Category: INDC

Increasing ambition under the Paris Agreement

dchone January 18, 2019

The Paris Agreement is built on the principle of increasing ambition through nationally determined contributions (NDC), with the goal of reaching net zero emissions in the second half of the century. In effect, the Agreement is built on a ratchet mechanism that operates on a five year cycle of;

Review of NDCs and their achievement or otherwise;
Assessment of the global impact of all NDCs in terms of overall emissions and the projection of change and therefore temperature;
And finally, re-submission of NDCs with improved ambition.

Source: Shell Sky Scenario

The pieces of this approach sit in various parts of the Agreement and COP21 Decision Text and include the following elements;

Within Article 3:

. . . all Parties are to undertake and communicate ambitious efforts as defined in Articles 4, 7, 9, 10, 11 and 13 with the view to achieving the purpose of this Agreement as set out in Article 2. The efforts of all Parties will represent a progression over time . . .

Within Article 4:

Each Party’s successive nationally determined contribution will represent a progression beyond the Party’s then current nationally determined contribution and reflect its highest possible ambition . . . .

Within Article 13:

The purpose of the framework for transparency of action is to provide a clear understanding of climate change action in the light of the objective of the Convention as set out in its Article 2, including clarity and tracking of progress towards achieving Parties’ individual nationally determined contributions under Article 4.

Within Article 14:

The outcome of the global stocktake shall inform Parties in updating and enhancing, in a nationally determined manner, their actions and support in accordance with the relevant provisions of this Agreement . . . .

At COP24 in Katowice the national negotiators were charged with developing the so-called ‘rulebook’ to fully shape and specify this process, and they did just that. The text that emerged from the COP specifies in great detail how NDCs should be submitted, how GHGs should be measured and reported and importantly, how the NDCs reflect the outcome of the global stocktake and contribute to the goals of the Agreement.

Common NDC timeframes are introduced along with a drive towards a uniform formulaic structure, a registry is proposed to hold NDCs and the history of submissions and there is a requirement to detail the actions taken to deliver the NDC. For example;

Each Party shall provide information on actions, policies and measures that support the implementation and achievement of its NDC under Article 4 of the Paris Agreement, focusing on those that have the most significant impact on GHG emissions or removals and those impacting key categories in the national GHG inventory. This information shall be presented in narrative and tabular format.

How the Party considers that its nationally determined contribution is fair and ambitious in the light of its national circumstances [NB – these are tests against the Agreement itself where it requires increasing ambition in successive NDCs]:

Fairness considerations, including reflecting on equity;
How the Party has addressed Article 4, paragraph 3, of the Paris Agreement;
How the Party has addressed Article 4, paragraph 4, of the Paris Agreement;
How the Party has addressed Article 4, paragraph 6, of the Paris Agreement.
How the nationally determined contribution contributes towards achieving the objective of the Convention as set out in its Article 2;
How the nationally determined contribution contributes towards Article 2, paragraph 1(a), and Article 4, paragraph 1, of the Paris Agreement.

This stringency in NDC design and greenhouse gas reporting potentially takes the Paris Agreement towards a more Kyoto Protocol Annex 1 structure, but with all nations participating rather than just developed countries. That was a world of carbon budgets, clear numerical reduction targets and emissions trading between Parties. Missing from the Katowice package was the emissions trading aspect, which can be delivered by Article 6, although no agreement was reached on its final structure. It is the accounting provisions of Article 6 that tip the balance in favour of a Kyoto lookalike, which perhaps explains some of the issues left on the table.

Then there is the first global stocktake in 2023, but this is where the fault lines within the process begin to show. While global by design, the stocktake may have no individual Party focus and can only check on collective action. Although this is still useful, it has limits in that overall progress under Paris is entirely due to the sum of component parts, which are the NDCs. The text in the rulebook says;

Emphasizes that the outputs of the global stocktake should focus on taking stock of the implementation of the Paris Agreement to assess collective progress, have no individual Party focus, and include non-policy prescriptive consideration of collective progress that Parties can use to inform the updating and enhancing, in a nationally determined manner, of their actions and support in accordance with relevant provisions of the Paris Agreement as well as in enhancing international cooperation for climate action;

Further, within Article 15 of the Agreement a mechanism is established to facilitate implementation and promote compliance with the Agreement by the Parties, but this is about compliance with the rules (such as having an NDC), not compliance with the goal, since that is a collective responsibility. At COP24 this was addressed by creating a committee and outlining its responsibilities. Again, there is clear wording to avoid finger-pointing at one or more Parties;

In addressing systemic issues, the Committee shall not address matters that relate to the implementation of and compliance with the provisions of the Paris Agreement by an individual Party.

In the Sky scenario, released last year by Shell, there is a strong dependency on the ratchet mechanism working at its best. The story behind the Sky numbers sees widespread re-submission of NDCs at the earliest possible dates, with much greater ambition adopted and therefore a shift downwards in the global emissions curve during the latter 2020s. To achieve this, strong leadership is required along with an underpinning cooperative spirit that transcends simply turning up at the COPs and reporting back. In such a world finger-pointing isn’t necessary as those countries which may be struggling to raise ambition are helped by others.

The ratchet mechanism is both the strongest and weakest aspect of the Paris Agreement. It devolves action to national governments which works very well, but requires a non-confrontational supportive approach to coax out the best from every country. This latter aspect is struggling to shine through in the current world order.

Note: Scenarios are not intended to be predictions of likely future events or outcomes and investors should not rely on them when making an investment decision with regard to Royal Dutch Shell plc securities. Please read the full cautionary note in http://www.shell.com/skyscenario.

