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DIPARTIMENTO DI SCIENZE POLITICHE E INTERNAZIONALI
Corso di Laurea Magistrale in Scienze Internazionali
From the Kyoto Protocol to the Long Term Cooperative Action:
Critical
implications and opportunities for a New Market based Mechanism
(NMM)
Relatore:Ch. mo Prof.
SIMONE BORGHESI
Correlatore:Ch. moDr.
SEBASTIANO CUPERTINO
Tesi di Laurea di: MICHELE MARINI
Anno Accademico 2013/2014
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What is now plain is that the emission of greenhouse gases,
associated with industrialisation and strong economic growth
from a world population that has
increased sixfold in 200 years, is causing global warming at a
rate that began as significant, has
become alarming and is simply unsustainable in the long-term.
And by long-term I do not mean
centuries ahead. I mean within the lifetime of my children
certainly; and possibly within my own. And
by unsustainable, I do not mean a phenomenon causing problems of
adjustment. I mean a challenge so
far-reaching in its impact and irreversible in its destructive
power, that it alters radically human
existence.
[Tony Blair, 2004]
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Table of Contents
Abstract vii
List of acronyms.. ix
List of figures.. xi
Introduction 1
1 Climate Change, Global Warming and International
Regulation
1. Premise / preliminary statements. 5
2. The global governance of climate change 11
2.1 Making progress toward a Post-Kyoto Agreement -
Warsaw COP19
16
3. The forms of governance's architectures 17
3.1 Defining a better future agreement through the
governance process....
20
3.2. The hybrid - dynamic approach... 23
4. Characteristics and options for a new successful agreement.
... 25
5. A proposed review process of negotiation 28
5.1 The club approach . 30
2 The Kyoto Protocol and flexible mechanisms: valuable goals
achieved
1. Kyoto Protocol: results and experiences accumulated. 33
2. The Kyoto Protocols Flexible Mechanisms 37
2.1 Characteristics of the CDM... 41
2.2 Characteristics of the JI. 48
3. The European Emission Trading System.. 55
3.1 Performance, business profits and product price
impact
57
3.2 Impact on investment and innovation 68
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3 The New Market Mechanismand Framework for Various
Approaches
1. The future rule of carbon markets. 71
2. The road toward the NMM and the FVA. 75
3. The current definition and objectives for New Market
Mechanism and Framework for Various Approaches..
78
4. Motivations for the NMM. 84
5. The Design of an NMM. 88
6. Key design issues 95
6.1 Type of Mechanism. 95
6.2 Coverage of the system. 97
6.3 Sector Target or Crediting Threshold 100
6.4 Requirements for Data collection and MRV.. 112
6.5 Ways of managing the transition from CDM to the NMM
Relationship with existing and future mechanisms.
113
6.6 The design of the trading/crediting and policy framework..
114
7. Implementing the NMM 124
Conclusions. 133
Bibliography 139
Sitography 149
Annex 151
Acknowledgements 155
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__________________________________________
Abstract
Market (and non-market) mechanisms for the reduction of GHG
emissions, were not
able to contain the rise in global temperatures.
Among the new and advanced solutions within the context of the
carbon market, the
adoption of a new market mechanism (NMM) that can help reduce
emissions of
greenhouse gases on a global level through adopting the
so-called sectoral crediting
mechanism or trading has recently been proposed.
To understand if and how this new market mechanism can be
effective and whether
it can really be implemented in the near future is the main
purpose of this research
thesis.
The new instrument has been the subject of significant and
articulated debates
within recent international meetings and relevant Conference of
the Parties (COP):
therefore a similar measure is expected in view of a possible
agreement / Post-Kyoto
Protocol in 2015.
The idea is to create an ambitious market-based approach,
extended to all
developing countries and economies and complementary to the
flexible mechanisms
already in place, by way of taking advantage of the benefits
that are derived from the
experience gained through the existing market instruments. Such
an approach could
offer many opportunities for companies that may participate, for
countries in the
developing world who would adopt more efficient methods and
technologies for the
reduction of emissions, and more generally, to create a new
market demand for permits
and credits within the internal carbon market.
Given the complexity of this ambitious new proposal, it is
reasonable to think that,
in theory, a NMM might still encounter too many political,
economic and technical
obstacles within developing countries that adopt it. The thesis
proposes as a possible
solution to overcome these obstacles, to adopt a mechanism NMM
with a hybrid
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structure of governance and variably designed architecture that
takes into account the
specificities of each country where it should be implemented.
Such a solution requires a
long time to be implemented, and in consideration of the
increasingly complex
requirements of part of the old and new flexible market systems,
which even today many
economies must seriously deal with, the thesis focuses on how it
is necessary to put in a
joint effort by the entire community to develop and disseminate
knowledge about an
NMM, evaluating through further policy analysis, technical,
economic and empirical
research, especially in the context of the experience already
gained.
All this might enable the development, possibly by 2020, of an
effective NMM that
is able to increase the ambition to contain and reduce global
warming which is
increasingly necessary and urgent for the global environmental
system.
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List of acronyms
AAUs Assigned Amount
Units GHGs Greenhouse Gases
ADP Durban Platform
Action IEAs International Environment Agreements
APP Asia-Pacific
Partnership on Clean
Development
IET International EmissionsTrading
AWG-
LCA
Ad Hoc Working
Group on Long-term
Cooperative Action
IPCC Intergovernmental Panel on Climate
Change
AWG-KP Ad Hoc Working
Group on Further
Commitments for
Annex I Parties under
the Kyoto Protocol
JI Joint Implementation
JISC JointImplementationSupervisoryCommittee
BAU Business As Usual KP Kyoto Protocol
BOCM Bilateral Offset Credit
Mechanism MEF Major Economies Forum
CDM Clean Developed
Mechanism MRV Measurement Reporting and Verification
CERs Certified Emission
Reductions NAMAs Nationally Appropriate Mitigation Actions
COPs Conference of the
Parties NAPs National Allocation Plans
DNA Designated National
Authority NGOs Non-Governmental Organizations
EB Executive Board NMBM New Market-Based Mechanism
EC European Commission NMM New Market Mechanism
ERUs Emission Reduction
Units NZ-ETS New Zealand Emission Trading Scheme
ETS Emissions Trading
Scheme PAMs Domestic mitigation policies instruments
and measures
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EU European Union PMR Partnership Market Readiness
EUA European Union
Allowance POAs Programme Of Activities
EU-ETS European Union
EmissionsTrading
Scheme
ppm parts per million
FDI Foreign Direct
Investment REDD+ Reducing Emissions from Deforestation
and forest Degradation plus
FVA Framework for Various
Approaches
R&D Research and
Development SBI Subsidiary Body for Implementation
RGGI Regional Greenhouse
Gas Initiative SBSTA Subsidiary Body for Scientific and
Technological Advice
SCM Sectoral Crediting
Mechanism US United States
UNFCCC United Nations
Framework Convention
on Climate Change
WB World Bank
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List of Figures
1.1 Total GHG emissions per country... 6
1.2 Temperature anomaly 1880-2014.... 7
1.3 Precipitation anomaly 1900-2010... 7
1.4 List of Annex I, II and Non Annex countries and related
index of total
GHGs emissions 1990-2005
9
1.5 Emissions projection Annex I and Non Annex I. 13
1.6 Contribution of major GHGs emitting countries 14
1.7 Multiple purpose diagram 25
2.1 Perspective of carbon Markets launching programs on 2013..
34
2.2 Greenhouse gas emissions in Kyoto Protocol countries and
their targets... 36
2.3 CERs and ERUs issuance 2008-2012, and expected issuance of
CERs. 39
2.4 Number of CDM projects each month 40
2.5 Potential demand and supply of credits 2013-2020 40
2.6 A possible scheme for gradual incorporation of developing
countries... 43
2.7 Distribution of registered projects by Host Party-March
2014... 45
2.8 Distribution of registered PoAs by Host Party-March 2014...
46
2.9 Track 1 vs Track 2 JI... 49
2.10 Summary of steps required for Track1 and Track 2 JI
projects.. 49
2.11 Differences between CDM and Track 2 procedures. . 50
2.12 Kyoto Protocol participation map (commitment period:
2013-2020) 51
2.13 Average time required for project registration methodology,
in days 53
2.14 ERUs issuance by host Party as of February 2013. 53
2.15 Brief overview of coverage of EU-ETS.. 55
2.16 The long life of the EU-ETS system confronted with other
cap and trade
operational and expected in future..
