2-3 December - What’s going on in there?

What’s going on in there?

Day 4 of the COP and the usual “Spin-off groups”, “informal” workshops and “informal informals” abound and what little information observer groups have received reveals slow progress – in the Presidency’s own words, “a very mixed bag”. The Presidency’s briefing to business observers on Thursday morning indicated that the ADP co-chairs have been tasked with producing a revised text overnight, with parties having 24 hours to review and comment. The text will then be returned to the Presidency on Saturday morning (brackets ‘n all) for use on Monday when ministers arrive for the negotiations. While mitigation and transparency are less of a concern, a lot of work remains to be done on climate finance and there is a clear (and very public) distance on differentiation. The long-term emissions reduction goal continues to be framed using the “bottom up” approach with references in the air to a peaking target and net zero emissions in the second half of the century. Echoing the rumours from earlier this week, the implementation of REDD+ remains a priority for the new agreement while markets have (so far) been left out in the cold.

Meanwhile, the side events continue to run with some interesting facts and analysis...

Trading up

At a side event on emissions trading systems (“ETS”) around the world, the Institute for Climate Economics revealed that Europe is on track to become an “over-achiever” on emission reductions in 2020. Their research indicates that the deployment of renewables, energy efficiency and the financial crisis were the primary factors in creating a 24% reduction in emissions across Member States compared to 2005 levels, as well as a weak price signal for credits. In order to enhance the price signal and stimulate investment, the Institute underlined the importance of introducing a qualitative assessment in the Market Stability Reserve (i.e. as opposed to simply targeting volatility) as well as a stringent new climate ambition in the EU’s Climate and Energy Package (with a current proposal of a 43% reduction in emissions by 2030 compared to 2005 levels). Reference was also made to the need to decouple policy discussion of economic growth from emissions reductions. The example was given of California which, since the roll-out of its Cap-and-Trade Program, has seen its GDP increase by 4-5 % and its emissions go down by 2%.

Jeff Swartz of IETA described China’s announcement on a nationwide ETS as a positive development which would enable discussions to move on from competitiveness to the effective implementation of monitoring, reporting and verification. He also highlighted the likelihood of pressure being brought to bear on Japan given Korea’s plans to launch its ETS in the new year. On Europe, he estimated that one of the most challenging issues facing the EU ETS is the incorporation of the aviation and maritime industries within its remit.

Vikram Widge of the World Bank Group spoke about the need to apply currency market constructs to the carbon markets so that we can move towards a global market instead of the fragmented “carbon clubs” of today including: the establishment of an “anchoring” central reserve mechanism, ratings of actions by country and private sector carbon credit “issuers” and a composite index to give a value to the underlying asset itself. At the same time, Widge recognised that a gold standard could not be applicable initially so as not to dissuade countries from participating.

RE-Emerging Markets

In the week when India announced it would be willing to reduce coal consumption in exchange for more investment in the renewables sector, numerous COP 21 side events have highlighted the exponential growth in Renewable Energy (“RE”) projects across emerging markets.

At one side event with a panel including the Moroccan Agency for Solar Energy, PwC and French electric utility Engie, the winning streak was identified as being in Africa, where investments in RE projects are being structured using a variety of models involving allocation of risk to both state and non-state actors alike. It was highlighted that the involvement of “strong sovereign” public bodies can speed up the fundraising process and drive lower energy tariffs while alternative structures using a sub-national or supra-national vehicle (such as the GCF) alongside insurance products in less stable jurisdictions were also discussed. The panel described the two key issues facing investment in RE emerging market projects as trust and the development of energy storage solutions at scale. 

RE technologies are trending rapidly towards cost competitiveness with fossil fuels – even cost parity, in some cases.  As it becomes more affordable, there are signs that economic development in some markets in sub-Saharan Africa could actually be driven by RE technology. Our new report, “Renewable Energy in Africa”, presents analysis that shows that economic development and the deployment of RE technology are becoming increasingly synergistic, due to the falling costs of RE. The report also discusses de-risking policies that might be employed in African markets to encourage investment in RE, and provides case studies of the experience of Morocco and South Africa in enabling significant investment in this space. To download the report please click here.

Mitigation - Taking off

Those present at a briefing from the International Civil Aviation Organization (“ICAO”) on Wednesday learned about the efforts made by the 191 member states of the ICAO in relation to GHG emission mitigation. These include the development of eco-technologies, deployment of sustainable alternative fuels and the establishment of a Committee on Aviation Protection which quantifies present and future emission trends. The ICAO presentation showed that the annual transportation of 3 billion passengers today takes place using aircraft which emit 80% less emissions than those operating in the 1960s. Despite this improvement, ICAO invited its member states to voluntarily submit “State Action Plans” to address CO2 emissions back in 2010. It was stated that by the end of 2015, over 50% of ICAO members will have finished their plans to address their international and domestic aviation-based emissions which together constitute 80% of global aviation emissions (which, in turn, constitute 2% of global emissions).

Meanwhile, at sea...

Immediately following the ICAO presentation, the International Maritime Organisation (“IMO”) took to the stage. Whilst delivering the sobering message that the propulsion needs of the maritime industry mean that it is likely to be dependent on fossil fuels for the next 20 to 30 years, attendees heard that mandatory energy efficiency measures applied to ships being constructed after 2025 will mean that CO2 emissions per tonne-kilometre will be reduced by 50% by 2050. Simon Bennett of the International Chamber of Shipping stated that such rules apply to 95% of the world’s fleet.