Monthly Archives: November 2014

Will the Green Climate Fund reach its $10 billion initial target at COP20?

Money is always an issue.  You need money to buy food, water or electricity.  You need money to rent an apartment or buy a car.  Likewise, addressing climate change requires money. Money is needed to invest in clean energy and green technology, and to build up defenses against rising seas and worsening storms, floods and droughts.  When you buy items for yourself, it is clear that you will pay, since you will garner the benefits of the items.  However, the issue of global climate change has widespread costs and benefits. The issue here is who should pay money for addressing climate change, and how much.

A key financial mechanism of the UNFCCC is Green Climate Fund. The fund was  established at COP 16 as an operating entity of the financial mechanism of the UNFCCC, in accordance with Article 11 of the Convention.  The fund supports projects, programs, policies and other activities in developing country Parties. The initial target of the fund is $10 billion, which was set by the Executive Secretary of the UNFCCC, Christiana Figueres.  Furthermore, the developed countries committed to provide funds rising to $100 billion per year by 2020 to support concrete mitigation actions by developing countries.

Although many developed countries hesitated to pledge money to Green Climate Fund up until recently, progress has been made in the lead-up to COP20. At the time of UN’s World Leaders’ Climate Summit in September 2014, pledges made toward Green Climate Fund’s initial capitalization totaled only $2.3 billion.  Watching this low level of commitment by developed countries, African countries have warned that if the developed countries fail to achieve $7 billion for the fund by the December COP, the chances of a UN climate deal in 2015 will be dead.

The turning point was a US and Japanese pledge to the fund. In a joint press release on November 16th 2014, the United States and Japan announced a total of up to $4.5 billion in pledges to the Green Climate Fund, including up to $3 billion from the United States and up to $1.5 billion from Japan.  Although we need to notice that both U.S. and Japan seek approval from Congress or Diet for the funds, this announcement likely urged other developed countries to pledge to the fund as well. At last week’s meeting in Berlin, thirty countries pledged $9.3 billion to the Green Climate Funds including 1.1 billion from UK. If this momentum continues, the Fund will likely reach $10 billion initial target by COP20.

During COP20, countries have an opportunity to make a national statement.  The COP needs to urge remaining developed countries to commit to the Green Climate Fund. I hope that we will be able to see that $10 billion initial target achieved at the COP20.  But the real issue remains whether the US and other developed countries can achieve $100 billion annual target by 2020.

How Long Will it be for Renewable Energy to Dominate the Energy Sector? The Context & Challenges

The transition from a fossil fuel dominated energy supply into renewable energy is considered as an efficient and effective way to mitigate climate change. Based on the improvement of technologies, the awareness of the public and the regulations or subsidies from governments, the renewable energy industry has developed significantly during the last several decades. According to the Global Renewables Status Report, renewables take up about 19% of global energy consumption in 2012. Among the renewables, about half is from traditional biomass, which is mostly used for cooking and heating in remote areas; while the other half is from modern renewables, such as hydropower, wind and solar.

The World Bank recently announced that they would focus on clean energy funding in the future, and would only invest in coal projects in “circumstances of extreme need” due to the risks of the impact of climate change on poverty in specific areas. A similar trend is also happening in private sectors. For instance, Rockefellers plans to switch its investment strategies towards clean energy.

Though significant improvements have been achieved, renewables are still facing several barriers in scale up. The first concern is costs. Generally speaking, traditional fossil fuel sources are still cheaper compared to renewables. In the UK, the cost of electricity generated by wind power is twice as much as that from conventional sources; and the cost of solar power is even higher. Though there has been evidence showing that solar and wind industries are beginning to show their price advantages compared with traditional sources, the development of “fracking” technology still makes natural gas a powerful competitor to renewables. Currently, a great number of renewable energy projects, especially in developing countries, are still relying on external investment or supportive policies. Thus, cost reduction is a key requirement to achieve initial motivation and healthy market. Fortunately, according to a recent UN report, the transition from traditional fuels to renewables will be affordable and will not make people sacrifice their desire of improved living standards.