56
2.17 CO2 emission trend within EU-27.. 59
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2.18 over allocation of allowances in Europe. 59
2.19 CO2 emission trend in EU-Phase I and II... 60
2.20 EU ETS and carbonleakage .. 62
2.21 Free allocation and auctioning provisions.. 63
2.22 Review of tools implemented within the EU-ETS.. 65
2.23 EUA and CER prices (2009-2013). 65
2.24 EUA price development. 66
2.25 Demand/supply surplus-deficit of EUAs 68
3.1 The Durban Platform for Enhanced Action process... 72
3.2 Evolution of market and non-market mechanisms under the
UNFCCC 74
3.3 Relevant decision from COP 16 and COP 17. 75
3.4 Several new market based mechanisms proposals. 81
3.5 The FVA scheme 83
3.6 Comparative evaluation of the different mechanisms.. 87
3.7 Transitional flux for a CDM 89
3.8 Sectoral crediting mechanism. 96
3.9 Sectoral trading mechanism 97
3.10 Setting crediting thresholds for the new market mechanism..
102
3.11 Illustrative example of NMM operational cycle. 110
3.12 Flowchart for setting crediting thresholds.. 111
3.13 Typology of approaches for calculating and distributing
credits 117
3.14 Comparison of total credits issued in individual
performance and group
performance approaches..
118
3.15 Host government frameworks. 120
3.16 Policy framework proposals.... 122
3.17 Evaluation of alternatives frameworks for three key actors
123
3.18 Key differences between the proposals... 124
3.19 Constraints and Opportunities for an NMM... 126
3.20 Coexistence of mechanisms in various sectors . 130
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Introduction
The fifth report of the Intergovernmental Panel on Climate
Change (IPCC)
concluded that humans are causing a sudden change in Earth's
climate due to rising
emissions of greenhouse gases in the atmosphere. (IPCC,
2013).
Alongsidethe intense uprising of scientific condemnation, the
United Nations, the
European Union, as well as other nations and international
organizations, would like to
see carbon emissions and greenhouse gas emissions significantly
reduced.
The goal would be to overcome the international commitments
already existing
(Kyoto Protocol), in order to limit or avoid the rise in average
global temperature and to
stay within a 2 degree Celsius maximum average global
increase.
At the global level, the current market- and non-market-based
mitigative solutions,
together with the existing flexible mechanisms (i.e. CMD, JI and
ETS) implemented
after the establishment of the Kyoto Protocol, have not managed
to a achieve a
substantial reduction in the level of greenhouse gases emissions
in the environment;
therefore one of the proposed solutions seems to lie in the
realization of a scaled-up new
market-based mechanism (NMM).
This thesis has as its main goal the analysis of the new market
mechanism (NMM)
which adopts a mechanism that covers the emissions of broader
sectors of a country's
economy rather than single and individual industries,proposed as
a complementary
solution to the current active market instruments.
To this end, the new market mechanism might further reduce GHG
emissions in the
atmosphere by extending the carbon market, and especially by
encouraging the
economies of developing countries to achieve ever more ambitious
abatement (scaling
up the market), thus accelerating the deployment of green
technologies to reach long-
term environmental sustainability.
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Introduced during the Durban Conference of the Parties held on
December 2011, the
idea of the NMM, whichtakes a sectoral approach instead of a
project-based one, is
currently much debated by scholars on the field, as well as by
policymakers. Although a
broad consensus on this mechanism is still lacking, the
international community is
moving forward by adopting case studies and pilot projects that
are gradually taking off
in order to test this new mechanism.
Research approach
To find out whether the new market mechanism can be advantageous
as a means to
increase mitigation, we are going to evaluate the system from
several points of view:
particularly analyzing the expected role and design features,
and tracing a brief
indication on the functional feasibility within developing
countries.
The theme of the NMM raises many questions in the scientific
community about the
possibility of reaching ambitious levels in reducing emissions,
and in particular whether
and how this premise could overcome the limitations imposed by
the Kyoto Protocol.
The research is developed on the basis of the contributions of
several economic and
political studies that have examined the matter following the
Conference of the Parties
held in Durban at the end of 2011.
Retracing the main lines followed by this recent research, we
will first try to
understand if indeed there is a (real) need to adopt a new
market mechanism in addition
to the existing ones.
First, it was considered necessary to explore the systemic
context/architecture
within which the new market mechanism will be likely adopted.
There is extensive
literature on the governance of the international system that
can help us to clarify the
current and future role of markets within international climate
policy.
It was then necessary to analyze the existing flexible
mechanisms developed
through Kyoto. Thanks to the large number of studies that have
focused mainly on the
calculation of performances achieved, it was considered useful
to examine the factors
that have restrained the performance of the system in order to
try to show how the new
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mechanism has originated: partly in searching for a solution to
overcome the issues
encountered.
It is interesting to notice that even today the design and a
real role for this
mechanism has not been formalized. The author believes that it
is undoubtedly necessary
to take brief and short-term precautions before formulating a
unique, final and long term
decision regarding the system. To this purpose,it will be useful
to draw up a scenario that
includes the time required for the implementation. Some of the
early empirical research
has brought to light some clear prerequisites for several host
countries. The author will
investigate these issues in order to finally draw the
appropriate conclusions on the
practical feasibility of the mechanism.
Contents of the thesis
After a brief introduction, to contextualize the issue of
climate change and point out
the responses from the international community through the
United Nations Framework
Convention on Climate Change (UNFCCC), the Kyoto Protocol and
flexible
mechanisms, the first chapter of the thesis will focus on the
evolution of the method of
centralized international governance, and will try to give an
answer to the problems that
this global approach has met over the years, illustrating some
possible solutions and the
ways in which the UNFCCC has moved forward.
In front of the changing responsibilities on climate change,
partly due to the impact
of new emerging economies, the problem of how to designate a new
post-Kyoto
international agreement, and how to resolve the issue of
negotiation between countries
with regard to the latter, require urgent consideration. We will
try to understand if there
is maneuvering space,with reference to the last COP, held in
Warsaw in 2013.
Although some useful features on how to achieve an effective
agreement will be
given, the negotiating problem will require substantial
structural revision, which, as we
shall see, should carefully review some basic features in the
UNFCCC architecture.
In the second chapter we will summarize the main results in
terms of performance
of the Kyoto Protocol and its flexible market mechanisms (CDM,
JI, ETS).
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In these terms, we will try to understand if and what were the
main lessons learned,
with particular attention given to the critical reasons that
have led to a weakening in the
overall performance of the systems. Focus will be finally given
to the European
Emission Trading Scheme, which is now the largest system for the
reduction of GHG
emissions currently in operation. Such performances will be
analyzed within the two
main phases of operation of the EU-ETS (between 2005 and 2012),
the changes adopted
with the implementation of the third phase (2013), and the
critical role that the economic
crisis has had, assessing how much and in what ways it impacted
the system.
The results will be quantified in terms of the amount of
emissions reduction
achieved, and in terms of the impact on business profits and
product prices. A final
section of the second chapter will be dedicated to calculating
the impact that the EU-
ETS has had on investment and innovation.
The third chapter will focus on the current proposal regarding
the so-called new
market mechanisms (NMM). The NMM and FVA constitute two new
proposals for the
cost-effective reduction of emissions of GHGs. Although the
first is considered a
mechanism, and the second a de-facto regulatory framework, both
are systems that aim
to encourage participation and ambition among States. Having
clarified this distinction,
the thesis will proceed to analyze in detail the NMM. In a first
step we will clarify the
role that this mechanism will likely play, dedicating particular
attention to the
motivations and the main driving principles that have originated
and developed. In a
second step, we will focus our attention on the possible forms
of design that could be
prefigured. Particular attention will be dedicated to the major
role of responsibility that
the government of the host country will be required to have,
compared to other flexible
market mechanisms.
The last paragraph of the thesis verifies and analyzes the
considerations to be made
concerning the possible application of pilot projects within
developing countries that
should adopt the NMM. In the latter case, we are going to
identify the main obstacles
that can be found within the economies considered, and at the
same time the
opportunities that could be available. Then, a list of
suggestions is made by the literature
on the subject. Important questions that need to be assessed are
as follows: whether the
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system is applicable; approximately how much time is needed;
which parameters must
be complied with, and especially if the NMM will be sustainable
in the future.
