23 Nov The Marrakech Slow Train

(Liz Bossley, with thanks for research to Val Pivkina and James Walmsley)

My clearest memory of the 1960s is receiving a copy of Rachel Carson’s “A Silent Spring” as a school prize (rock and roll!) Thereafter I was hooked on the environmental cause.

In the 1970s the penny dropped that it was not a case of countries being technically unable to first, feed the world, and secondly, protect the planet, it was really all about economics. Ever since I have been what I would call a pragmatic and realistic environmentalist throughout my career, most of which I have spent in the oil and gas trading sector.

I am not a scientist so I remain agnostic about whether global warming is entirely anthropomorphic, whether the Intergovernmental Panel on Climate Change has assessed correctly the consequences of a rise in global temperatures of more than 1.5-2^oC and whether we are capable of dictating the future climate, even if there was total consensus on the need for action and what that action should be.

My agnosticism doesn’t matter because it makes perfect sense on the precautionary principle that we should do what we can to cut our greenhouse gas (GHG) emissions just in case the scientists are right. Similarly I get that we should not squander a finite resource, i.e. fossil fuels, that biodiversity is intrinsically a “good thing”, that pollution and deforestation are “bad things” and that we have a duty of care to future generations. Right on!

Cap-and-Trade

I leapt with gusto into support of the 2008-2012 Kyoto Protocol methodology for implementing the UN Framework Convention on Climate Change (UNFCCC), based on the cap-and-trade (CAT) concept. I am a trader by training and by temperament so using self-interest as the motivation for modifying behaviour onto a cleaner, greener path struck a chord with me.

Lest we forget the CAT concept runs as follows:

• The UNFCCC set a limit on the GHG emissions of 38 developed economies in the 2008-2012 period to in aggregate 5.2% below the levels they were at in 1990.
• The UNFCCC gave free of charge to each capped country a number of permits, or allowances, each of which bestowed the right to emit one tonne of carbon-dioxide equivalent (1tCO2e). The number of allowances granted had to be less than the number of allowances a country would need to continue on a business as usual path to economic growth using old polluting technologies.
• Each country could emit as much or as little as it chose during the 2008-2012 first commitment period. But at the end of that period each country was supposed to surrender back to the UNFCCC enough allowances to cover what it actually emitted during the 2008-2012 period. The UNFCCC would then ‘retire’, or dispose of, these surrendered allowances to ensure that they cannot be used again to cover more emissions.
• Assuming that each country wished to grow its economy above 1990 levels, in theory there would be a shortage of allowances. Faced with a shortage a country could do one of three things:
  • Cut its production of goods and services to emit less GHGs.
  • Invest in new and cleaner technology, so that it could produce the same or more goods, but with less associated GHG emissions. It could invest domestically or overseas. If it invested overseas in green projects it could earn transferable credits that it could use back home in lieu of national allowances.
  • It could buy surplus allowances from another country that had been more successful in cutting its own emissions and therefore has a surplus of allowances to sell. Or it could buy the transferable project credits earned by others from investing in green projects.

A number of countries, most notably the European Union, devised regional or national emissions trading schemes based on the same CAT principle, but delegating the burden of compliance onto the shoulders of industry or emitting installations.

The Kyoto Achilles Heel

The flaw at the heart of the Kyoto Protocol was that the caps were set relative to 1990 levels. In 1990 Russia and other FSU countries had comparatively larger economies, which collapsed after the break -up of the Soviet Union. By the start of the Kyoto Protocol in 2008, Russia, the Ukraine and the rest of the FSU were already emitting ~30% less than they were emitting in 1990 so they were swimming in surplus allowances.

The anticipated “short” in the emissions market was the USA, which was expected to buy much of the FSU surplus. But the US senate put the kibosh on that and the USA opted out of the Kyoto Protocol in 2001. By the end of the Kyoto Protocol in 2012 any emitting entities that were short of allowances could simply buy them on the open market for a few Euro cents because the huge surplus meant that the price crashed to almost zero. This was a much cheaper alternative to investing in clean technology.