Another difficulty for renewables to scale up is the balance between distribution and centralization. Distributed systems are a typical way to transfer renewable energies. However, compared with traditional centralized stations, distributed grids are not only relatively costly in terms of infrastructure construction and administrative management, but also face the challenge of stable supply. In this case, central grid systems should also work as a supplement. Incorporating renewables into the existing general gird might also work as an alternative, but there are concerns with technology difficulties and policy restrictions. For instance, the major problem through the early phase of China’s renewable energy development is connecting distributed wind and solar power to the state grid.

Besides cost and distribution, pressure from traditional energy industries might also slow down the development of renewable energies. To solve the problem of climate change, fossil-fuel industries are one of the main areas that could get improved. According to a speech from President Barack Obama, fossil fuels in the world will “obviously” have to be kept in the ground. However, replacing all the traditional infrastructure and investment with renewable energy facilities requires negotiation and takes time, especially for major players in the conventional industries.

In addition, whether, when and how to implement renewable energy projects heavily depend on specific situations in different countries. For example, China has been experiencing a rapid increase in renewable energy capacity. In 2013, China’s newly established renewable energy power capacity exceeded the capacity from fossil fuel and nuclear for the first time. Nevertheless, coal is still the lead source in China to generate power, with a share of approximate 70%. Lack of the ability to address technology gaps related to renewables energy sources sets up barriers to reduce China’s coal demand and supply; however, China is making gradual improvements, committing to reduce the share of coal in total energy consumption to 62% by 2020, compared with the level of 66% in 2013. In another example, because of the absence of clear policy, the investment on renewable energy in Australia has decreased by 70% in 2013, and there is still great uncertainty in the future.

In conclusion, renewable energy resources will greatly contribute to solving the problem of global warming. However, this industry must overcome several difficulties before it can replace traditional fossil fuels to dominate the general energy sector.



Women to Watch & Follow at COP-20

Since COP-14 (2008), women have only represented an average of 30 percent of delegation parties and a mere 19 percent of party heads. Listed below are five incredible women [among many] who will influence and shape the negotiations dialogue in Lima.

Since 2010, Christiana Figueres has been the Executive Secretary of the UNFCCC. COP-20 will be the fifth COP she directs, and she will deliver the 2015 Paris agreement on climate change. Before joining the Secretariat, Figueres was a member of the Costa Rica Delegation. Follow @CFigueres

Photo courtesy of twitter
Christiana Figueres, photo courtesy of twitter

Mary Robinson was the first female president of Ireland (1990-1997). After her presidency, she served as the UN High Commissioner for Human Rights until 2002. Robinson founded the Mary Robinson Foundation for Climate Justice, an organization that advocates centering justice and equity in climate change response policy. Watch an interview with her at last year’s COP here. Follow @MRFCJ

Photo courtesy of wikimedia commons
Mary Robinson, photo courtesy of wikimedia commons

Ambassador Marlene Moses is the head of the Alliance of Small Island States (AOSIS), representing countries that may have the most to lose as a result of climate change. As the head of AOSIS, Moses has submitted a proposal with hopes to steer conversation towards developing Mitigation Action Plans (MAPs). Follow AOSIS @aosisnews

Marlene Moss, photo courtesy of IISD
Marlene Moses, photo courtesy of IISD

Lorena Aguilar is the International Union for the Conservation of Nature (IUCN) Global Senior Gender Advisor. Last year, the IUCN released the pilot Environment and Gender Index, a report aimed to “measure progress, improve information, and empower countries to take steps forward for gender equality and for the environment.” Aguilar provides assistance to international organizations on environmental gender policy and women’s empowerment. Follow @IUCN_Gender

Lorena Aguilar, photo courtesy of the IMO
Lorena Aguilar, photo courtesy of the IMO

Claudia Salerno is the lead negotiator for Venezuela. Salerno represents Venezuela in the Like Minded Group for Developing Countries, a group of countries that refuse to yield to pressures put forth by developed countries and instead emphasize the “historical responsibility” of developed countries. Follow @cscaldera

Claudia, Salerno, photo courtesy of IISD
Claudia Salerno, photo courtesy of IISD


The New US-China Climate Deal Will Face Domestic Obstacles

Together, China and the US contribute to about 44 percent of the world’s CO2 emissions–a proportion that is projection that is expected to grow. Without meaningful mitigation actions from these two countries, it would be impossible to achieve the 2 degree target. At the recent Asia-Pacific Economic Cooperation (APEC) meeting in Beijing, President Obama and President Xi Jinping jointly announced a more ambitious mitigation plan. However, although the leaders of the two major emitters have showed their commitment in theory, whether these new deals will be successful depend a lot on the domestic politics in these two nations.