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Chapter 1
Climate Change, global warming and international regulation
1 Premise / preliminary statements
Climate change will double el Nio events
Draughts in Australia and flooding in the Americas associated
with the deadly El
Nio weather phenomenon are likely to be twice as common this
century because of
climate change, scientists warn.(Banning-Lover, 2014)
The most authoritative scientific advisory Forum set up by the
United Nations
Organization, the Intergovernmental Panel on Climate Change
(IPCC), observed a
clearly changing outlook in theEarths regulative processes,
confirming that there has
been a general and repeated worsening inglobal weather
conditions in recent years.
The fifth report of the IPCC concluded that, over the past
century, there has been a
well-documented sudden change of surface temperatures due to the
increase of
Greenhouse Gases emissions (GHGs). (IPCC, 2013)(Fig. 1.1)
The report shows the high correlation of emissions due to human
activity and the
climate change phenomenon, and it advocates that is necessary to
take a more
cooperative action in order to reach greater reductions of
emissions on a global scale.
Although the growing scientific warnings against the risks for
the events registered
during the last decades, such as el Nio and other growing
anomalies of the climates
natural cycles, the variability in temperatures does not seem to
be stopping.(Condon &
Sinha, 2013) (Fig. 1.2)
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Figure 1.1 Major GHGs gas concentration over time
Source: National Oceanic and Atmospheric Administration (NOAA),
2014
The rising temperatures create scenarios which are for the most
part unpredictable
and uncertain. Scientific research also showsthat there will be
more droughts in more
places than before, more storms, more hurricanes, as well as
more
inundations.(Condon & Sinha, 2013, p. 7)(Fig. 1.3)
While these events will have an environmental impact, they will
also have
economic effects with enormous implications for the financial
industry.(Condon &
Sinha, 2013, p. 7)
According to authoritative economic research, the Stern Review
of the Economics
of Climate Change, if serious action is not taken within 15-20
years, then the cost of
coping with climate change could be in excess of 20% of the
total annual global income.
Furthermore, the World Bank has estimated total income currently
at some US$35
trillion per annum, rising by 2050 to perhaps US$135 trillion,
which is some US$27
trillion per annum, or 5% of global GDP.(Stern, 2007)
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Figure 1.2 Temperature anomaly 1880-2014
Source:
Figure 1.3 Precipitation anomaly 1900-2010
Source: IPCC, 2013
Due to this disconcerting trend, there is a current need for
serious investments in
new technology and innovative approaches to tackle both
mitigation and adaptation
measures in the proper prospective.(Condon & Sinha, 2013,
pp. 817)
Since the first published report of the IPCC, the first step
toward the mitigative
cooperative action was the Conference of the United Nations for
Environment and
Development, held in Rio De Janeiro in 1992. The conference had
two main merits.
First, it creates a series of principles with the purpose of
establishing a common strategy
to pave the way for environment sustainability for the new
generations to come;
http://data.giss.nasa.gov/gistemp/graphs_v3/
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secondly, it was where the UN Framework Convention on Climate
Change (UNFCCC)
which now counts 192 Member States, was created.
The main purpose of the UNFCCC is the stabilization of GHG
emissions at a level
that will further prevent dangerous interference with the
climate system, through the
establishment of a series of cooperative principles and
guidelines. Even if these
standards of conduct do not impose any obligation for the Member
States, a framework
for a global cooperative action has been specifically set.
Through Articles 3 and 4 (i.e.
the principle of common but different responsibility) the
Convention determined a
preeminent outcome. In particular, the principle requires that
developed countries
demonstrate that they are taking the lead in modifying longer
term trends in
anthropogenic emissions, consistent with the objectives of the
Convention. For this
purpose, the Convention divided Member States among groups:
Annex I-II (countries
that are developed or with their economies fully in transition)
and Non-Annex
(developing countries), therefore leading to the creation of
different levels of
responsibility for GHG emissions. (Fig. 1.3)
This rigid separation is becoming a frequent problem discussed
in terms of a future
post-2012 Kyoto policy architecture, because the Convention does
not indicate any
modality whereby an Annex-II State can shift to an Annex-I group
in future, or vice
versa. Also, article 4(7) goes even further by imposing an
implementation condition:
the extent to which developing Country Parties will effectively
implement their
commitments under the Convention will depend on the effective
implementation by
developed Country Parties of their commitments under the
Convention relating to
financial resources and transfer of technology.(UNFCCC, 2004, p.
8) These factors
together have been consistently advocated during the recent
negotiations about Kyoto
Protocol phase II (post 2012 commitments). In particular this
has, for the most part,
created a consistent block to the recent proceeding of
negotiationsfor Kyoto phase II.
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Figure 1.4 List of Annex I, II and Non Annex countries and
related index of total GHGs
emissions 1990-2005
Source: European Environment Agency
In 1997 the Kyoto protocol was presented at the third Conference
of the Parties
(COP-3) in Kyoto (Japan). The main objective of the protocol was
the creation of a clear
mitigation commitment request to the Member States of the
Protocol to reduce the actual
emissions to 5,4% of the total 1990 GHG levels between 2008 and
2012 (first
commitment period). Furthermore, the Kyoto Protocol, in
referring to the principle of
common but different responsibility, established a set of
targets (Assigned Amount, AA)
that were specifically assigned to every country between Annex-I
and II; ranging from
Iceland and Australia, which were permitted to increase their
emissions from the 1990
base levels, to the countries of the European Union which
accepted an 8% reduction
from 1990, but without any recommendation for the Non-Annex
group (developing
countries).
The most innovative aspects of the protocol may not only be the
strict target
commitments but the introduction of three new market-based
mechanism or so-called
flexible market mechanisms: emission trading (ET), Joint
Implementation (JI) and the
Clean Development Mechanism(CMD).
At that time, it was already clear thatin order to obtain a
concrete emissions
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decrease, it would be necessary to go beyond the common command
and control
regulation. (Simoncini & Romano, 2011, pp. 2731) For the new
broader ecological
modernization process these policy instruments were considered
inefficient in reducing
the States emissions. (Stephan & Paterson, 2012) The Kyoto
Protocol created three kind
of flexible market mechanisms in order to help Annex I countries
reduce their emissions
in a less costly way, at least without economic loss or
differential implications for their
economic growth.
The flexible mechanisms identified two distinct (but integrated)
segments or sectors
of the carbon market, emission trading and the carbon credits
sector.
Emission trading (ET) is the first mechanism envisaged by the
Kyoto Protocol
which allows for the exchange of parts of the Assigned Amounts
(or Assigned Amounts
Units, AAU) among Annex I countries. Annex Parties may emit GHGs
into the
atmosphere if they have sufficient permission rights to use
against their emissions. At
the beginning of the commitment period, each Annex Party is
allocated ex-ante an
Assigned Amount up to a fixed emission cap calculated ex-ante.
The GHG emissions in
each Partys territory during the commitment period may not
exceed its Assigned
Amount. At the end of the commitment period, the Party must
retire (surrender)
emissions rights (the Assigned Amount Units), for the purpose of
demonstrating its
compliance with the Kyoto commitments. Parties that emit less
than their cap may sell
their surplus AAUs, and Parties whose emissions exceed their cap
must buy additional
emission rights from the carbon market.
The Joint Implementation and the Clean Developed Mechanism are
baseline-and-
credit systems. Under both systems, emission rights can be
earned (ERUs and CERs,
respectively) by participating in emissions reduction projects
abroad. Each emission
right represents one metric ton of CO2 equivalent reduced. At
the begin of the period, a
baseline is established by calculating the amount of emissions
that would occur in the
absence of the scheme (the baseline-as-usual scenario). The
difference between this
baseline and the actual (lower) emissions as a result of the
plan is converted into
globally tradable emissions rights.
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2 The global governance of climate change
Throughout the 1970s, there had been growing scientific evidence
concerning the
climate change issue in the most diverse fields of human
knowledge. As a result, this led
to establishing a convergent view among the International
Community against the
worrying future case scenarios illustrated by the first climate
panel of the IPCC.
Although even today these scenarios are difficult to predict,
the International
Community clearly argued that a cooperative form of action would
be highly necessary
in order to stabilize these dangerous trends. Strong cooperation
between States would be
necessary because no single State could play an effective and
crucial role to solve the
emission zero sum game,which is the environment global public
good. (Barrett, 2006,
pp. 4984) Global governments should contribute to establishing
the path toward
environmentally sustainable development and, to do so, the
current climate change issue
imposed the institution of a global governance system to achieve
the goal.1 (Viola,
Franchini, & Ribeiro, 2012)
The architecture of the negotiating process for the Kyoto
protocol has been agreed
upon thanks mainly to the principle of common but differentiated
responsibility.
