McCrone: Copenhagen – Countries May Be Starting to See the Wood for the Trees

By Angus McCrone
Chief Editor
New Energy Finance

It is bad enough getting older without actually having to watch the seconds drain away. For that reason, I suggest not looking at the website of the United Nations Framework Convention on Climate Change, where a digital clock remorselessly counts down the days, hours, minutes and seconds left before the Copenhagen conference on 7-18 December.

The event has been in the diary for a long time and yet, inevitably it seems in the sphere of international negotiation, the success or failure of Copenhagen will go right down to the wire. Preliminary talks in Bonn in August produced little progress, and expectations for those coming up in Bangkok from 28 September to 9 October are so low that even a deal there to reduce the pagination of the draft Copenhagen negotiating text from the current 200 pages would count as an achievement.

In the interim, there have been some steps forward and some steps back. Chinese President Hu Jintao’s commitment in New York this week for his country to curb its carbon emissions per unit of GDP was far from new – at least to seasoned climate change watchers. But it showed a welcome focus on the emissions issue as Copenhagen nears.

However it is now almost certain that legislation curbing US emissions will not have been passed by Congress before 7 December. President Barack Obama is having ominous difficulties with his flagship healthcare bill in Congress, and the death of Senator Edward Kennedy has slowed progress on that legislation further.

Events in Japan have been more positive. The election on 30 August saw a clear victory for the opposition DPJ, whose leader, Yukio Hatomaya, has subsequently confirmed his support for a 25% cut in emissions by 2020 from 1990 levels, much more ambitious than the outgoing LDP’s figure of 15% from 2005 levels.

We should reserve judgement on the new Japanese administration. It offered encouraging words in its manifesto on clean energy and climate change, but detailed proposals for action have been lacking and so have the relevant cost estimates – vital for maintaining public support.

There remains a potentially awkward juxtaposition between Copenhagen and the ongoing Doha Round trade talks. Some countries have criticised others for proposing environmentally-linked tariffs on imports, and Pascal Lamy, head of the World Trade Organisation, recently warned that failure to reach agreement at Copenhagen could make a trade deal more difficult. In the clean energy sector, we would certainly not want to see the two issues – emissions and trade – rolled up into one enormous ball.

So stress levels look certain to escalate among the main national negotiators and in the international organisations as that clock ticks down to Copenhagen. Are there grounds for the rest of us to keep a sense of perspective?

New Energy Finance’s carbon team has designed a unique chart illustrating different countries’ positions on developed country emission targets, the availability of credits and level of carbon prices. The chart is eye-catching and colourful, but what does it tell us?

One message is that the key economies and blocs, apart from arch-outlier Russia, are in one of two clusters. One is the developed economies led by the US, Japan and the European Union; and the other is the big emerging economies led by China, India, Brazil and Mexico.

The gap between the two is largely a result of the percentage cuts in emissions they want to see developed economies making. However to some extent, it also encompasses different views on the desirable supply of credits in the carbon market, with the emerging economies wanting a much looser regime than, say, the EU.

The big question is whether the two clusters can converge on the New Energy Finance chart. My carbon team colleagues are updating their view all the time, but their latest analysis suggests there have been some subtle shifts. The growing likelihood that climate change legislation in Congress will commit the US to a smaller emission reduction target (perhaps 14% on 2005 levels by 2020) than the 17% or so previously hoped, has widened the gap between it and the developing economies. But there are also signs that China is starting to accept that the US is bound by political constraints. If so, it is edging towards accepting a lower target for developed country emission cuts than it had previously demanded.

The major developed countries have in fact moved much closer to each other on emission reduction targets than many people realise. The EU likes to talk of a 20% cut by 2020, but this is based on a 1990 benchmark. If you align all targets to a 2005 benchmark, then the EU, the US and Japan are all heading for commitments to reduce emissions by around 14% or 15% by 2020.

In some specific areas, agreement is looking more likely. One is the Clean Development Mechanism, with agreement close on reforms to restrict the access to credits of certain technologies such as industrial gas, to provide more resources for the approval process for projects and to make decisions on projects more transparent.

Another is forestry. Although there is a split on mechanisms between the Americans, Australians and most emerging economies on the one hand, and Brazil and the European Union on the other, some hybrid of a market-based and a fund-based approach is likely to be agreed. Re-forestation and forestation projects should be able to sell credits into the US and Australian cap-and-trade schemes in the next decade. They may even be able to access the EU Emission Trading Scheme before 2020, on a pre-compliance basis for post-2020.

The biggest stumbling blocks on the path to Copenhagen remain the size of the gap between the two clusters on how much developed economies should cut emissions by 2020; and the size of the financial assistance emerging economies will receive to help them meet their goals. Either issue, or both, has the potential to wreck the December meeting and cast a dark cloud over international relations and the global climate.

But it may well be that realism will force a deal to be done, even if it is loose and vague and conditional on legislative approval in countries such as the US and Australia in 2010. The major economies could sign up to at least an indicative target for world emissions – something that was not achieved at Kyoto. This really would be a sign that policy-makers had finally got their eye on the wood rather than just the trees.

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