The world’s two other largest emitting countries, China and India, which were also the fastest growing polluters, did not commit to cut their emissions relative to 1990 levels. They committed to no more than growing greener by hosting clean projects financed by overseas investors based in Kyoto’s 38 capped, developed countries. Fair enough! When your people are living in poverty, growth using only the most environmentally-friendly and expensive technologies may be regarded as something of a luxury.

Nonetheless the CAT idea of the Kyoto Protocol can claim a number of achievements. Unarguably the “cap” aspect of cap-and -trade was a dismal failure because countries failed to set the emissions limits low enough to cause a shortage of allowances that would drive their price up and incentivise green investment. But the “trade” aspect of CAT worked a treat. Industry, with an eye to the main chance, developed contracts, markets and derivative instruments to facilitate trade in emissions allowances. Further the push from industry to develop overseas project mechanisms to generate transferable allowances that could be used for domestic compliance was impressive.

Industry is now totally au fait with the idea of measuring, monitoring and reporting their emissions. Human nature being what it is we have also become adept at evading our emissions costs by cheating on our reporting: thank you Volkswagen and others! But it is only worth cheating if the prize is worth having, so we are doing something right.

And then there was Paris

The 21st UNFCCC Conference of Parties (COP) took place in Paris in November/December 2015. It achieved an agreement to mitigate climate change by keeping the global average temperature rise well below 2°C above pre-industrial levels and attempting to lower this limit to 1.5°C above pre-industrial levels, presumably for all time.

In recognition that mitigation may not be entirely successful the agreement also sought to help countries deal with the impact of inevitable climate change backed up with “appropriate financial flows”, a “new technology framework” and “enhanced capacity building”.

In 2015 countries only committed to “Nationally Determined Contributions” (NDCs) to the Paris goals, to “put forward their best efforts” and to strengthen these efforts over time. The Agreement also provided for better transparency over who is doing what to live up to their commitments by reporting regularly on emissions levels and the implementation of the Paris Agreement.

Paris achieved a level of realism not apparent in the Kyoto Protocol by turning compliance on its head. Now each action taken by a country is a cause for celebration, where before each failure was a cause for censure.

During the first 5 years from 2015 to 2020 parties are to submit their NDCs, committing to do more with each submission, reflecting their “common but differentiated responsibilities and respective capabilities”. By 2020, parties whose NDCs have a commitment period up to 2025 are to communicate a new NDC. By this same date, 2020, parties with an NDC commitment period up to 2030 are to update these contributions too. Unlike the Kyoto Protocol, which ended in 2012, there is no drop dead date in the Paris Agreement. Absent any further action, the Paris Agreement will move forward in endless 5 year cycles thereafter.

There will be an initial collective totting up of promised efforts in 2018 and again, more rigorously, in 2023. Work has begun to achieve a “common transparency framework” to provide consistency in the measurement and reporting of NDCs. It is recognised that measuring and reporting emissions is an expensive business and that developing countries will require financial assistance to do so.

The Paris Agreement entered into force on 4 November 2016, 30 days after ratification pass mark of at least 55 countries representing at least 55% of global GHG emissions was reached. As of 23rd November 2016, 112 countries have ratified the agreement.

This paved the way for the 22nd COP of the UNFCCC held 7-18th November 2016 and was labelled CMA1, the first meeting of the parties to the Paris agreement.

Marrakech

COP 22/CMA1 was all about implementing the Paris Agreement, despite the dampening effect that the election of Donald Trump had on the spirits of delegates. Under Obama the USA was among the first four countries to put forward long terms action plans, pledging to cut emissions to 80 percent or more below 2005 emissions levels by 2050. Trump has indicated that he will not honour this pledge.

“The concept of global warming was created by and for the Chinese in order to make US manufacturing non-competitive.”

D Trump 6/11/2012

Mexico has promised a pathway of a 50% reduction of GHGs relative to 2000 by 2050. It is unclear if this pledge can still be met once emissions from the large infrastructure project of building a wall along the US border is taken into account.

