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Market welcomes UN negotiating texts

20 May, 2009

Carbon market participants have welcomed the publication of three negotiating texts for a post-2012 climate change treaty, despite them showing the mountain of work that needs to be done before December’s Copenhagen talks.

The first two texts, from a working group for further commitments under the Kyoto Protocol, were published on Friday, while a text from a group exploring action under the UN Framework Convention on Climate Change (UNFCCC) – which includes the US – was published today.

“This document marks an important point on our road,” Yvo de Boer, executive secretary of the UNFCCC, said today. “It’s the first time a real negotiating text will be on the table which can serve as a basis for governments to start drafting a Copenhagen agreed outcome.”

“The exciting thing is we do have a negotiating text going into Bonn [in June], which we didn’t expect coming out of the March meeting,” said Anna Lehmann, Berlin-based senior climate change officer at project developer Sindicatum Carbon Capital (SCC). The documents are “a real text parties can work with”, she added.

“What’s important is that they have pulled everything together in these three documents,” said Graham Stuart, a London-based partner at Baker & McKenzie. “Obviously it’s a starting point and not definitive ... but the step forward is to have captured it into these three documents at this time.”

But, he added, the texts “show how much work has to be done – you can really feel the effort that’s going to have to be made between now and the end of the year.”

Lehmann said that both the March meeting and last December’s UNFCCC talks in Poznan had focused so much on new emission reduction commitments that she was pleased that the text went into detail on new mechanisms to meet these targets. And the level of detail on some, such as land use, could be an indicator of what will stay and what will go in a new deal.

But participants say the texts don’t go far enough into the role of the private sector in financing climate change mitigation. Andrew Prag, principal consultant, climate change policy and strategy at project developer Camco in London, said that there was “a positive discussion of mechanisms for sectoral crediting”, but added that further discussions on project financing are needed.

Sectoral crediting will be attractive to the private sector if emission-reduction projects are credited on a site-by-site basis as opposed to being based on the whole sector’s performance and allocated by governments, as has been proposed, he said. “This would mean maximum incentives for project owners in developing countries to develop emissions reduction projects,” Prag said.

However, Miles Austin, head of European regulatory affairs at EcoSecurities in the UK, said: “One thing that’s really missing is the role of the private sector ... there has to be a market for the credits that are created,” which so far is missing from the texts.

He also criticised proposals to introduce a multiplication or discount factor for credits from different project types, saying that favouring certain project types over others moves away from the basis of offsetting, in that the cheapest option is pursued first. “Why not say ‘we like these technologies, so this is what we’ll credit’? Environmentally, it makes no difference,” Austin said.

“Historically, the EU saw the CDM [Clean Development Mechanism] as a cost-containment measure,” said Stuart. “Now you see that their view has evolved ... and the emphasis is on sustainable development and the environmental integrity of the CDM.”

The texts also touch on the legal framework of a post-2012 treaty, without specifying a clear option. SCC’s Lehmann said she thinks it is possible that two treaties could emerge from December’s talks: one targeting “big polluters” and one targeting sustainable development in developing countries. But, she added, “there are a lot of reasons why market mechanisms don’t yet work in all developing countries, and I’m not sure that a new treaty would wipe out all the obstacles.”

Both Stuart and Prag, meanwhile, think it unlikely that a fully-detailed agreement will be reached in December. They say that it is more likely that the rules on how to achieve the agreed cuts will be fleshed out afterwards, similar to how the rules for the Kyoto Protocol’s flexible mechanisms – the Marrakech Accords – were agreed after the event. “Copenhagen is ambitious enough,” Prag said.

The amount of work left to be done raises “the prospect of a skeletal agreement out of Copenhagen and more details [to follow] after”, added Stuart.

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