For example:

President Obama is setting a new target to cut US carbon pollution by 26%-28% below 2005 levels by 2025.

China is committing to peak its CO2 emissions around 2030 while striving to peak early, and boost its share of non-fossil fuel energy to around 20%, in comparison to the previous target which is 17%.

These new commitments made in advance of COP21 next year obviously bring hope that the negotiations in Paris will perhaps be successful in curbing emissions, alleviating the consequences of global warming. However, whether the commitments can be fully implemented is still uncertain,  given the instability of US  domestic politics.  Since the Obama Administration came into office in 2008, President Obama has consistently claimed that climate change is one of his administration’s key issues. The White House has been trying to regulate CO2 as an air pollutant under the EPA in order to avoid the opposition from Congress. These efforts face strong opposition from the Republican Party, which in the recent election has taken over seats in the Senate.

Senator Mitch McConnell (R-KY) and Speaker of the House John Boehner (R-OH) condemned the US-China deal immediately after it was announced, claiming that it does not put enough responsibility for action on China. Several Republican senators oppose the new deal, claiming it is a “war on coal” and that it is “shortsighted.” These Republican Senators are either skeptical about global warming or oppose the White House’s mitigation plan for the purpose of benefitting their party. With a Republican-controlled Congress–many of whom are skeptical about global warming–the GOP could potentially block Obama’s climate change efforts.

China faces its own domestic problems as well. In recent years, China has undertaken a series of massive infrastructural projects to replace traditional fuel sources with renewable energy. China’s hydropower capacity has increased to  more than 30 percent of the world’s total capacity. Eleven of the world’s 25 largest hydroelectric plants by generating capacity are in China. These new power plants will soon replace the less energy efficient and more pollutive coal power plants.

However, these projects often come with very high investments and risk. In the past, with cheaper fuels like coal, energy prices in China used to be around 0.3 Yuan to 0.4 Yuan per degree, however after the recent renewal, the energy price has increased to 0.7 to 0.8–a 100 percent increase in energy price. This puts many local level governments that might be already in-debt to even higher risk which makes the 20 percent target seem very ambitious.

In conclusion, although the new US-China deals seems to be promising, it is far too early to deem it a success story. Whether or not the promises are fully implemented in either country depends heavily on domestic politics.


Client Profile: The International Center for Climate Change and Development

As part of the United Nations Practicum students are paired with different clients in the form of stakeholder groups or country delegations involved in advocacy or policies related to the UN Conference of the Parties (COP) negotiations. Two students have been matched with the International Center for Climate Change and Development (ICCCAD), a stakeholder group located in Bangladesh. ICCCAD has four central goals: 1) providing training for current and future climate change leaders 2) research 3) capacity building for Least Developed Countries (LDC’s) and 4) developing a network of partners. ICCCAD works to accomplish these goals through several different programs and strategies:

Gobeshona is a research tool used to support and organize climate change studies related to Bangladesh. Gobeshona also hosts seminars lead by experts in diverse fields working on the climate change issue. The forum for discussion and knowledge sharing facilitated by Gobeshona helps to promote better environmental leadership within Bangladesh as well as internationally.

Due to its close work with LDC’s, ICCCAD is especially concerned about loss and damage. Because LDC’s are predicted to experience some of the most severe economic and social losses associated with climate change, ICCCAD has invested heavily in research that will provide better understandings of the scope and size of loss and damage in LDC’s as well as the best approach to framing the loss and damage discussions in the international context.

While loss and damage is a central focus of ICCCAD, adaptation strategies are another important part of the organization’s work. The Action Research on Community Adaptation in Bangladesh (ARCAB) program promotes community based environmental management, specifically for climate change adaptation. Through local engagement, communities are empowered to identify where they are most susceptible to extreme climactic events as well as slow onset climate change and with ARCAB’s technical assistance and expertise, solutions to these vulnerabilities are developed using traditional knowledge and management practices.

