Two recent publications highlight the challenges ahead in the multilateral process that continues to seek an equitable global approach to the issue of growing CO2 emissions. But comparing and contrasting them illustrates the contradictions that exist as negotiators attempt to maintain existing structures and work within the spirit of the Durban agreements.
Two weeks ago, a major report issued by the High Level Panel on the CDM Policy Dialogue recommended a very broad range of actions for stabilizing and reversing the ongoing price collapse in the CER market (Certified Emission Reduction, the carbon unit within the CDM), with a view of re-establishing the CDM as the cornerstone of the global carbon market and thereby kicking off a further round of emissions mitigation action.
This week, the Harvard Project on Climate Agreements issued a policy brief which outlines the shape of the new paradigm that the UNFCCC process has hopefully entered following the creation of the Durban Platform for Enhanced Action at COP 17 last December. Their ambitious interpretation of the agreement sees the Berlin Mandate effectively consigned to history (which enshrined the notion that emission reduction was effectively the responsibility of developed countries and which led to the 95-0 vote on the Byrd-Hagel Resolution in the United States Senate) and a new order emerging which results in all countries acting to manage emissions. There is no doubt that the latter interpretation is the only one that makes sense, but only time will tell if this represents the new reality. The Harvard think piece ends with the challenge;
Having broken the old mold, a new one must be formed. A mandate for change exists. Governments around the world now need fresh, outside-of-the-box ideas, and they need those ideas over the next two to three years. This is a time for fundamentally new proposals for future international climate-policy architecture, not for incremental adjustments to the old pathway. We trust that this call will be heard by a diverse set of universities, think tanks, and advocacy and interest groups around the world.
Rescuing the CDM as recommended by the Policy Dialogue is a laudable ambition, but perhaps falls into the category of “incremental adjustments to the old pathway” rather than “outside of the box ideas”. Conversely, the Policy Dialogue proposal is attempting to stave off the collapse of the very idea of “carbon markets” by rescuing the one global example of their application. While “out of the box” thinking is certainly welcome, it is also hard to argue that we are done with carbon pricing/markets and now need something new. In fact, carbon pricing remains core to the solution.
As such, we end up with the dichotomy of needing new ideas but not wanting to see the structures of the past slip through our fingers; but should we mind that they institutionalize some of the ideas within the Berlin Mandate?
The CDM was a bold idea when conceptualized in the Kyoto Protocol, starting with the simple phrase;
A clean development mechanism is hereby defined.
But has it reached its use-by date and should it be consigned to the dustbin along with the Berlin Mandate? Unfortunately the answer is both “yes” and “no”. It does represent an era of action and financing being the responsibility of developed countries only, which is no longer a tenable paradigm within which to operate. It was designed to help developed countries meet their mitigation goals and to channel funding from developed to developing countries for the purpose of sustainable development. Yet it did demonstrate a mechanism which allowed a broader range of actors to get involved in the carbon market than those immediately impacted by the cap on allowances. This has become a design feature of more recent cap-and -trade systems, albeit with home grown offset systems.
The solution for the CDM, both to rescue the market today and to prepare it for the “out of the box” solution of tomorrow, must be to disentangle it from the Kyoto Protocol and make it available as a general offset resource under the UNFCCC, perhaps even one that any nation could use when it wants to involve part of its economy in the market without actually applying a cap to it (such as the farming sector in Australia).
Considerable resource is required to establish an offset mechanism, both in design and operation. Reinventing this multiple times around the world hardly seems like the best use of government resources, but that is what is happening. Unshackling the CDM wasn’t discussed in the Policy Dialogue report, perhaps because it then enters into the complex realm of Kyoto Protocol politics. The closest it got to this was a proposal to broaden the use of CERs.
To unlock the full potential of the CDM, all countries should be enabled to use CERs, not only those with mitigation targets under the Kyoto Protocol.
But the Kyoto Protocol represents the Berlin Mandate and, according to the Harvard Project, the new paradigm is a world without such a legacy. It also makes little sense under the accounting rules of the Kyoto Protocol to have other parties dipping into that market when their compliance obligation may be governed by another system. This leaves only the more radical approach of decoupling the CDM from the Kyoto Protocol, but then following the recommendations of the Policy Dialogue to broaden its scope and expand its use.
This also takes the CDM into the world of another discussion, that of the New Market Mechanism. Under such an approach, the CDM could migrate to become the NMM, but for all nations to use within the design of their emission trading systems.
I’m not very clever person so everything appears to be very simple to me. First, carbon trading and climate change are political issues. So it is clear that they need political solution. The best tool to fight political issue is through regulation or tax and both approaches are already in use on carbon emissions. If these emissions prevail all you need to do is just more regulation or more tax. Governments are very keen to increase tax and especially when people don’t object too much. As many people buy into IPCC and AGW it shouldn’t be too difficult to increase carbon tax. At least EU and US are increasingly efficient in putting more tax and more regulation on fossil fuel. However, some people are still not happy. Although governments collect more tax, the climate change fighters want more control over it. They would prefer to bypass governments and collect “tax” under some scheme which would redistribute the money in favour of their petty project. It is obvious that government will resist this approach as they need this money to pay for social security and interest on their debt. Perhaps even tax payers will eventually resist. We shall see.
I’ve read the pamphlet produced by the “high level panel on CDM and it is a really eye opener. The members are various activists, bureaucrats and bankers. As a basic axioms they take 1. Climate change can be felt and it will get much worse. 2. The world is not doing enough. 3. CDM transferring money from developed to developing is collapsing. Based on these axioms they recommend the key recommendation is clear: To provide demand for CDM.
As this system is pure bureaucracy we know that it will never work efficiently. More over it just creates web of interests utilising money nobody is responsible for.
Although I don’t agree with axiom 1) and therefore I see the initiative to limit CO2 production as pointless I would suggest far more efficient way to achieve given target.
Simply: 1. Tax carbon production 2. Use this tax as normal part of government budget. This will create incentive to produce energy without releasing CO2 and it will produce enough cash to sustain current levels of government spending.
In reality, taxing carbon is just additional tax driving industry abroad and lowering domestic product. Learning the history lesson and based on current governing crisis it might be wiser taking advantage of fossil energy available at the current cost level to fix the crisis (get rid of debt and balance the budget) and mitigate any potential negative climate effects via technological development and economic growth. The countries taking this route will benefit from competitive advantage.