Climate Risks and ‘Hothouse Earth’

dchone August 9, 2018

A new paper by researchers from a number of institutions, but including the Stockholm Resilience Centre and the Potsdam Institute for Climate Impact Research, has made headlines in many on-line and print media outlets in recent days.

The paper warns of the possibility of a ‘hothouse earth’ condition, which arises due to current warming forcing the existing Glacial-Inter-glacial Cycle to flip to a new cycle characterized by much warmer temperatures. In the opinion of the authors, the flip could occur because of known but uncertain feedback effects in the climate cycle, such as permafrost thawing, rain-forest die-back and increased bacterial respiration in the ocean.

A similar story in The Atlantic notes that the hothouse conditions of the Eocene, which experienced average global temperatures 9-14°C higher than current conditions, were characterized by carbon dioxide (CO2) levels of at least 1000 ppm, a level that could conceivably be reached early next century if no mitigation actions are forthcoming. The author of The Atlantic article argues that if we do, in fact, push CO2 up to around 1,000 ppm by the end of the century, the warming will persist and the earth will continue to change for what, to humans, is a practical eternity. And when the earth system finally does arrive at its equilibrium, it will most likely be in a climate state with no analogue in our short evolutionary history.

Based on an analysis of the Eocene and other periods (A, Mid-Holocene; B, Eemian; C, Mid-Pliocene; and D, Mid-Miocene are shown in the illustration above), it would appear that high temperature outcomes are possible. It’s not unreasonable to explore such a proposition, although the media reporting of it had few caveats in terms of understanding this risk.

That risk can be visualized (chart below) by looking at work done in 2009 by the MIT Joint Program on the Science and Policy of Global Change which I discussed in a recent post. Their analysis demonstrated that even a modest attempt to mitigate emissions could profoundly affect the risk profile for equilibrium surface temperature. They looked at five mitigation scenarios, from a ‘no policy’ approach to a very stringent climate regime (Level 1, akin to a 2°C case). In the ‘no policy’ approach, mid-range warming by the end of the century is some 5°C compared to the late 20th century, but with a wide distribution, which means that there is a small probability of warming up to 8°C or more – an unacceptably high outcome even when accounting for the small probability that it might occur. In probability distribution terms, this is known as a ‘long tail’. It is shown in black on the right-hand side of the chart below and stretches out to 10°C, or Eocene levels of warming.

But even modest mitigation efforts, while not shifting the mid-range sufficiently for an outcome close to 2°C, nevertheless radically change the shape of the distribution curve such that the spread narrows considerably, with the highest impact outcome dropping by some 3-4°C. As mitigation effort increases and the mid-range approaches 2°C, the distribution narrows further such that the highest possible outcome is limited to 3°C.

While low risk, high impact outcomes might seem overstated by some and certainly cause a few to retreat to a position of defense (e.g. climate skepticism), even a very small chance of a very large impact event is not something that can be ignored. Rather, that risk must be managed. As surface temperature rise is largely a function of cumulative carbon added to the atmosphere, then risk management should focus on the goal of net zero emissions, otherwise carbon dioxide levels in the atmosphere will continue to rise, even if emissions are much lower than today. In that case the risk persists.

The level of mitigation, as shown in the chart above, is then largely a function of when net-zero emissions is reached. Level 1 could be associated with net-zero emissions in 2070, which is achieved in the Shell Sky Scenario, released earlier this year. Level 4 might see net-zero emissions reached in the first half of the 22nd century.

A question to consider when reading the Hothouse Earth paper, is whether we are now beyond the ‘no policy’ outcome, which means that the long tail risk associated with a no mitigation scenario has been managed to some extent at least. With energy technology development proceeding at the pace it is, in combination with the Paris Agreement’s nationally determined contributions and emission targets, policies and goals implemented sporadically by cities, states, countries and regions, there is reason to consider that a path towards net-zero emissions is now unfolding, albeit gradually (see below, the UNFCCC analysis of INDCs, published in May 2016). That pathway is still far from one which equates to well below 2°C, but it could be one that mitigates the long tail impact.

The authors of the Hothouse Earth paper argue for rapid and significant mitigation action, in combination with other measures to improve the stewardship of the entire Earth System. While that call should not be ignored, it is also important not to lambaste early but incomplete progress; it represents an important starting point for the eventual destination. It also helps mitigate long term risk, a critical requirement that is often overlooked in the search for the perfect solution.

After Bonn, is progress fast enough?

dchone May 17, 2018

The Parties to the Paris Agreement spent the first two weeks of May in Bonn, discussing amongst other things, the so-called rule book of the Paris Agreement. There was some progress, but the issues on the table are far from settled, to the extent that another negotiating session has been slotted in between now and COP24. That session will take place in Bangkok in early September.

The question on my mind is whether the pace is sufficient for setting out the conditions for countries to start ratcheting up their Nationally Determined Contributions (NDC) and shifting the current combined emissions trajectory from one that is potentially 3+°C to something that is closer to ‘well below 2°C’. The required changes are significant, as we noted in the recently released Sky scenario. For example, in the first 5-year period which is now opening with the Fijian inspired Talanoa Dialogue, we imagined a ratchet as sizable as China contributing a sharply falling emissions profile by 2030, rather than a peaking of emissions around 2030. Similarly, in the second NDC cycle from 2023-2028, a country such as India would contribute a clear peak in emissions in the 2030s. This would be a significant step up from the current contribution based largely on expansion of renewable energy in the electricity sector, efficiency and forestry, with a decline in emissions intensity of GDP, but no indication of absolute emissions limits.

