COP17: ONE STEP CLOSER TO A LOW-CARBON FUTURE

Transcription

1 COP17: ONE STEP CLOSER TO A LOW-CARBON FUTURE The world s climate change community traveled to Durban for the COP17 climate conference with expectations set very low. The prospects for the Kyoto Protocol looked bleak, and as a result there was great uncertainty over the future of the Clean Development Mechanism (CDM) and Joint Implementation (JI) carbon markets. Key players seemed set on apparently irreconcilable positions, with many developing countries insisting that Kyoto must continue at all costs while countries such as Russia, Japan and Canada were equally adamant that they would not get involved in a second commitment period. The two largest emitters, China and the US, seemed as far apart as ever, while the key cheerleader for the process, the EU, appeared absorbed by its internal financial problems and was still smarting from the disappointments of Copenhagen. The whole UNFCCC process was in danger of becoming an irrelevant sideshow. Yet as Durban headed into the final weekend, rumors started to circulate that a deal would happen and a significant one at that. And finally, some 36 hours after the conference was due to end and after a few heads had been metaphorically knocked together an agreement was reached. In the following pages we outline the key decisions and what they mean for business. 1 COP17: One step closer to a low-carbon future

2 The new working group created to formulate the agreement has a crucial role to play in building on the solid advances that emerged from the conference. Viewpoint Yvo de Boer Global Special Advisor KPMG Climate Change & Sustainability At one point, the COP17 meeting in Durban looked as if it was heading for disaster. Now that it is over, it is clear that the world is still heading in the right direction in terms of its approach to dealing with climate change and that it is more firmly committed to a low-carbon path than it was before the meeting. As we said before the meeting, the UNFCCC process, although slow and beset with challenges, is moving forward. Expectations for Durban were very low, but in spite of this, the conference led to a significant breakthrough that will have important consequences for businesses around the world. The Kyoto Protocol has been given a second lease on life and it will now operate within the context of a broader approach to tackling climate change that will, for the first time, include all the major emitters. There will be a second commitment period, to start from 2013, meaning that all of the treaty s rules, mechanisms and markets will remain in force. Business can have confidence that market-based mechanisms such as the Clean Development Mechanism (CDM) will continue. But more importantly, there is a commitment to a new legal, global instrument whose details will be approved by 2015 and which will take effect by As a result, an international agreement for global action on climate change is within our reach. Hopefully, by 2015 the current economic crisis will be behind us, creating a more benign climate for governments to make the commitments the world needs in order to tackle climate change effectively. In addition, the 2015 deal will take place against the background of a new assessment by the scientific community to be published in 2014 that is likely to deliver a wake-up call for us all: while the rhetoric has been very impressive, our concrete actions have not taken us anywhere near where we need to be to keep temperature rises to below 2ºC. The deadlines for approval and implementation of the agreement have been settled, but its exact nature remains open to interpretation. The new working group created to formulate the agreement therefore has a crucial role to play in building on the solid advances that emerged from the conference. We need clarity on the legal nature of the outcome and the targets that will be involved for the various parties. Important progress was also made on the establishment of the Green Climate Fund which aims to mobilize US$100 billion annually to help developing nations reduce emissions and adapt to the effects of a warming climate. Prior to the Conference it was unclear what role business would play in the fund; the worry was that the private sector would be sidelined. Thankfully, Durban saw confirmation that the Fund will have a facility to fund private sector initiatives. It will actively seek to promote business involvement and catalyze further public and private money. This approach could see public-private partnerships in developing nations acting as vehicles for sustainable growth. Such initiatives would have the potential to build green industries, create jobs, alleviate poverty and improve infrastructure as well as tackle climate change. 2 COP17: One step closer to a low-carbon future

