon funds, dealers or traders 218,170,545 67.08%

Banks or financial institutions 58,344,639 17.94%

Energy or power companies 44,744,010 13.76%

One-side projects 2,902,295 0.89%

Governments 1,064,094 0.33%

Total 325,225,583 100%

Lessons from CDM: it is marginal in global market

　 2005 2006 2007

　 Volume (MtCO2e)

Value (MUS$)

Volume (MtCO2e)

Value (MUS$)

Volume (MtCO2e)

Value (MUS$)

　 Allowances

EU ETS 321 7,908 1,104 24,436 2061 50097

New South Wales 6 59 20 225 25 224

Chicago Climate Exchange

1 3 10 38 23 72

UK-ETS 0 1 na na

Sub total 328 7,971 1,134 24,699 2,109 50,394

Project-based transactions

Primary CDM 341 2,417 537 5,804 551 7426

Secondary CDM 10 221 25 445 240 5451

JI 11 68 16 141 41 499

Other compliance 20 187 33 146 42 265

Sub total 382 2,894 611 6,536 874 13,641

TOTAL 710 10,864 1,745 31,235 2,983 64,035

Thirty years after the trip, the average annual disposable income of Chinese urban residents grew 6.5 times from 343 yuan (50.4 U.S. dollars) in 1978 to 13,786 yuan in 2007.

Over the past 30 years, China has maintained an average annual GDP growth rate of 9.8 percent, more than three times the world average, President Hu said.

Gross domestic product (GDP) soared from a mere 360 billion yuan (about 52 billion U.S. dollars) in 1978 to 24.95 trillion yuan in 2007, making China the world's fourth-largest economy.

The country's poor population was reduced from 250 million in 1978 to 14.79 million in 2007.

The President said China's GDP had soared from more than 360 billion yuan (about 52 billion U.S. dollars) in 1978 to 24950 billion yuan in 2007, making China become the world's fourth largest econom