While the formulation of NDCs isn’t necessarily dependent on the outcome Paris Agreement rulebook, the Paris Agreement still plays a critical role in driving the necessary changes. We identified the elements of this in the Sky scenario through the scenario framework within which Sky sits.

The elements of the framework are the necessary mechanisms to share common interests and the strength of leadership to take these forwards. The mechanisms start with the UNFCCC and the Paris Agreement at the top, but include various multilateral institutions and important initiatives such as the C40 and RE100. These then require strong leadership to function effectively and extract maximum value. In the runup to the Paris Agreement, the world occupied this space with many institutions rising to the challenge of formulating an agreement, propelled by very active leadership from the likes of the UNFCCC Executive Secretary, Christiana Figueres and many heads of government.

In Sky, the level of effort and action that delivered Paris should perpetuate for many years to ensure the Agreement takes root, yet it wasn’t apparent to me when I was in Bonn that this was the case. The discussions on Article 6 of the Agreement are reflective of the whole, although the negotiators discussing Article 6 have probably made more progress than most. Nevertheless, progress is slow and the big picture seems to be getting lost in the detail.

For example, one aspect of the discussion around the mechanism under 6.4 is focusing on provisions for projects that might be outside the scope of the NDC and how any carbon reduction units from such projects should be handled by receiving countries. But the discussion has missed a vital point, in that if there is broad application of such a provision then the Paris Agreement itself could be in trouble, because we should see the NDCs expand rapidly to cover all activities. As such, there shouldn’t be any projects outside the scope of the NDCs.

Part of the reason for considering projects outside the NDCs is that if they sit inside, then the movement of carbon units beyond the border of the host country for use by someone else will require a corresponding adjustment to the NDC – I discussed this in my previous post. This then opens another set of issues, around accounting. Corresponding adjustments should require full quantification of the NDC in CO2 terms, which takes the NDC into the territory of carbon budgets. Many countries don’t want this, but it is an inevitable outcome if the Paris Agreement is to work. So there is something of a Catch 22 building up, in that negotiators are avoiding the need for robust carbon accounting by negotiating a set of conditions that could undermine the Agreement itself, which in turn would undermine the value of the carbon units they are seeking to create. Unlike some Catch 22s, there is a simple way out here – embrace accounting and embrace the expansion of NDCs.

Moving forward requires leadership, which isn’t absent, but has certainly changed since 2015. There is something of a global trend back to nationalism and away from multilateralism, which potentially takes the world out of the top right region of the matrix. This in turn challenges the ultimate outcome of the Agreement, to limit surface temperature warming to well below 2°C. In Sky, we noted the following;

Achieving net-zero emissions in just 50 years leaves no margin for interruption, stalled technologies, delayed deployment, policy indecision, or national back-tracking. Rather, it requires a rapid acceleration in all aspects of an energy transition and particularly robust policy frameworks that target emissions. Success can be accomplished only through a broad process that is embraced by societies, led by governments, and lightly coordinated by organisations including the UNFCCC, the EU, ASEAN, and others.

In the context of the NDCs it means rapid expansion to cover all activities and full transparency through robust carbon accounting and quantification. But there is still some distance to travel before such an outcome is realised.

Note: Scenarios are not intended to be predictions of likely future events or outcomes and investors should not rely on them when making an investment decision with regard to Royal Dutch Shell plc securities. Please read the full cautionary note in http://www.shell.com/skyscenario.

It’s all in the numbers

dchone February 13, 2018

One of the noteworthy features of the 160+ nationally determined contributions (NDC) submitted to the UNFCCC following the adoption (and now ratification) of the Paris Agreement, is that no two are alike. True to the Paris Agreement, countries have submitted a description of their contribution, with most offering some indication of the emissions outcome, but the way this information is transmitted varies considerably by country.

In May 2016, the UNFCCC released a synthesis report of the NDCs, aggregating them in the only way that makes sense given the nature of climate issue, by cumulative emissions. Every NDC was turned into a cumulative carbon release to the atmosphere (i.e. quantification), which were then summed and compared to the ideal global carbon budget for a ‘well below 2°C’ pathway. Needless to say, the UNFCCC analysts almost certainly had to make numerous assumptions to do the calculations.

The problem that confronted the analysts was that not one of the NDCs was presented in the format they needed. Many offered an end goal in 2025 or 2030, such as the EU which is targeting a 40% reduction by 2030 against a 1990 baseline. Baseline years also vary across the NDCs. In most NDCs, little to nothing is said about what happens in the intervening years, so an assumption must be made about the likely trajectory. Others were presented as an expected reduction against a notional future emissions trajectory and some were presented without any emissions trajectory at all.

The variation in NDCs is now a well-known story, but the lack of quantification of NDCs has other implications which extend past the obvious analysis of the environmental outcome. It also limits the ability for carbon trade between the NDCs and potentially runs up against the accounting provisions of the Paris Agreement.

Those accounting provisions are dotted throughout the Agreement, but Article 4.13 is perhaps the most comprehensive. It states;

Parties shall account for their nationally determined contributions. In accounting for anthropogenic emissions and removals corresponding to their nationally determined contributions, Parties shall promote environmental integrity, transparency, accuracy, completeness, comparability and consistency, and ensure the avoidance of double counting, in accordance with guidance adopted by the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement.