3 A less publicly noted success to come out of the COP17 at Durban was the commitment to develop a common system for measuring, reporting and verifying emissions reduction. This is a key foundation for progress especially because lending from the Green Climate Fund may be results-based. If the private sector is to invest at scale, then there must be a robust and internationally accepted framework for evaluating achievement. Politically, it was interesting to see in Durban the emergence of a strong coalition between the EU and a large number of developing countries, which combined to push for a strong outcome in the shape of a new and all-encompassing legally-binding instrument. Another significant advance was the indication that major developing countries including China will consider signing up to a legally-binding obligation in the context of a post-2020 framework. Business can take away from Durban a clear signal that the international community is committed to taking the climate change agenda forward, that market-based mechanisms will continue and that there will be clear reporting guidelines. The climate agenda took a big step forward now the details must be sorted out before Key Topics of Debate at COP17 and the Relevance to Business Kyoto Protocol and beyond To the surprise of many, the Kyoto Protocol lives. It was widely expected to wither away at the end of its first commitment period in December But agreement on a new deal that will, for the first time, commit the US, China and India to cut emissions facilitated the extension of the Kyoto Protocol. A second commitment period will run from 2013, for either five or eight years, with the final duration to be decided in The third phase of the EU Emissions Trading Scheme runs from 2013 to 2020, which may influence how long the period lasts, not least since the commitment of Russia, Japan and Canada before the meeting not to sign up to a second commitment period remains in force. The main impact of the extension will be on the EU, which makes up the bulk of the Annex 1 countries that have committed to reduce their emissions and on carbon markets because the Kyoto Protocol s accounting rules, mechanisms and markets all remain in action as effective tools to leverage global climate action and as models to inform future agreements. A new legal instrument will be developed for ratification by 2015 and implementation by 2020, with a raised level of ambition. The instrument will be applicable to ALL PARTIES, not just the developed nations that signed up to Kyoto. It means that for the first time, the US, China and India have committed to a legally-binding global agreement to reduce their emissions, albeit not for almost a decade. In addition, the devil is in the detail and not only is there a lot of detail but working it out has been postponed to future years. However, COP17 could have resulted in the international climate change process falling in a heap and the major emitters walking away and going it alone. So there is cause for cautious optimism here and a clear signal that no government wants to be seen as the wrecker of the climate change process. It is also significant that the process has moved into the 21 st century and climate change is no longer being seen as an issue that is up to the developed world to fix alone the new legal instrument will apply to all parties. 3 COP17: One step closer to a low-carbon future

4 As well as sourcing funds from the private sector, the Fund will also be able to lend to private sector mitigation and adaptation activities. Business can take encouragement that the world has not abandoned the multilateral climate process as some predicted would happen. Businesses that plan for increased government actions to reduce emissions and adapt to a climate-changed world will be best placed to take advantage of the challenges and opportunities of the years to come. Green Climate Fund (GCF) There was also an agreement on the structure of the GCF, the US$100 billion a year fund to help developing countries to combat climate change and adapt to its impacts. The UN s Climate Change Secretariat said that countries have already started to pledge to contribute to the start-up costs of the fund. As a result, it can be made ready in 2012, and at the same time developing countries can prepare to access the Fund, boosting their efforts to establish their own clean energy futures and adapt to the impacts of climate change. However, developed countries were urged to improve the transparency of their reporting on the fulfillment of their fast-start finance commitments (US$30 billion for the period ). A committee co-chaired by a developing and a developed country will keep an overview of climate finance in the context of the UNFCCC and a focused work program on long-term finance was agreed, which will contribute to the scaling up of climate change finance going forward and will analyze options for the mobilization of resources from a variety of sources. Yet, while we may know where the Fund s first two meetings will be held (Switzerland and South Korea, which have both offered to host the Fund) the main issue that existed before the conference the lack of detail about where the money is going to come from remains. The UNFCCC talks of thematic funding windows but more detail is needed on exactly what these are and how they will work. Once the GCF is resourced, it will have a broad range of financial tools at its disposal and will seek to catalyze further public and private sector funds for projects. What is clear, however, is that there is a role for the private sector in the Green Climate Fund. As well as sourcing funds from the private sector, the Fund will also be able to lend to private sector mitigation and adaptation activities. This was not confirmed this time last year and there was a worry that Durban might produce a fund focused on government grants in an attempt to subsidize our way out of climate change. Over time the GCF will become the key financial instrument of the international process and it will be balanced between funding both mitigation and adaptation projects. All developing countries will be eligible for funds, which can be used for activities to enable and support enhanced action on adaptation, mitigation (including Reducing Emissions from Deforestation and Forest Degradation (REDD+)), technology development and transfer (including carbon capture and storage), capacity-building and the preparation of national reports by developing countries. In addition, it will also support project-based and programmatic approaches such as NAMAs. The Fund s remit extends beyond climate change it was underlined that any help given to developing countries must also help their social and economic development and poverty eradication and promote a just transition of the workforce, the creation of decent work and quality jobs in accordance with nationally defined development priorities and strategies. Companies with the potential to deliver on eligible projects such as, adaptation infrastructure, clean energy or low carbon transport, are advised to monitor developments, and engage with the Fund administration. Nationally Appropriate Mitigation Actions (NAMAs) Over 40 developing nations have already presented proposals to the UNFCCC to limit their carbon emissions by Others are still formulating goals for submission. These proposals, known as Nationally Appropriate Mitigation Actions (NAMAs), could help these countries leapfrog the high-carbon history of developed nations and instead pursue low-carbon, sustainable growth. The concept still remains somewhat abstract and it remains unclear exactly what type of actions will be eligible, but NAMAs will be the recipients of a significant proportion of the cash in the GCF. They will need significant input from the private sector and it is crucial 4 COP17: One step closer to a low-carbon future