Notwithstanding, this principle has been at the same time the
core problem for
negotiations to make any further steps during the successive
Conference of the Parties
meetings (COPs).
The principle was sanctioned because there was clear evidence
that the developed
countries were the main producers of GHG emissions in the past
and, because of that,
obviously they have to carry the greatest part of the related
climate changes cost burden.
At that time, perhaps until recent years, most developing
countries did not have any
responsibility for the climate change emissions, and clearly
they would not have any
obligation to contribute for the industrial emission reduction.
This consideration is based
on an ethical principle which is correctly assumed if we
consider that the main
industrialized economies such as the USA and Europe had been
economically
1 The primary result of this process was the creation of the
UNFCCC in 1992 at the end of the Rio
Conference. The Convention has the merit of being at the core of
the Kyoto Protocol creation in 1995, that
is the first mandatory instrument for emissions reduction.
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developeda long time before, without taking into account the
implications for the
environment. Therefore, it seems rather clear that the
environmental issue should be
treated as a public common good, especially by those countries,
which experienced fast
economic growth in the nineteenth and twentieth century.
During the establishment of the Kyoto Protocol in 1997, the
principle has been
subsequently translated into a de facto distinction between
Annex-I (developed
countries) and Non Annex (developing countries), creating a
dichotomy between
countries with commitments toward emissions reduction, and
countries without.
It has been well observedthat at the time of the Kyoto Protocol
in 1997, half of the
total GHG emissions were caused by Non Annex I
countries.(Leal-Arcas, 2013, pp.
294300)
Currently, this difference has more than doubled, and the
projection of the disparity
in future is even more marked. (see Fig. 1.4)
All together, developing countries have already surpassed the
industrialized world
in total GHG emissions, and will account for more than 75
percent of growth in GHG
emissions in the next 25 years. (Fig. 1.5)
This means that the situation has dramatically changed since the
UNFCCC divided
the world in two categories on 1992. For the most part, the
division was the consequence
of weak progress on international climate negotiation in the
subsequent Conferences of
the Parties (COPs).
From the beginning, the strict Annex-I/Non Annex distinction has
created a crucial
question about a gross inequality that concerned the treatment
of north vs south
countries. During the Kyoto Protocol, it was emphasized that,
although developed
countries should take the lead in emission reduction, developing
countries should make
full use of assistance (coming from the latter) and adapt
themselves to climate change.
Thus, with the rapid growth of the emerging economies and the
change of structure in
geopolitics, this conducive assumption became responsible for a
de-facto negotiating
block during the Kyoto phase II, when industrialized economies
started to ask
developing ones to submit emissions reductions pledges in order
to cover mitigations
measures. It became clear that the historical progressive change
over the emission
distribution situations with the growing emerging economies has
led to a blurring
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14
process of the Kyoto negotiating progress: on the one hand it
became clear that the
Kyoto Protocol should be reviewed as soon as possible including
commitments for the
developing countries, which are therefore responsible for half
of the emissions in the
atmosphere; on the other hand it should be considered that the
developing countries still
want to defend the principle of common but differentiated
responsibilities without taking
any constraining pledges over the Kyoto phase II. This became
evident at the time of the
Copenhagen COP-15 in 2009: the negotiation process reached an
impasse when the
discussion concerned the agreement for the post-2012, second
phase of the Kyoto
Protocol. Developed countries refused to take legally binding
measures in order to
increase the pledges over the medium term reduction targets for
2012. Since the main
group of Annex I countries have started to oppose progress
towards Kyoto II
commitments, alternative solutions were taken into
consideration..
Figure 1.5Emissions projection Annex I and Non Annex I
Source: Leal Arcas, 2013.
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15
Figure 1.6 Contribution of major GHGs emitting countries
Source: World resource institute, 2013.
More precisely, it was even before the COP-15 in Copenhagen, at
the Bali COP-13
in 2007, that the ongoing negotiating progress over the global
environmental agreement
became divided into a dual-track approach for international
climate negotiation. At
that time this was shaped into a two-stream process, the Ad Hoc
Working Group to
Enhance Long-Term Cooperation Actions (AWG-LCA), and an Ad Hoc
Working Group
on Further Commitments for Annex I Parties under the Kyoto
Protocol (AWG-KP). The
main scope of the AWG-KP was tofocus on how to bear the
maintenance of the Kyoto
Protocol over the second 2012 commitment period, whereas the
AWG-LCA would
establish the path ahead for progress towards a new global
agreement, or protocol, under
the UNFCCC framework that will be implemented beyond Kyoto.
This dual track process has been developed having in
consideration the complex
situation of differing quantities of emissions between
developing and developed States
which are Parties of the Protocol, leading, as a result, to the
blunting of the rigid
distinction between commitment pledges for Annex I countries and
only voluntary
pledges among Non-Annex I. Moreover, the dual approach can
represent a formal
compromise among the leading forces over the negotiating phase,
during the successive
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16
Conferences of the Parties.(Wang & Zheng, 2012)
The two-track process was critically opposed by almost all the
Annex I countries,
but especially by the USA (which had always refused to sign the
Kyoto Protocol).
Indeed, the USA and the EU insist on removing it and put
pressure on large developing
countries to become part of the Kyoto's emissions reductions
goals. On the contrary,
developing countries, China first of all, have also strongly
objected to the merging of
two-tracks. This, in order to defend the principle of common but
different
responsibilities, without taking on board any commitment
measures, and still asking
developed Parties to take the lead in emission reduction, while
receiving full assistance
from the latter in order to better address the environmental
situation. The latest opposing
process explains why there was a general agreement in reaching
the dual-track
compromise during the negotiations procedures over climate
change. This dual track
option has been further kept in existence as a symbol of
formality in order to sustain
the bargaining forces in the game during the subsequent COPs.For
instance, if the formal
treatment over the Kyoto Protocol group (AWG-KP) were lost,
developing countries
may not have any reasonable bargaining chip in climate change
negotiation, and their
demand for the financial support of developed countries, might
be finalized only under
the AWG-LCA talks. (Wang & Zheng, 2012)
In December 2011, at the Durban COP-17, the dual track process,
which allowed
the second commitment period of the Kyoto Protocol to be
maintained in existence,
came to an end, through the renewed reconsideration over the
wrong dichotomy
between Annex I and Non Annex I groups emissions. At Durban, The
delegates
decided to reach an agreement by 2015 that will finally be
applicable for all countries
by 2020, the so called Durban Platform Track (ADP)... The Durban
Platform focused
instead on the pledge to create a system of greenhouse gas
reduction including all
Parties... [In a new international climate regime] by 2015 that
will come into force by
2020.2
2Stavins Robert Blog:
http://www.robertstavinsblog.org/2013/11/28/the-warsaw-climate-negotiations-and-
reason-for-cautious-optimism/
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2.1 Making progress toward a Post-Kyoto Agreement - Warsaw
COP19
With the ultimate decision to conclude the phase II of Kyoto
Protocol in 2020, the
International Community has been questioned and engaged in the
search for a global
common legal framework to address significant emission
reductions in an appropriate
timetable and with acceptable costs.
Along with the well-known weak performances of the Kyoto
Protocol 3, the COP-17
in Durban has taken a further relevant step through the
establishment of the so-called
Durban Platform Action (ADP). The Durban Platform could be seen
as an innovative
and differentiated approach from the old Bali Action Plan in
2007 in two specific
ways. First, the ADP process makes no reference to the principle
of common but
differentiated responsibility; indeed it contains no reference
to developing, developed,
Annex I or Non Annex countries, giving new opportunities to
advance within the
negotiations progress for global environment governance.
Secondly, it creates a new Ad
Hoc Working Group on the Durban Platform for Enhanced Action
(ADP), providing the
startup procedure for the further elimination of the two working
groups (AWG-LCA and
AWG-KP), that were established in Bali at COP-13.