Germany plans to be GHG neutral by 2050, suggesting that the use of domestic and overseas project offsets will be part of the German approach. Canada’s emissions reduction goal is identical to that of President Obama; Canada usually attempts to match US action on climate. It remains to be seen whether Canada will follow Trump’s lead or make its own decisions.

The four biggest GHG emitters in the world remain China, the USA, Russia and India.

China has carried on with its own efforts in its own way through the ups and downs of the COP negotiating process. It is committed to cutting its emissions per unit of GDP growth by 40-45% below 2005 level by 2020 and will in all likelihood stick to that pledge and extend it with an NDC regardless of what the USA does or does not do. It has devised its own CAT scheme, which will go live in 2017 and has made considerable progress towards controlling pollution in the major cities by command and control.

India has reaffirmed a voluntary goal of reducing the emissions intensity of its GDP by 20–25%, compared with 2005 levels by 2020 and is likely to produce an NDC based on increased use of renewable energy. India was criticised for hosting “easy” Kyoto projects to reduce the use of HFC gases, a very potent GHG with a global warming potential of >20,000 times that of carbon dioxide, with a view to earning project credits for sale to developed countries that could not meet their domestic caps. To me it made perfect sense for the Kyoto project mechanisms to pluck such low hanging fruit early in the process, but India received a lot of bad press for doing so. However HFCS are now, like the CFCs that attacked the ozone layer, simply outlawed by the Kigali Amendment to the Montreal Protocol and such projects will no longer be able to flood the market with cheap carbon offsets.

It hardly seems worth discussing Russia’s commitments to the global effort on mitigation of climate change because Vladimir Putin has made it abundantly clear that Russia will do whatever is in Russia’s best interests while he is still in office. For what it is worth Russia has indicated a willingness to limit GHGs in Russia to 70-75% of 1990 levels by the year 2030. In reality Russia was already at 70% of 1990 emissions at the start of the Kyoto Protocol in 2008 because of the collapse of the USSR. So this is more of an indication that it will not grow to back to Soviet levels before 2030. Given sanctions and the otherwise parlous state of the Russian economy is unlikely to find this constraint onerous.

Ominously Russia has also indicated that it will take “maximum possible account of absorbing capacity of forests”: measuring emissions from land use, land use change and forestry (LULUCF) is probably the least certain of the areas of measurement, reporting and verification (MRV) of GHG emissions. Russia has a whole lot of forest. This bodes ill for Russia’s ability to cheat in the future.

A commitment was made to finalise a Paris rulebook by 2018 putting flesh on the bones of NDCs. This will take what has only been rhetoric so far and determine what will and will not be accepted as concrete action by the body of CMA1.

On the financial side, the outcome of the COP can be summarised as follows:

• Increased financial flows from developed to developing countries were noted by the Standing Committee on Finance (SCF).
• The Adaptation Fund established in 2001 to help developing countries cope with global warming was put at the disposal of the Paris Agreement.
• The pledge by developed countries to provide to US$100 billion annually by 2020 was reaffirmed.
• The Secretariat was asked to collate and publish progress on the promises made by
• developed country parties to increase climate finance from 2014 to 2020.
• Long term climate finance will be discussed in workshops at the 2017 and 2018 COPs.

A Noisy Spring

It is easy to get discouraged by the slow progress of climate negotiations, particularly if you have bought into the scientific arguments and would prefer to halt or reverse economic progress, including in developing countries, rather than endanger the planet. I am personally with India in its view that poverty is the worst pollutant.

Nevertheless the progress that has been made since I first read “A Silent Spring” back in the 1960s, when dumping effluent in rivers and at sea was common, is phenomenal. It would be very unusual now to contemplate any project without first running an environmental impact analysis and putting MRV procedures in place. The Kyoto Protocol for all its faults taught us how to measure the emissions problem and to devise methodologies that achieve the same growth outcome in a cleaner and greener way.

The clamour of emails hitting my inbox on a daily basis promoting renewable energy and sustainable techniques of producing goods and services is deafening.

I am encouraged that the Paris Agreement has set us on the right path and that the NDC concept avoids any unrealistic attempts to force countries to accept burdens that their electorate would simply frustrate.

There is hope for us yet!