The above could be interpreted as a post-NDC (i.e. after the period for which the NDC applies) true-up of emissions, but even that requires summing all the emissions across all the years of the NDC, not just ticking off actions against a list or noting that emissions in the final year were as expected. Unless cumulative emissions are established for the whole period of the NDC, the environmental integrity of the NDC is questionable as it is cumulative emissions that determine the environmental outcome. Only a full assessment of the NDC in terms of cumulative emissions meets the other requirements of completeness, accuracy and comparability.

Further, post-NDC quantification of emissions is unlikely to be sufficient for trading purposes, or in the language of the Paris Agreement, internationally transferred mitigation outcomes. This is because transfers out of a country require a local corresponding adjustment. While this could also be done post-NDC, it should be done at the time of the transfer such that the country can determine the new trajectory it needs to be on and ensure policy measures are suitably modified to ensure compliance, particularly if transfers are large compared to national emissions (say, more than 5%). Of course, if both countries were operating economy wide cap-and trade systems the correction would be automatic, but that is hardly the case today.

The above makes quantification of NDCs an important and perhaps necessary step for the Paris Agreement, but agreement on this by the Parties appears to be distant. However, such a step is inevitable. As countries get closer to declaring full emissions compliance with the Paris Agreement, i.e. achieving net-zero emissions (NZE) or ‘a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases’ in the words of the Agreement itself, quantification becomes essential.

NZE will occur when the country in question has balanced the remaining emissions with sinks and there will likely be some remaining emissions well into the 22nd century. Those sinks will either be developed locally or purchased internationally via the transfer provision of Article 6. But both the buyer and seller of such sinks will have to implement careful accounting to ensure the integrity of the net-zero claim. This takes us back to the quantification discussion.

The Paris Agreement is rigorous in concept and the negotiators of 2015 should be commended for the thoughtfulness of their text. But as the delivery of the Paris ‘rulebook’ approaches, that same rigor does not yet appear to have the full backing of all the Parties.

Building a transition into Article 6

dchone September 26, 2017

It would seem that transitions are all important at the moment and while many may be focussed on the latest ideas for Brexit, I am actually talking about Article 6 of the Paris Agreement.

At the opening of the IETA Carbon Forum North America in New York last week, the Fijian Climate Ambassador gave a major push forward for Article 6, outlining to the attentive audience that it was perhaps the most important part of the Paris Agreement. Her assertion rested on the argument that a functioning global carbon market can enhance ambition. Looking some decades down the road, trade in carbon units can give confidence to nations to set net-zero emission goals, given that they will feel assured that the balance that needs to be reached against remaining emissions in their economy can be achieved by purchasing suitable units from a recognized international market. Without such a market, net-zero emissions is unlikely to be realized.

While the full need for such a mature global market may be many years away, the negotiators faced with the task of fleshing out Article 6 into suitable guidelines, rules and procedures need to consider that endpoint now. Although it is always possible to return to the table and build on existing systems, the history of this within the climate negotiations is not good. Back in May, IETA released a ‘straw-proposal’, outlining in very clear terms the necessary pieces required to further define Article 6. That proposal can now be found on the recently created IETA Article 6 Portal. It represents a desirable end-point for the shape of Article 6, which is a major step from where the international carbon market stands today.

But this may be insufficient for the current negotiators, who are also focussed on the near term and the role that carbon markets might play over the next five to ten years. Many have seen the Clean Development Mechanism (CDM) of the Kyoto Protocol bring much needed energy investment into their countries and some are keen for such projects to continue, rather than wait for a new round of activity to get going under a new mechanism; that could take some years. But the Paris Agreement will also bring fundamental changes to the accounting around these projects, given the existence of Nationally Determined Contributions. I discussed this in a previous post. But again, accounting of this nature may take some years to develop.

All the above points to a transitional arrangement; an approach which allows the structure, project pipeline and methodologies of the CDM to continue, but which sees the CDM subsumed into the new Article 6.4 mechanism as it emerges. Retaining aspects of the CDM and encouraging smaller energy development based projects in least developed economies and sub-national regions should be part of the new mechanism, but equally this mustn’t end up as the mechanism itself.

Article 6, including the transfer arrangements of 6.2, the mechanism of 6.4 and the non-market approaches of 6.8 must herald in trade and cooperative arrangements that operate on the gigaton scale, not kilotons and megatons as has been the case with the CDM. The mitigation challenge ahead is enormous and even the potential trade in a net-zero emissions world could be very large. Continued emissions from agricultural systems, chemical processes, smelters, aviation and shipping alone would require several gigatons of trade to offset with units representing removed carbon dioxide (i.e. sinks).

This points to a relatively short transition period, perhaps one or two of the five-year cycles for Nationally Determined Contribution (NDC) implementation and review. After that, if the Paris Agreement goals are to be met, NDCs should have expanded to cover all parts of every economy, therefore introducing the full accounting rules on which Paris is based. While project activity such as under the CDM will doubtless continue, it will need to be transparently accounted for within the NDC process. This in turn will change the nature of the trading arrangements for the reduction units coming from the projects.

The task for the negotiators in Bonn will be to find a balance between the shorter term needs of several Parties and the project investment pipeline that is important to their energy development, along with the creation of a new emissions mitigation mechanism and accompanying transfer provisions that are scalable and robust for the decades ahead. Transitional arrangements could be an important part of the solution.

Linkages within Article 6 of the Paris Agreement

dchone March 16, 2017

National negotiators are in the process of getting their thoughts together on Article 6 of the Paris Agreement, both in preparation for the next round of negotiations in Bonn in May, but also for submissions to the UNFCCC in preparation for the Bonn meetings. Article 6 is a key provision of the Paris Agreement in that it encourages cooperative action between parties through approaches that are compatible with carbon pricing and carbon market development.