The main objective of the ADP consists in the negotiation of a
treaty, another legal
instrument or an agreed outcome with legal force in order to
establish a new global
common legal framework considering different issues that include
mitigation,
adaptation, finance, technology development and transfer,
transparency of action and
support and capacity-building. The Durban Platform opens an
important window
concerning climate governance, leading to the creation of a set
of new mechanisms and
instruments, and proposing new climate governance architectures,
but remaining
circumscribed within the overall framework provided by the
UNFCCC.
Recently, at the COP-19 in Warsaw, making progress toward a
post-Kyoto
agreement has been a central issue of discussion in order to
establish the long-term path
toward a new global agreement in 2015 at COP-21 in Paris.
For the success of the new agreement, it may be necessary to
review the
3 For further details see chapter 2
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18
normative rules schemes, since the large emerging economies
could tend to view the
agreement as one without any legal force. (See paragraphs
1.5)
Indeed, for example at the Warsaw Conference, developing
countries have
demanded that, in an eventuality affecting developing States
participation within the
agreement, then only for the latter, the word commitments must
be replaced by
contributions. This makes it evident that there are still
difficulties in finding a
balanced way toward an equity principle, leaving behind the
principle of common but
differentiated responsibility, that will serve to stabilize and
harmonize the different but
real emissions trends between different countries. Although each
of these states have
different abilities to contribute to the solution in reducing
the emissions, and to proceed
a step forward in searching for a new agreement, this latter
will remain a priority task
that must be quickly addressed during the next COP(s).4
3 The forms of governance's architectures
Since the first UNFCCC Conference, the international community
was engaged in
finding the most appropriate governance architecture for success
in addressing the
renewed cooperation process within the environmental field.
Historically, through the Kyoto agreement, climate governance
was first
implemented in a recognized top-down architecture. Through this
modality, different
states could implement the Kyoto commitments(i.e., through
flexible mechanisms),
under a system supervised by the global UNFCCC framework. The
universal
architecture, mainly related to three issue areas, can be
achieved in all countries
concerned, worldwide. First, in case they are subject to the
same regulatory framework;
second, countries participation over the same decision-making
procedures;third, there is
agreement on a core set of common commitments. This universal
top-down governance
architecture can be seen as an international regulatory system
that, essentially, today has
become divergent in empirical results. Indeed, with the entry in
force of the Protocol in
2005, there has been an increased level of fragmentation in the
climate change regime.
4Carraro Carlo:
http://www.carlocarraro.org/en/topics/climate-policy/the-warsaw-cop19-between-weak-
commitments-and-tiny-bland-successes/
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19
Numerous analyses, such as(Benecke, Friberg, Lederer, &
Schrder, 2008;
Biermann, Pattberg, Asselt, & Zelli, 2009; Tuerk, Mehling,
Kppl, & Kettner, 2011),
demonstrated that the increasing fragmentation level of
governance of the climate policy
has been due to various reasons. Coherently, different
implementation approaches of the
Kyoto Protocols flexible mechanisms have been followed by an
increasing emergence
of diverse market actors working withits commitments and
implementations. For
example, the Clean Developed Mechanism (CDM) has been a driving
mechanism for the
appearance of new actors such as non-State actors, international
organizations, NGOs,
private businesses, and so on. Furthermore, institutional
arrangements were growing
within different levels of the political system, including
regional initiatives, such as the
European Emission Trading (EU-ETS), public/private
initiatives,for example Asia-
Pacific Partnershipon Clean Development (APP), or Climate or
bilateral initiatives,
including the Japanese Bilateral offset Crediting Mechanism
(BOCM). Finally, there are
growing difficulties in conserving the Kyotos universal
framework for counting,
recognizing and measuring emission reductions among national
schemes. This was due
to fragmented rules and policies among countries, which leads to
a fragmented
framework for domestic measurement, reporting and verification
tools (MRV).
According to Biermann et al., 2009, it is possible to assess
three different forms of
fragmentation that shape the current climate regime:
cooperative, integrative and
conflictive. The analysis show that the major academic inquiry
strands namely
cooperation theory, environmental policy theory, and
international law, has offered
different hypothesis about the relative costs and benefits of
the assessed forms of
fragmentation. In sum, these results show that on balance,
fragmentation of global
governance architectures appear to bring more harm than positive
effects.(Biermann et
al., 2009, pp. 3132)
Therefore, since the establishment of the Kyoto Protocol, the
increasing
fragmentation of global governance of climate change started to
be an unavoidable
condition that poses different challenges between observers and
policy-makers alike.
Overall, the fragmented reality has led to a complex regime in
which a single
institutional response (i.e. top-down approach) has been
exceptionally difficult
toorganize, and the multiple one (i.e. bottom-up architecture)
undesirable, especially for
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20
the leading States: from a strategic standpoint, the benefits of
a comprehensive regime
may not seem sufficiently to justify the bargaining effort and
concessions that would be
required of individual states with often divergent interests. On
the other hand, an
entirely fragmented response is unlikely to satisfy the
interests of leading states that
expect first-mover advantages and make the larger investment in
building
institution.(Keohane & Victor, 2011, pp. 1415)
Notwithstanding the above, this increasingly fragmented
architecture in climate
governance is likely to continue in the future. In order to
address the fragmentation
issue, which is clearly a crucial topic to be considered in the
creation of a new future
agreement, different policy debates have been conducted. Today
we can distinguish
theories which are promoting central governance, and conversely
policy proposal that
consider the possibility of being engaged in further
institutional fragmentation.(Joseph
E. Aldy & Stavins, 2010, pp. 1316; Biermann et al., 2009,
pp. 1315)
The central governance model still appears to be the most
supported one by the
European Union: indeed, according to the EU, this architecture
approach can advance
more ambitions in terms of global emission reductions and in
creating a system of
universal accounting options (MRV), which can facilitate the
universal recognition of
varying GHG reduction units between different countries and
mechanisms, resulting in
more convergence, and measurable green environmental
performance. Conversely, a
proposed fragmented architecture, supported mostly by the United
States, can be seen as
more flexible for being implemented between States, because it
can take specific host
countries circumstances more into account.
At the last COP-19 in Warsaw, there was a growing consensus over
the type of
governance to be implemented by the next agreement in 2015. The
discussion took into
account the hybrid complex regime. This approach is a mix of top
down architecture,
that would establish a centralized management of oversight,
guidance and coordination,
with the possibility of increasing the ambition over time, and a
bottom up architecture in
favor of national commitments or national contributions, which
is at least consistent with
national policies and goals.
This approach has been strongly favored especially by Japan, and
could be seen as a
mix that takes into consideration the advantages and
disadvantages between the top-
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21
down and bottom-up measures. Such a design would be more
realistic, dynamic and
efficient in addressing the diverse national commitments, and it
is today seen as the most
able to accommodate different approaches and different
institutional venues in a more
synergistic way.
3.1Defining a better future agreement through the governance
process
One of the biggest challenges for the international community is
to search out a way
to establish a new agreement or treaty, following the demands of
the Durban COP-17, in
order to follow the Kyoto Protocol. The design of a new
regulatory regime is essential
but does not seem to be a quick outcome. Indeed, creating a
global common agreement
is a difficult task, because what can be regarded as a public
good, namely the
environment, is actually creating wide conflicts of interests
between main powers such
as China, Europe, and the USA. 5(Leal-Arcas, 2013, pp.
249287)
Climate change is a global phenomenon and given the
heterogeneity of costs and
benefits, mitigation efforts inevitably cause distributional
conflict between states. For
instance, several analysts warn that the cost of climate
changewill largely fall on
politically weak developing countries, whereas the costs of
emission reduction will
largely fall on industrialized countries.(Keohane &
Raustiala, 2010, p. 1)
The complexity of the problem becomes deeper, as we consider
that uncertainty
over the long time horizon is difficult to avoid: Consequently
agreement on any
meaningful international regulatory system has been and will
continue to be
difficult.(ibid)
The major literature concerning the new treaty design, offers
numerous solutions
that the International Community should consider when attempting
to define a new
climate change agreement. Most suggestions have been favored
through the experience
acquired due tothe failings and weaknesses that Kyoto has
produced so far. Indeed,for
the most part, the problem of the distributional conflict and
deep uncertainly regarding
climate change as a long term issue has been engaged through a
comprehensive top-
down policy action (e.g. through the Kyoto Protocol). This
critically argues that the
5Stavins Robert Blog: http://www.robertstavinsblog.org/
http://www.robertstavinsblog.org/
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22
Kyoto Protocol has been inefficient in addressing different
issues such as how to enlarge
the participation of countries within the Protocol, how to raise
ambitious mitigation
measures between States, how to accommodate different domestic
interests of Parties,
and most importantly, how to guarantee the equity of treatment
between Annex
countries. Furthermore, these studies have tried to focus on the
causes that create
different obstaclesfor the successful outcome of the Kyoto
Protocol, and their
respective solutions.6
As we have seen in the preceding paragraphs, the Protocol has
been efficient in
starting the commitment phase between countries, but not in
addressing the growing
political and economic differentials of emission commitments
between States.