5 that the NAMAs have the ability to scale up their ambitions in a way that the CDM has been unable to do. Durban saw a commitment to have a registry of NAMAs up and running within a year which will match proposals for projects in developing countries with support offered by developed nations. One of the best ways to remove barriers to private sector investment is through the use of public-private partnerships and if these are developed, they provide a significant opportunity for investors and businesses to drive sustainability across many different markets and in many different sectors of the economy. Carbon Markets The agreement to extend the Kyoto Protocol ensures the continuation of international carbon markets because its accounting rules, mechanisms and markets all remain in action as effective tools to leverage global climate action and as models to inform future agreements, according to Christiana Figueres, Executive Secretary of the UNFCCC. The second commitment period extends the lives of the CDM and joint implementation by a few years, but a potentially significant development is the decision to develop a new marketbased mechanism to assist developed countries in meeting part of their targets or commitments under the Convention. At the same time, the UNFCCC will also undertake a review of the existing market-based mechanisms, looking at what has worked in current carbon markets and what can be improved. Submissions to this review must be ready by 5 March 2012 and the review will be discussed at COP18 in 12 months time in Qatar this gives commentators and stakeholders less than three months to put forward their comments and suggestions on how to improve carbon markets. Carbon Capture and Storage (CCS) projects will become eligible for CDM funding. Because of the considerable uncertainty about their efficacy, developers will have to put 5 percent of the credits earned in reserve so they will be awarded only after 20 years, provided that no carbon dioxide has leaked from the underground store. While this is a positive development for CCS, the technology remains in its infancy, expensive and unproven and it will need significant extra funding on top of any carbon credits before it becomes economically viable. Measurement, Reporting and Verification (MRV) Activities funded by the Green Climate Fund will be regularly monitored for impact, efficiency and effectiveness and a results measurement framework with guidelines and appropriate performance indicators will be approved by the Board. A significantly advanced framework for the reporting of emission reductions for both developed and developing countries was also agreed. Developed countries must prepare biennial reports on their emissions and on their projects to reduce emissions, in accordance with their national circumstances, with the first reports due at the start of Developing countries will go through a similar parallel process, with their first biennial update report submitted by December 2014; by 5 March next year they must also submit information about their nationally appropriate mitigation actions and low-emission development strategies, in order to obtain financial and technical support by developed countries. 5 COP17: One step closer to a low-carbon future