While much has been written about the use of Article 6 in the context of linking between national emissions trading systems, it is perhaps the linkages within Article 6 itself that are the ones that really need to be thought through. There are three key provisions within the Article;

Paragraph 6.2 proposes the use of ‘internationally transferred mitigation outcomes’. This has been widely recognized as an arrangement between two parties – either governments or companies – that results in a bi-lateral adjustment of national emissions inventories. This could be after a transaction in an emissions trading system, such as the trade of European Allowances (EUAs) between countries in the EU and Norway.
Paragraph 6.4 proposes a mechanism to promote the mitigation of greenhouse gas emissions while fostering sustainable development. Within this, section (c) notes that the reductions can be used by another party to fulfil its nationally determined contribution (NDC), but Paragraph 6.5 makes it very clear that both Parties cannot benefit from the use of the mechanism in terms of delivery of their NDCs, i.e. no double counting.
There is the less talked about but still important paragraph 6.8 which is focussed on non-market approaches to promote mitigation and adaptation ambition.

One question that negotiators face is how these three provisions sit together, or should they be viewed as entirely separate approaches?

Perhaps the most immediate consideration is the link between 6.4 and 6.2. While 6.4 defines a mechanism, it is not specific as to what this mechanism might look like or how it might operate. However, the history here lies with the Clean Development Mechanism (CDM), which generated project-based Certified Emission Reduction units that were then traded across borders for use under the compliance requirements of the Kyoto Protocol in developed countries. But there is a fundamental difference with the CDM, in that the Paris Agreement introduces more robust greenhouse gas accounting. As such, a cross border trade impacts both parties in terms of the accounting around their nationally determined contribution (NDC). Of course, this new mechanism doesn’t have to result in a cross border transfer, but if it does then is this a mitigation outcome transfer under 6.2?

One possible construction for Article 6 is that all cross border carbon unit denominated trades fall under paragraph 6.2. This would be all trades that are executed between those areas of the respective economies that are covered by NDCs and where a quantified adjustment equivalent to the amount of the trade is then made to each NDC. Such an adjustment requires quantification of each NDC, as I discussed in a post last year. This is quite a straightforward process between linked emission trading systems, but less so when these may not be in place.

The purpose of Article 6.4 then becomes clearer; it facilitates the process of quantification of mitigation activities, such that trades can be executed and the necessary adjustments to the NDCs then made. This allows the necessary funding for the mitigation activity to be directed efficiently and with the required financial rigour and emissions quantification to support the investment.

But this may not be the only use of 6.4. Mitigation activity could take place within the NDC of a single economy that attracts external climate finance, but does not result in carbon units crossing borders. Such an arrangement might help channel funds from green investment banks. This would be more in line with the intent of 6.4(b) which positions the mechanism to incentivise and facilitate participation in the mitigation of greenhouse gas emissions by public and private entities authorized by a Party. Nevertheless, this is still likely to involve facilitation through quantification of the mitigation activity.

Finally, there is paragraph 6.8, the framework for non-market approaches. While quantification of emission reduction activities is important in developed or emerging economies, building a developing economy along a different energy and emissions pathway to what might otherwise take place is a more holistic activity; in fact the word ‘holistic’ even features in the text of the paragraph. Establishing a reference, quantifying emissions and trading carbon units around this may not be appropriate for an energy system that is largely a blank sheet of paper. This is perhaps where 6.8 can add value, along with cooperative activities such as under the Kigali Amendment of the Montreal Protocol and the various global methane programs.

Much remains to be done to fully define Article 6, but linkage of the pieces within it to suit various economies in different ways is perhaps a useful starting point.

Five steps for the Paris Agreement

dchone November 11, 2016

There have been many surprising developments in the Paris Agreement on climate change. The most recent was its entry into force on November 4 2016, setting new records for the speed of international diplomacy.

That happened after 55 countries covering more than 55 percent of global emissions, including the USA, China, Canada, India and Germany ratified the deal. The European Union then followed suit. Now, as negotiators and ministers meet at COP22, the United Nations climate conference in Marrakesh, Morocco, it’s time to look at the small print, or the 20 pages of decision text that supports the Paris Agreement.

These, to me, are the critical pages. They are effectively the instruction manual for the Agreement. They invite nations to act, recommend courses of action, decide on dates for delivery and ensure nations honor commitments. There is no room for interpretation and changes. The instructions are there to ensure that the necessary mechanisms and pathways for reducing emissions actually work.

Of all the steps that need to be taken, for me there are five that stand out. To keep the deal on track, these should all be delivered in the near term, or before 2020.

Promises must become hard numbers

The decision text notes that the combined actions to reduce emissions specified by the 196 nations in their INDCs and submitted to the UNFCCC before they gathered in Paris falls far short of the goals of the agreement itself, to limit warming of the climate system to well below 2° Celsius. That means that governments should take stock of their collective actions in 2018, and assess their progress. This will involve considerably more than a simple review. While the Paris agreement demonstrated a new political consensus on climate change, the same countries now have just two years to turn their promises into hard numbers.

No more vagueness. Deadlines must be set

After this initial collective stock-take in 2018, the pressure to deliver will only intensify. By 2020, nations will have to reformulate their actions. This will require prompt and probably challenging discussions on a national level. It isn’t just that the combined national actions falls short of the Paris agreement. Today, barely a single one of the plans appears in line with the ambitious goal that emerged on December 12 2015. Only Costa Rica comes close with its landmark proposal to be carbon-neutral by 2100.