Therefore, it requires a real re-examination of the complex
political and economic
reality, in order to successfully assess a careful institutional
design, that will take in
consideration the current fragmented reality context.
There is a highly growing consensus among policy makers,
international
organizations, business and economists about how the design of a
new regulatory regime
should favorite criteria for political participation,
effectiveness, and compliance between
States. (Edenhofer, Flachsland, Stavins, & Stowe, 2013)
The results of a recent workshop have suggested that these
criteria are highly
dependent on the governance structure of the regime. (ibid)
Indeed, the workshops key
purpose has been to find which governance structure is the most
suitable. For example, a
top down approach may favor ambitious emission programs but at
the cost of a lower
level of presence of countries, conversely a bottom-up
governance approach may favor
more participation, obtaining a less ambitious program of
emission.
In sum, while this field of studies is not new, a central
question discussed in this
workshop is how to guarantee that both of the requested results
criteria indicated, could
be successfully achieved together: for instance, a broad range
of countries in mitigation
commitment and then how to tie ambition to this commitment over
time.
Considering the latter criteria, various proposed alternative
international policy
architectures have been analyzed through several research
studies. Among these studies,
6For more details see chapter 2
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23
the assessments range from top-down project to the bottom-up
architecture. As regards
the top-down approach, the two main eminent studies were
proposed by (Bosetti &
Frankel, 2009; Jayaraman, Kanitkar, DSouza, & Purkayastha,
2011; Messner,
Schellnhuber, Rahmstorf, & Klingenfeld, 2010).
The first approach, that builds on the fundamental relation
deficiencies of the Kyoto
Protocol, would establish a progressive emission target
commitments range between
different countries. By taking in consideration the different
capacity of GHG abatement,
this top-down approach, would ask relative wealthy States to
abate more respect to
developing ones. The increasing abatement threshold level would
then proceed
gradually, toward an equalization factor which moves the world
toward equal emission
per capita.(Edenhofer, Flachsland, Stavins, & Stowe, 2013b,
p. 6)
The methodology is designed to yield caps that gives every
country reason to feel
that it is only doing its fair share, and it is flexible enough
that it can accommodate
major changes in circumstances during the course of the
century.(Joseph E. Aldy &
Stavins, 2010, p. 13)
The second top-down approach, namely the carbon budget system,
would specify a
total amount of GHGs that could be emitted globally over a
certain period of time. This
amount would then be divided through a cap on cumulative
emissions between countries
over the same global period of time.
Together, these approaches do not appear to be politically
feasible, considering that
some countries would not appear to accept an entire global
constraint mechanism.
(Edenhofer et al., 2013)
Among the main bottom-up approaches proposed, selected
architectures would vary
from singular and independent cap and trade regimes between
States, that guarantee
more flexibility and participation for GHGs emission reduction;
to an eventually
foreseen linkage system that would provide, if well designed, a
successful process
toward independent cap and trade systems between States.
Even if these latter mechanisms may present some weaknesses,
these schemes
would particularly suffer in creating ambitious programs, but
also (from a more
technical prospective) in how to guarantee a correct
implementation. Therefore, there are
complex and different specific singular States parameters that
need to be considered.
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24
However, the challenge here is to find the best approach in
order to achieve
participation, effectiveness, and compliance, while considering
the more complex
fragmented governance methods of the current reality.
3.2. The hybrid - dynamic approach
At the recent workshop in Berlin (Edenhofer et al., 2013), it
was recognized that the
best results would achieved through a dynamic type of governance
(i.e. hybrid). A
potentially hybrid approach can favor criteria of participation,
effectiveness, and
compliance between States into a new agreement. The method
disposes different States
in deciding which kind of targets and actions have to be
achieved, predisposing internal
mitigation policies, but also mechanisms such as the Kyoto's
flexible ones. At the same
time, a centralized system, i.e. UNFCCC framework, supervises
the regimes additional
aspects. For instance, a set of structured rules from an
international body may implement
the use of uniform methods for measurement, reporting and
verification (MRV),
finance, and technology-related issues. These may better
guarantee firstly environmental
integrity, making larger actions and contributions towards
solving the climate change
problem, and secondly provide both more confidence and
credibility as regards the
entire regime.
The hybrid approach has been further considered at the Warsaw
COP-19.
A summary of proposal options for creating an efficient dynamic
process in
promoting participation and increasing ambition is made by Aldy
et al. (2003): this
study evaluated how this hybrid approach needs to be carefully
designed and projected
before implementation. (Joseph E. Aldy, Barrett, & Stavins,
2003) At first, major weight
has been given to the design of the central governance regime.
States would be free to
choose the appropriate bottom-up mitigation measures, but in
aggregate, such national
policies would not be able to reduce emissions sufficiently to
avoid climate change.
Therefore, the UNFCCC and the broader international regime might
be assigned a
range of top-down responsibilities related to a 2015 agreement.
(Edenhofer et al.,
2013)
According to the analysis, a top-down procedure could comprehend
a set of
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25
approaches useful to facilitate participation and enhance
ambition between countries at
the same time. These, for example, could range from reinforcing
scientific review
processes over the growing climate change phenomenon in order to
increase
international participation, to designing new mechanisms for
incentives, in order to
enhance ambition over time, such as green jobs or reduced air
pollution options between
States. Moreover, the process could also consider the
development of a new approach
called political conditionality. In this case, State party might
condition increased
ambition, linkage between regulatory system or international
finance support on that of
other parties, perhaps including provisions to reverse the more
ambitious policy in case
of breach, as a form of sanction.(ibid)
Nevertheless, forsome analysts, such measures alone may not
guarantee sufficient
results, given the fact that these would not surely be
implemented, or, even if
implemented, they would not turn out to be efficient.
The analysis show that a set of dynamic top-down approaches
would better integrate
the single bottom-up approaches. Furthermore, the new agreement
must attempt to
motivate increased national ambition over timeto create a
self-reinforcing loop in
which countries offer national policies, actions, and targets
rooted in their domestic
political processesand review these over time in light of
information on aggregate
global outcomes, equity considerations, and (in the case of
developing countries)
international support. (ibid)
In substance, the central architecture should develop
principles, rules and metrics;
international support (aligned with domestic policies) for
finance, market mechanisms,
and technological innovation; specifying a legal form, i.e.
adjusting national obligations,
and, last but not least, a procedural mechanism to review
certain regime elements. For
instance, a good process could be assessed step-by-step by
establishing big dreams
through realizing small dreams. 7
Finally, as a matter of fact, an hybrid - dynamic approach would
maintain the
purpose to establisha framework in assessing ambitious
mitigations results that would
7A comprehensive global governance i.e. top-down approach, would
create and maintain big dreams,
infeasible in the present but not necessarily in the future such
as stabilize the world's GHG emissions.
These big dreams will guide small dreams notably, countries'
mitigations strategies contained within
the bottom-up approaches. (Urpelainen, 2012)
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26
give major credibility to the international system. Credibility
would later bring countries
to increase cooperation, i.e. establishing links, and
especially, once a single country
knows about the real and effective commitments of others,
leading to a general increase
of the mitigations ambitions.
4 Characteristics and options for a new successful agreement
Beyond the governance system established, a successful agreement
would need to
entail a set of characteristics, features, and options which can
increase the potential
global response toward effectiveness of the discussed criteria:
political participation,
effectiveness, and compliance between States. These criteria
have been posed in a recent
deep research, with the main purpose being to assess multiple
solutions in the critical
debated field of International Environmental Agreements
(IEAs).
The analysis shows how to better drive, motivate and implement
the assessed
criteria, e.g. how to motivate participation and compliance; to
find what drives
investment in green technology; the appropriate duration of a
treaty (and how to update
it); and also how to establish the appropriate level of emission
caps in the eventuality of
an ETS.
According to Harstad, 2013, complex interactions exist between
these variables, that
could be assessed through a multiple cause-and-effect process.