6 Building on an agreement at Cancun, these developments suggest that a robust MRV system could be developed. This has been a longheld ambition of donor countries and investors but has been strongly resisted by developing countries that have seen it as a breach of their sovereignty. If the private sector is to invest at scale it will look for robust frameworks to assess the performance of the projects they invest in, especially since some Green Climate Fund loans may be results-based. A consensus on MRV could therefore help to increase the flow of private sector capital. Capacity Building and Technology Transfer To facilitate technology development and transfer from developed to developing countries, a new Climate Technology Centre and Network is being set up as soon as possible, although it has yet to be decided where it will be hosted. It will prepare project proposals for the deployment, utilization and financing of existing technologies for mitigation and adaptation and R&D of new climate-friendly technologies for sustainable development. There will also be an annual Durban Forum held to discuss progress on capacity-building. Its first meeting will be in May Adaptation A new Adaptation Committee is to work to improve the coordination of adaptation actions at a global scale. The adaptive capacities above all of the poorest and most vulnerable countries are to be strengthened, the Secretariat says. National Adaptation Plans will allow developing countries to assess and reduce their vulnerability to climate change and the most vulnerable are to receive better protection against loss and damage caused by extreme weather events related to climate change. Conclusion There is no doubt that the outcome of COP17 is far from perfect. It does not put the world on track to keep temperature rise to below 2 C but it is a deal that greatly exceeded expectations. For the first time, all countries have committed to an outcome with legal force committing them to curb their emissions. It is a recognition that the world economy has changed since the Kyoto Protocol was signed. By doing away with the divide between developed and developing nations, this agreement could be the catalyst for real action it increases the likelihood that the EU will increase its emissions reduction target to 30 precent, which in turn could spur further commitments elsewhere. By 2015, when the new deal must be finalized, negotiations will take place against a completely different backdrop to today. Hopefully the worst of the global financial crisis will have passed and the world economy will be well on the road to recovery. The 2015 COP negotiations will also take place against the backdrop of the latest update on the climate science as the Intergovernmental Panel on Climate Change publishes its next report in 2014 all the indications are that the case for urgent action will be made even more starkly than it has already. For businesses, this means planning to operate in world that has taken further steps on the low carbon pathway. In addition to the EU ETS, there may well be national carbon markets in Australia, South Korea and China as well as a host of regional schemes from California to Rio de Janeiro. Many details remain to be worked out and there are ample opportunities for the agreement to falter, but for the first time it raises hopes of a truly global commitment to combat climate change. A new Adaptation Committee is to work to improve the coordination of adaptation actions at a global scale. 6 COP17: One step closer to a low-carbon future

7 KPMG Climate Change and Sustainability Services KPMG s Climate Change and Sustainability Services (CC&S) professionals provide sustainability and climate change assurance, tax and advisory services to organizations to help them apply sustainability as a strategic lens to their business operations. We have more than 25 years experience working with leading businesses and public sector organizations which has enabled us to develop extensive relationships with the world s leading companies and to contribute to shaping the sustainability agenda. The expanding CC&S network, over 50 countries, enables us to apply a consistent, global approach to service delivery and respond to multinational organizations complex business challenges with services that span industry sectors and national boundaries. Our experienced teams assist organizations in the following areas: Public policy and NAMA structure advice Corporate Responsibility strategy assistance Sustainability risk & opportunity analysis Corporate Social Responsibility/ Sustainability/GHG information systems design and implementation Regulatory framework assessment and optimization, including tax and carbon emission regimes Sustainable supply chain enhancements Tax incentives and credits Corporate Responsibility reporting and assurance, including pre-audit assessments and greenhouse gas (GHG) emissions verification. 7 COP17: One step closer to a low-carbon future

8 Contact us Ted Senko Global CEO Climate Change & Sustainability T: E: Yvo de Boer Special Global Advisor Climate Change & Sustainability T: E: Barend van Bergen Head, KPMG s Global Center of Excellence Climate Change & Sustainability T: E: vanbergen.barend@kpmg.nl Europe/Middle East/Africa Jose Luis Blasco Vazquez KPMG in Spain T: E: jblasco@kpmg.es Vincent Neate KPMG in the UK T: E: vincent.neate@kpmg.co.uk Americas kpmg.com The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. The views and opinions expressed herein are those of the survey respondents and do not necessarily represent the views and opinions of KPMG International KPMG International Cooperative ( KPMG International ), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. John Hickox KPMG in the US T: E: jhickox@kpmg.com Asia/Pacific Sung Woo Kim KPMG in Korea T: E: sungwookim@kr.kpmg.com The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. Designed by Evalueserve. Publication name: COP17: One step closer to a low-carbon future Publication number: Publication date: December 2011