Precise numbers have to be clarified

The Paris agreement moved the global goalposts when negotiators agreed to limit warming to well below 2° Celsius. But there could be more to come. The agreement offers a so-called stretch goal to limit warming to 1.5° Celsius and gives the science community just two years to establish how that might be achieved. Such a goal requires emissions to fall dramatically over the next 30 years. It could even mean the establishment of industries in the second half of the century that remove carbon dioxide from the atmosphere.

Countries must develop their energy transition timetables

The parties to the agreement have just four years to formulate how they will develop economy-wide strategies for lowering carbon emissions through to the middle of the century. These strategies must take into account the goals of the Paris agreement and therefore should draw on the work outlined above, which is not due until 2018. Even for the most advanced economies, plans that stretch over decades outlining the direction of energy systems are a tall order, given the uncertainties historically surrounding energy planning.

It’s time to talk about government-led carbon pricing systems

Arguably, the single most important step that governments can take to achieve the goal of the Paris Agreement is to implement public policy that places a cost on carbon dioxide emissions. Some may think of this as the business of national or regional governments. But it’s worth thinking about how national currencies work. They are exchangeable around the world according to clear global rules. Article 6 of the Paris agreement offers the opportunity for similar rules for government-led carbon pricing systems, bringing much-needed alignment between the various systems. But Article 6, like the rest of the agreement, is brief. The negotiators now have to turn this into a functioning trading mechanism. This is no small task. But it is a vital one

As COP22 got going this week, some of the historic divisions began to resurface, such as the different approaches that developed and developing countries should take. Nevertheless, the discussions on implementing the Paris Agreement in full got underway and the national negotiators began working towards a successful conclusion to the COP by next Friday evening.

Revisiting global emissions accounting

dchone September 13, 2016

As COP 22 approaches and negotiators face the task of implementing the Paris Agreement, they will be required to interpret, expand on and operationalize the various Articles of the Paris text. One such piece is Article 6, which offers a framework that can support the establishment of a global carbon market. But the rules of that market may be very different to ones that have preceded it.

The design of the Kyoto Protocol resulted in a particular emissions accounting architecture that is a mixture of allowance allocation against a cap, combined with a provision for project based credits originating outside the cap (supplied by developing countries in the case of the Kyoto Protocol, i.e. non-Annex 1). These credits effectively raise the cap when they are imported into a covered system such as the EU ETS. Within the Kyoto Protocol, allowance allocation was handled through the Assigned Amount Unit against targets agreed by developed countries (Annex 1) and the most widespread crediting or offset system is the Clean Development Mechanism (CDM) which operates on a project by project basis in developing countries. This basic design has been translated into many jurisdictions, including locations such as California which is not covered by the Kyoto Protocol.

A feature of these systems is that the accounting normally handles the entities within the cap and the project outside the cap, but no attempt is made to account for the total greenhouse gas impact on the atmosphere or against a global goal to reduce overall greenhouse gas emissions. There is an implicit assumption that the sum of the various parts adds up such that the overall outcome is better than not having conducted the exercise at all. This happens because only a small percentage of the global economy sits under a cap, so there is no mechanism available to account for the total impact. This is one reason why some Parties challenged the appropriateness of the Kyoto Protocol itself.

A further issue related to the current structure is the macro accounting of the external credit. Projects vary in type, ranging from clearly measurable emission reductions (e.g. capturing land-fill methane) to notional reductions (e.g. a wind turbine is built, but the alternative might have been more coal). Particularly in the case of the latter example which is an energy mix question, there is normally no resolution between the local project and the overall energy mix direction of the host country. A key question is typically left unanswered; if the import of credits into a cap-and-trade system raises the cap, has there been an equivalent, albeit probably notional, decline elsewhere.

But as the Paris Agreement starts to take hold, this will likely change. The Durban Platform, established at COP17 to create a global climate agreement applicable to all to replace the Kyotol Protocol, was designed to address these issues.

The Paris Agreement is built on the concept of Nationally Determined Contributions (NDC). These are set at national level and offer a direction of travel for a given economy in terms of its energy mix and/or greenhouse gas emissions. Although the first set of NDCs offered in the run-up to COP21 were varied in nature and in some cases only covered specific activities within the economy, over time they will likely converge in style and, for the Paris Agreement to deliver, must expand to cover all anthropogenic greenhouse gas sources.

The NDCs also lead us down another path – that of quantification. The first assessment of NDCs conducted by the UNFCCC in October 2015 and then refreshed in May 2016 required the quantification of all NDCs in terms of annual emissions and cumulative emissions through to 2030. This was necessary to establish an equivalent level of warming of the climate system, which is driven largely by the cumulative emissions of carbon dioxide over time. Without such an assessment, the UN cannot advise the Parties on progress towards the aim of the Paris Agreement.

The UNFCCC didn’t have a full emissions inventory on which to base this calculation, so they established one from the best data available. But Article 13 of the Paris Agreement introduces a transparency framework and calls on Parties to regularly provide;

A national inventory report of anthropogenic emissions by sources and removals by sinks of greenhouse gases, prepared using good practice methodologies accepted by the Intergovernmental Panel on Climate Change and agreed upon by the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement;

Information necessary to track progress made in implementing and achieving its nationally determined contribution under Article 4.

The foundation for transparency is measurement and reporting, which further implies that emissions quantification is a foundation element of the Paris Agreement. Although nationally determined and always voluntary, the Agreement effectively establishes a cap, albeit notional in many cases, on national emissions in every country. The caps are also effectively declining over time, even for countries with emissions still rising as development drives industrialization.