(Fig.1.6)
Figure 1.7 Multiple purpose diagram
Source: Harvard Project on Climate Agreements.
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27
Starting from what drives investment in green technology, it has
been found that the
greater demand for green technology depends on how ambitious the
climate treaty is.
Therefore, it is important to stimulate ambitious plans for the
climate treaty, though, as
Harstad suggested, in lowering disposable quantity caps
distributed between countries,
equity criteria of caps distributions between developing and
developed States must also
be considered. Furthermore, the higher is the demand for green
technology, the more
this latter would bring success in creating larger profits for
investment in new abatement
technology, thus, automatically reproducing incentives for
further investments in
reducing pollution emissions.
Another important factor concerning the green-abatement
technology investment is
the length of a treaty contract. A long-term contract would
better induce technology
development considering the typical low rate return of a
green-technology investment,
and low profit return risk for the investor. The demand in
green-technology would
therefore increase with positive rational future expectations
for the investor. While this
observation is not new, a crucial factor here is that a
short-term treaty, would favor an
increase in participation criteria over the treaty. Here,
further considerations are
necessary: participation (i.e. a countrys committed presence in
a treaty) is a well-known
problem that could frequently occur along with the establishment
of an international
environmental treaty. In particular, it is the frequently
questioned free riding issue,
that represents serious threat to the final compliance process.
Indeed, a public good such
as the environment, constitutes a long term benefit that can be
enjoyed also by those
countries who decide to opt out from participating in a multiple
agreement. As a matter
of fact, less participation would means a decrease in the total
amount of GHG
abatement. Furthermore, it may also result in more expense for
the rest of the coalition
to guarantee a certain amount of emissions reductions. This
latest effect is due to a so
called carbon leakage effect. For instance, in countries under
emissions commitments,
firms that face a limitation in the quantity of emissions
disposal, may find it attractive to
switch the production processesto countries that are not
participants, i.e. in States out of
emissions limits.
Participation criteria is also connected with the time length of
a contract.In his
analysis (Harstad, 2013), further explains how the duration of a
contract depends on the
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28
size of the coalition: if few countries participate, it is in
their interest to only sign short-
term commitments, while waiting for the coalition to grow.
(ibid) This indicates that
usually participants would prefer to establish a short-term
agreement if they are few,
hoping for more countries to join later. Moreover, short
contracts may reduce the
negative free ride incentives between states, because a country
that contemplates
whether to participate in a treaty may fear that, by opting out,
the remaining countries
end up signing a short-term treaty (reducing the possibility to
free ride). (ibid)
Short term agreements would therefore incentivate participation.
Nevertheless,
although in a short-term agreement the free-riding problem
becomes weak, the
investment in abatement technology would may also face a
so-called hold-up problem:
notably, investments [in green technology] before negotiation,
may weaken a
negotiator's bargain position, this may happen because countries
that have already
installed the best existent technology, will have more to gain
and less to lose in relation,
conversely,to a country which is without such technology. As a
matter of fact, both of
them will have nothing to lose from an agreement in terms of
technology. In summary,
in a short term agreement, the hold-up problem may generate a
credible threat which
would reduce even more the free riding risk.8 However, the
hold-up issue may
incentivate a stronger participation, but at the cost of a
decrease in investments in
abatement technology as we assessed above.
In synthesis, subsequent analyses have demonstrated that the
longer the treaties
length, the greater are the incentives to invest in abatement
technology, and increasing
green ambitions result through the years. Anyway, shorter
treaties would increase the
level of participation between countries at the expense of a
slower development of
technology, and consecutively, abatement performances.
(Battaglini & Harstad, 2012)
Further treaties would need to strike a balance within these two
options especially
when environmental contracts are incomplete, i.e. where
investments in green
technology are not further contractible, as in those under
analysis.
Last but not least, the effectiveness of a contract would also
highly depend on the
effective measures for compliance established. As with
participation, for global
8 This, because of the low expected increase in investments
between State's parties of the treaty, and, thus
low future profits for eventual free riders.
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regulatory regimes to work well, states must, on the whole,
choose compliance over
violation.(Keohane&Raustiala, 2010, p. 17)
Basically, international agreements would favor formal
compliance between States.
These could range from States that agree to a treaty in order to
maintain political
sympathy with the others, to increasethe States vesting
processes:where international
law becomes considered the same as internal law and, as such,
constraining and costly
for breaking the norms.
Formal sanctioning processes, or perhaps punishment measures,
can also be useful
as incentives for compliance. For instance, carrot and stick
policies can be available
using trade policies and sanctions.
5 A proposed review process of negotiation
As we assessed above, considering that climate change is a
global problem, a global
first-best solution would therefore need to find a universal
multilateral agreement
answer. (Biermann et al., 2009)
According to Leal-Arcas, 2013, considering the multiple
challenge of moving the
climate agenda forward among the 195 Parties of the UNFCCC has
led many to
question whether the UNFCCC is, in fact, the best and most
effective forum for
mobilizing a global response to climate change .(Leal-Arcas,
2013, p. 301)
Indeed This current approach to negotiating a comprehensive,
universal, and
legally binding global agreement on climate change is unlikely
to succeed.(Leal-
Arcas, 2013, p. 302)
As a result, it is important to identify policy issues, options,
and ways to overcome
negotiations obstacles.
One proposal would be to make negotiations less ambitious within
the UNFCCC, by
for example abandoning decision-making by consensus. For
instance, consensus is
based on an oligopolistic and duopolistic world order, but fails
to deliver under
conditions of an emerging multi-polar world, accompanied with
great shifts in economic
power. The turn today towards a multi-polar world indicates that
approaches based on
consensus are unlikely to produce results. No country, or group
of countries, today is in
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30
a position to forge a global deal.(Leal-Arcas, 2013, pp.
303304).
Furthermore, the old principle of common but differentiated
responsibilities, also
could be seen at the core problem of the deadlock of the actual
negotiating process.
Today, there is an urgent need to modify, upgrade or even
eliminate the common
principle, at least with a careful observation of the current
developing and developed
countries' relative emissions trends. China and USA together,
count for almost 42% of
the total GHG emissions of the world, but today they are still
outside of the Kyoto's
protocol for different reasons.
For instance, any effective review process of the UNFCCC should
definitely take
into consideration these large emitters. Perhaps, a useful
option would be to provide for
a fair distribution of emission burdens among all countries,
leading to the elimination of
the distinctive Annex I attribute.
Various difficulties in the negotiations processes have also
caused an increase in the
general fragmentation of the governance system. Any correct
evaluation, before the
creation of an effective and comprehensive global climate-change
agreement, should
take into consideration the different complex-fragmented reality
in which the global
landscape is today involved. Notwithstanding, as we have
assessed in the preceding
paragraphs, a process of re-evaluation of the current top-down
regime, should
necessarily go beyond the crucial central role, also providing
more flexibility within
specific practical pledges between States. Here pragmatism is a
crucial element, such as
bilateral agreements, flexibility against rigidity, practical
results over utopian ideals.
Indeed, experienced bottom-up mechanisms have been rapidly
applied, and are still
provided in different waysbetween developed and developing
countries. Regarding this,
according to Edenhofer et al., 2013 and Urpelainen, 2012, the
dynamic climate
governance approach, would be seen to be today's most effective
approach.
In summary, it is important to consider the possibility of a
complementary
combination of top-down and bottom-up approaches to building a
global climate
landscapein order to also reduce the negotiation
issue.(Leal-Arcas, 2013, p. 293)
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5.1 The club approach
According to Leal-Arcas, 2013, there are also important and
different plausible
venues to be further analyzed outside the UNFCCC negotiation
process.(Leal-Arcas,
2013, pp. 325342)
A recently recognized option would depart from the issues
discussed and would be
built based on a so called variable geometry of power. This
would consist on making
deals within smaller clubs such as the Major Economies Fund
(MEF), the G-2, the G-3,
the G-20 groups instead of a comprehensive global institution
such as the UNFCCC.
Together, those groups of clubsof countries, compose a big part
of the worlds total
GHG emissions percentage.
According to recent analysis, a more effective process of
revision, should start from
negotiating processes between these clubs of countries, whereas
this would achieve
better mitigation performance, considering that the main
emitters are de-facto grouped
among the clubs. This approach would create a faster, more
efficient decision process
within a small group of countries instead of the comprehensive
UNFCCC system. Less
time would be spent on procedural matters when dealing with a
small group of countries.