Article 6 introduces the prospect of carbon unit trading through its internationally transferred mitigation outcomes (ITMO) and emissions mitigation mechanism (EMM). Text in paragraphs 6.2 and 6.5 is included to avoid any possibility of double counting;

. . . internationally transferred mitigation outcomes towards nationally determined contributions. . . . . shall apply robust accounting to ensure, inter alia, the avoidance of double counting,

Emission reductions resulting from the mechanism referred to in paragraph 4 of this Article shall not be used to demonstrate achievement of the host Party’s nationally determined contribution if used by another Party to demonstrate achievement of its nationally determined contribution.

These provisions, in combination with the progressive shift towards quantification of all emission sinks and sources, means that full national accounting for offset crediting must take place for both the recipient and the source of the units. For the recipient, there will be no change in their procedures in that the introduction and counting of outside units is already built in to the inventory processes underpinning the trading systems. But the source country will be required to make an equivalent reduction (also referred to as a “corresponding adjustment”) from their stated NDC, therefore tightening their contribution. This was a feature of the Joint Implementation (JI) mechanism under the Kyoto Protocol, but was not the required practice in the CDM.

The example shown in the box below illustrates this through a hypothetical case for a nature based transfer (NBT) from Kenya to Canada, utilizing the EMM as a means to acquire the necessary funding. The impact on the Kenya NDC implies a shift from a stated reduction of 30% from Business as Usual (BAU) in 2030, to some 37% below BAU. This ensures there is no double counting of the transferred amount and maintains the full integrity of the overall NDC approach such that the implied global cumulative emissions goal of the NDCs is maintained. However, Kenya will need to find further reductions in its economy as a result. One implication of this is that the price of carbon units may rise due to the additional demand that an overall emissions cap, even a notional one, places on the global economy.

Article 6 of the Paris Agreement offers great potential for carbon market development and emissions trading, therefore driving a lowest cost mitigation outcome and directing funding and financing to low emission technologies. But over time, it should also introduce an accounting rigor that has only featured in some quarters to date. This may well change the supply demand balance, leading to a more robust and enduring carbon market.

Where are we now?

dchone June 17, 2016

Last week I presented a simple analysis of the temperature data over the last 50+ years which showed that there was good reason to think that the global surface temperature was rising by about 0.18°C per decade. But a further question to ask is when the current upward trend really started in earnest and therefore where are we today against a baseline of the pre-industrial temperature (i.e. 1850s or thereabouts). This is an important question as we have collectively established a desire to keep warming well below 2°C, but with the real prize being to limit this even further and ideally to 1.5°C.

If the current strong warming trend started in the middle of the last century, say in the post-war boom, then at 0.18°C per decade that results in warming over that period of nearly 1.2°C. The 1950s were also presumably warmer than the 1850s as CO2 levels had risen by some 30 ppm (parts per million) over that period, which argues for the current level of warming to be something more than 1.2°C.

Another way of looking at this is to use the climate sensitivity relationship between cumulative carbon and peak warming, which was estimated at 2°C per trillion tonnes of carbon by Myles Allen and his team in their formative paper published in Nature in 2009. A look at the associated Oxford University website will show cumulative carbon now stands at over 600 billion tonnes, which implies associated warming of about 1.2°C.

Yet another way is to seek an answer from a group of climate scientists and I had the opportunity to do just that earlier this week. I am in Boston for the 39^th Forum of the MIT Joint Program on the Science and Policy of Global Change. I posed the question and one respondent (Chatham House Rule applies) argued that current warming is around 1.1°C since pre-industrial times, but that there is more to the story than this. The climate system is not at equilibrium, with the oceans still lagging in terms of heat uptake. Therefore, if the current level of carbon dioxide in the atmosphere was maintained at some 400 ppm, the surface temperature would rise by another few tenths of a degree before the system reached an equilibrium plateau. That would take us perilously close, if not over, the 1.5°C goal of the Paris Agreement. This implies that 1.5°C is only possible if we see a fall in atmospheric carbon dioxide, back below 400 ppm; but noting that it is currently rising at 2-3 ppm per annum.

This isn’t to say there are no routes forward to a 1.5°C outcome, with the Joint Program itself publishing one such pathway back in 2012.

MIT analysed four pathways that result in different temperature outcomes, including 1.5°C. These are shown in the chart above against a business as usual trajectory based on the 2010 post-Copenhagen national pledges.

An immediate drop to net zero by 2015, starting in 2010 (Natural only after 2015).
A very rapid drop to net zero by 2035, but with growth from 2010 to 2030 (Natural only after 2035).
A more extended drop to net zero by 2060, with the decline commencing in 2010 (Alternative).
The IEA 450 scenario, with emissions peaking around 2020 and reaching net zero by 2070 (IEA 450).

Pathway 3 (Alternative) results in peak warming of just over 2°C, but with a return to 1.5°C by the end of the century. Of the three MIT extreme mitigation scenarios, it also represents an outcome that could at least be envisaged, albeit still very challenging to implement.

The ocean also plays an important role here, but in a different way to that described above. Atmospheric CO2 begins to decline once net zero anthropogenic emissions is reached as the ocean continues to take up significant quantities of CO2 from the atmosphere, but with nothing additional being added from human activities. This is because the ocean is also lagging in terms of its ability to dissolve CO2. After some 20-30 years, as the ocean’s upper layer comes into balance with the atmosphere, uptake of CO2 slows. The fall in atmospheric CO2 that results also brings down the global surface temperature by about 0.5°C.

However, this scenario required a very sharp decline in emissions from 2010. Current Paris NDC plans show emissions continuing to rise through to 2030 at which point there are good signs of a plateau but by which time atmospheric CO2 may be at 430-440 ppm. The conclusion from all the above; any pathway that eventually delivers 1.5°C is likely to require a fall in atmospheric carbon dioxide back to 400 ppm or even below.

A new reality to come to terms with

dchone May 23, 2016

The first UNFCCC talks since the adoption of the Paris Agreement are now underway and the various delegations are getting down to the tough task of implementation. I was in Bonn on the opening day of the two week meeting, representing the International Emissions Trading Association (IETA) in a side event hosted by the Clean Development Mechanism (CDM) Executive Board (EB). The aim of the event was to draw on the learning from a decade of CDM operation and apply this experience to Article 6 of the Paris Agreement. This is the Article that provides a potential new foundation for carbon market development. I was there to present the IETA Article 6 Vision paper which I posted a story on recently.

The side event was packed out and many were standing in the corridor leading to the room; there is clearly considerable interest in this topic. Over the years the CDM has been a successful mechanism, resulting in nearly 8000 projects and some 1.7 billion Certified Emission Reduction (CER) units issued. Even at a €5-10 per CER (as it was in the earlier days of the EU ETS), this still represents a carbon price based financial injection of up to €10 billion into developing economies. The CDM spawned a small industry of project developers, assessors, MRV professionals and climate finance experts and clearly demonstrated that even a gentle application of the market can have a significant impact. Little wonder that there is such interest in the mitigation mechanism embedded in Article 6 and its potential to drive change.

However, the CDM (or a version of it) is unlikely to be repeated or replicated under Article 6, at least not under the terms that existed within the Kyoto Protocol. It was clear from the discussion during the side event that this new reality is going to take a while to hit home and settle in. The CDM became an important source of climate finance for developing countries, where the only real obligation on the part of the host country for a given project was to provide the necessary governance structure to ensure eventual issuance of the CERs. But that is no longer the case given the provisions of the Paris Agreement and Article 6 are now effectively the same for all countries.

Over time, Nationally Determined Contributions (NDC) will expand to cover all greenhouse gas in all economies. Every NDC, either specifically or notionally (for assessment and stocktake purposes) is linked to a quantitative carbon budget and there is an expectation from the Paris Agreement that these budgets will be delivered. While the Paris Agreement doesn’t say this in such stark terms, it is nevertheless implied. The whole approach that the UNFCCC used to assess the NDCs in their latest synthesis report, released on May 2nd, underpins this. Their aggregate analysis is summarized in carbon budget terms as follows;

The implementation of the communicated INDCs is estimated to result in aggregate global emission levels of 55.0 (51.4 to 57.3) Gt CO2 eq in 2025 and 56.2 (52.0 to 59.3) Gt CO2 eq in 2030. The global levels of emissions in 2025 and 2030 were calculated by adding the estimated aggregate emission levels resulting from the implementation of the communicated INDCs, that is 46.5 (44.3 to 48.9) Gt CO2 eq in 2025 and 48.0 (45.1 to 51.4) Gt CO2 eq in 2030, to the levels of emissions not covered by the INDCs. Global cumulative CO2 emissions after 2011 are expected to reach 533.1 (509.6 to 557.2) Gt CO2 in 2025 and 738.8 (703.6 to 770.9) Gt CO2 in 2030.

As I noted in my last post and drawing on Article 6.5 in the Paris Agreement, this means that the transfer of credits from a project across a national border (in the style of the CDM) will impact the national inventory reports of both parties. These transfers will then have to be executed in the style of Joint Implementation (JI) of the Kyoto Protocol, which effectively required an adjustment to the project host country’s national goal if the crediting unit was to be used by another Party to meet their goal.

I raised this issue as part of my presentation and the message was then amplified by a couple of people in the audience during the Q&A. But the response from some in the room was close to one of denial of this new reality, even though the Paris Agreement makes the need for such adjustment clear. The discussion almost drifted back into the old reality of developing countries not having goals and targets, but fortunately we didn’t land there. We didn’t resolve the issue either, which means that there are probably some tough discussions ahead as the negotiators get down to business.

A week later in Bonn and after many hours of discussions on Article 6 by the Parties, there has been some progress. At a side event on the second Monday also on Article 6 and also standing room only, I heard one central African delegate note that we had certainly left the world of the CDM and that perhaps we were somewhere between the constructions offered by CDM and JI of the Kyoto Protocol, albeit this would have to be interpreted to match the new bottom up global architecture of the Paris Agreement. I also heard another national delegate argue strongly that the new mechanism was not a sustainable development mechanism and should not be referenced as such, even if sustainable development was an important outcome of the implementation of the mechanism. Several panellists talked about quantification of NDCs as an important precursor to the avoidance of double counting.

The various concerns and issues that have been raised in these early discussion are very valid and the answers aren’t immediately obvious. Many developing countries have placed the need for finance as a condition on at least some portion of their mitigation contribution and in the past the CDM offered such finance. But if the reality of a new mechanism is a tighter national goal as a consequence of using it, there may be some push back. In the IETA paper one possible solution to this was proposed, namely the direct purchase of project units from the host country of the mitigation activity by multi-lateral funds. But this is unlikely to reach the necessary scale of mitigation envisaged by the NDCs, so other approaches will have to be developed. Interesting times ahead!

Update: The co-chairs in the UNFCCC discussions on Article 6 have released informal notes on ITMOs (here) and the proposed mechanism (here). These are a summary of points made in the initial discussions in Bonn.