In addition, based on international negotiating experience from
other fields, the
only way to get any real business done is in small meetings
(sometimes tte--tte
meetings between key leaders.(Leal-Arcas, 2013, p. 328)
Another advantage that would result comes from considering the
previous
agreement characteristics such as how to enhance participation
criteria. Adopting
strategies of less starting participation such as clubs of
countries, would better create
the possibility of a further expansion of the group.
Last but not least, these small groups of countries could better
address the needs of
the single States parties. Indeed, a forum option with the
purpose of better addressing
the important necessities of the less developed economies, may
have more weight in
international climate policies. According to Leal-Arcas,2013, a
collective action
problem can be solved within a polycentric system because it
would produce
cooperative methods for better developing participation options
between State parties
through both cooperation programs and partnership
initiatives.
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Instead of an uncertain future multilateral global climate
treaty, the club approach
would result in a more plausible and realistic second best
option that should
necessarily be placed under further empirical examinations.
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__________________________________________
Chapter 2
The Kyoto Protocol and flexible mechanisms: valuable goals
achieved
1 Kyoto Protocol: results and experiences accumulated
In the preceding chapters, we have argued that the Kyoto
Protocol has been
successfully in creating an initial path toward a global
emission reduction of GHGs. This
can be attested considering that the Protocol constitutes the
first legally binding
international agreement on climate Protection and, also the
first that builds on market
based instruments (i.e. flexible mechanisms), that determine
cost-efficient responses for
the States to the undisputed need for GHG abatement through the
carbon market.
At the same time, we have seen that the Kyoto system has some
structural
weaknesses regarding reformative processes in the long term.
This occurred essentially
for two reasons. First, the Protocol has been inefficient in
general adjusting terms, i.e.
has run out of flexibility targets among states in the long
term.(Grubb, Vrolijk, & Brack,
1999)9
Second, the existence of the Kyoto agreement has been involved
in complex
negotiations processes that reflected a real difficult state of
equilibrium between States'
political power. For instance, the withdrawal of Canada, New
Zealand, Japan, and
Russia during the second phase of the Protocol in 2012, has
weakened the negotiation
progress for the second phase, leading, as we saw, to block
further progress in countries
participation, notably the developing non-Annex group.
Fifteen years after the Kyoto Protocol, we can say that several
different studies
9(for further details see chapter 1)
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34
argue that the Protocol has been crucial for further policies
processes on climate
protection. (Bhringer, 2003)
A certain idea among these studies, is that the agreed targets
have also been
enhanced through a flourishing growth in the use of Kyoto's
flexible market
mechanisms. More specifically, instead of a unique global carbon
market under the
UNFCCC, there has been a growth in multiple independent carbon
markets around the
world, such as the European Emission Trading Scheme (EU-ETS),
the Regional
Greenhouse Gas Initiative in the northeastern United States
(RGGI), the New Zealand
Emission Trading Scheme, and Australia, California, Quebec,
South Korea and even
India and China. (Fig. 2.1)
What emerges according to these analyses, is that even if the
Kyoto Protocol has
been insufficient to reach all the UNFCCC parties and also to
enable a long term reform
process, it has been successful in establishing and stimulating
a growing number of
jurisdictions nonetheless continue to pursue emission reductions
in the absence of an
International agreement among all major emitters to reduce
emissions.(Newell, Pizer,
& Raimi, 2013)
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35
Figure 2.1 Perspective of carbon markets launching programs in
2013
Source: World Bank, 2013
In order to show the impact of the Kyoto Protocol in terms of
CO2 emissions
reductions, an empirical analysis is taken by Grunewald &
Martnez-Zarzoso, 2012.
According to this large dynamic model research, the States with
emissions
commitment under Kyoto, emit on average 24.5 percent less CO2
than similar
countries that did not ratify the protocol. Yet, even if is
evident that the protocol has
some potential effect, it is still not clear if the Annex I
countries would have been doing
the most to tackle their CO2 emissions, even in the absence of
the protocol. Countries
would increase their emission-reducing action with a positive
function of per capita
income, instead of through the modest commitment required by the
Kyoto Protocol.
Here, at least two considerations could be evaluated in
assessing the Kyoto's
performance.
First, for a possibly stronger performance calculation, we
should necessarily take
into account different Annex-I commitments in emissions
reductions, especially within
the field of internal-domestic policy measures and instruments.
10 An empirical analysis
taken by (Zhang, 2003) shows that, when counted alone, the
Kyoto's flexible
mechanisms performance would exclude an important part of
avoidable GHG emissions
i.e. domestic policy measures, that separately perform, on
average, 37% of the total
Annex-I emissions reductions required from Kyoto in 2010.11
Secondly, although Annex-I Parties reduced CO2 emissions by
nearly 7% out of
5.2% of the Kyotos emission reduction requested in 2009, a large
part of the decrease
was due to a drop in economic activity in response to the
crisis.(Grunewald &
10
These latter for example, would include Environmental Voluntary
Approaches, NAMAs (national
appropriate mitigation measures), National Carbon Tax etc...
11
The global empirical model illustrated from Zhang, is based on
considering the marginal abatement costs
of 12 selected countries. Under specific hypothesis, and within
three case scenarios a domestic
performance is calculated: a no-limit scenario in which no caps
are imposed on the use of the flexible
mechanisms, a EU (proposed) ceiling scenario that impose a limit
to the use of flexible mechanisms, and a
no-air scenario where trading in hot air (emission quotas) are
not allowed. Of the total emissions
reductions required by Annex-I countries in 2010, domestic
actions account, starting from a minimum of
27.7% under a no limit scenario, up to 50.8% under an EU ceiling
scenario. Moreover, a successive
analysis shows that CDM credits contribution are estimated to
range from 31.5% under the EU ceiling, to
57.6% under the no hot air scenario.
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36
Martnez-Zarzoso, 2012)
This is true perhaps in Europe, where the European Trade
Mechanisms (EU-ETS)
have largely surpassed the Kyoto's targets. For instance, the
total average emissions
reductions of the European countries EU-15 reached between 2008
and 2012, was 12.2
percent of GHG emissions avoidance respect to 1990 levels,
surpassing the 5.5 % of the
EU-15's base-year emissions. (European Environment Agency,
2013)(Fig. 2.2; for
further details see paragraph 2.3) This result should also
consider that, according to an
analysis by Borghesi (2010), in Europe, the Kyoto's targets have
been achieved
differently among countries. Among these, in 2008 there was an
over-achievement with
some virtuous countries, and conversely a so called Kyoto gap
for the others.
Figure 2.2 Greenhouse gas emissions in Kyoto Protocol countries
and their targets
Source: Joint Research Centre, 2013
Nevertheless, in this context, (Laing, Sato, Grubb, &
Comberti, 2013) reported how
it is difficult to disentangle the impact of the EU-ETS on
emissions performances from
other factors, such as the economic crisis; and that there are
still different, and
contrasting, results, in assessing the impact of the recession
in emission performance due
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37
to the complex outlook of the crisis. Results are conflicting:
some of such analyses
conclude that the immediate post-crisis phase II of the EU-ETS
had looked similar, in
performance terms, to the pre-crisis phase I, showing that the
system led to some small
levels of abatement, and it was not only, and perhaps less than
expected, caused by the
recession impact; other analyses, seem indicate that the
reductions in overall EU
emissions that have been occurred since the inception of the EU
ETS are more the result
of the impacts of the financial crisis than the EU ETS.(Grubb,
Laing, Sato, &Comberti,
2012)
In summary, based on these performance results, the Kyoto
Protocol alone is not
sufficiently able to solve the global warming problem, even
considering the GHG
reduction performance obtained with all the Kyoto's effective
flexible mechanisms.
Furthermore, according to Grunewald & Martnez-Zarzoso
(2012), emerging countries
such as China and India, that are not parties to the Protocol,
are expected to increase
their emissions levels over the next decades.
As we see, through these performance analyses, the Kyoto
Protocol has been
successful in initiating an optimal effort toward emission
reduction, but more
importantly, in some countries and regions: commitment targets
not only have been
achieved, but also have been further enhanced. (European
Environment Agency, 2013)
As a matter of fact, performance would be better assessed
considering and looking
at the flexible market mechanisms that have been developed and
implemented inmany
countries.
2 The Kyoto Protocols Flexible Mechanisms
Since the establishment of the Kyo