With all the great work that ICCCAD undertakes, we are excited for Duke University’s Nicholas School of the Environment to continue to work with ICCCAD and its network of partners. We are looking forward to joining Dr. Saleemul Huq, ICCCAD’s Director, in Lima and supporting the mission of ICCCAD which is stated below:

“ICCCAD aims to be a global Centre of Excellence on Climate Change and Development research based in Bangladesh, where Climate Change has a significant impact. As a global Centre of Excellence, ICCCAD wants to build and lead a network of Southern based partner institutes, together educating the world about Climate Change and Development and increasing capacity in the South.”

Clear as Mud: Ambiguity in the Midst of Climate Change

Climate change is becoming one of the biggest challenges of our generation: average global temperature is rising, ice sheets are melting, sea level is rising, and currently, there is no real solution in place to reduce greenhouse gas emissions enough to make a difference. But, what is climate change, really? And what results are we actually after with an international climate agreement? In order to answer these questions, we need to return to the basics and examine the definition of climate change.

The U.S. Environmental Protection Agency defines climate change as, “any significant change in the measures of climate lasting for an extended period of time.” The United Nations Framework Convention on Climate Change (UNFCCC) defines climate change as, “a change of climate which is attributed directly or indirectly to human activity that alters the composition of the global atmosphere and which is in addition to natural climate variability observed over comparable time periods.” Notice a difference in the language?

Now, imagine a world where three adjacent cities are trying to reduce vehicle accidents and all three cities use the same stop sign design at intersections. However, each city associates a different rule with the stop sign. In City A, the stop sign means that cars should immediately stop. In City B, the stop sign means that cars should slow down at the intersection. In City C, the stop sign means that cars only need to stop when the drivers have the time to wait. To further complicate the issue, City A decides that the enforcement and policing of its intersections is becoming too expensive, and is revising its stop sign rule.

Can you imagine what kind of chaos would ensue if this scenario was real? It would almost be impossible to drive through all three cities without being extremely confused about what a stop sign actually means and what you, as a driver, are supposed to do. This scenario also poses unnecessary and otherwise avoidable dangers to the drivers. The different stop sign regulations across cities hinder any sort of joint agreement or goal to decrease accidents at intersections. Even though the individualized rules are favored by each city, the resulting barriers to cross-city cooperation and effective policy creation are so great that a universal rule for stop signs would be a much better strategy to reduce accidents.

The same is true when trying to find solutions to the complex issue of climate change. The UNFCCC discusses many facets of climate change that are constantly changed and debated (and even undefined) among member states. Just to name a few: ‘Adaptation’, ‘common but differentiated responsibilities’, ‘developing nations’, and ‘climate justice’. The ambiguity relating to climate change poses major challenges when trying to develop an international agreement. For one, it is difficult to come to a consensus on a solution to a problem that isn’t clearly defined. Secondly, the language currently used in the UNFCCC is vulnerable to manipulation for the benefit of some countries over others. This means that the language is subject to corruption when used out of context, which creates loopholes in the agreements. Thirdly, the more time spent on solidifying and changing the language in the UNFCCC is less time spent on forging an actual agreement with real solutions to climate change.

I come from an economics background, so in general, I am a number-oriented person. But when I began to write this post, the first thing that came to mind was language and how it affects decision-making. My hope is that we realize how important language is in the creation of a successful international climate agreement. Numbers and targets carry little weight if the associated language is so ambiguous that it can be manipulated and tailored to specific parties and interests. This year, in Lima, we need to make hard decisions, reinforce language, and solidify definitions to be temporally, geographically, and politically robust so that we can develop a successful agreement in Paris, 2015.

Loss & Damage in Paradise

“When island nations drown, who owns their seas?”

That’s the question both posed by, and is also the title of an article that ran on the Boston Globe website last month.

The article dissects the complexities of such a question by asking more questions: who gets to decide whether or not island nations legally retain the rights to their exclusive economic zone—an economic radius that extends 200-miles from a country’s coast? How would the drowned country be able to monitor and patrol their historic exclusive economic zone (EEZ) even if they retained the rights? What if the government of the underwater nation has been absorbed into another country?

For low-lying atoll nations like Kiribati, Tuvalu and the Maldives these are pressing questions. The president of Kiribati has already spent millions of dollars purchasing land in Fiji to provide a new home for a large portion of the nation’s 100,000 citizens. The article, written by Latif Nesser, outlines strategies several law experts recommend the island nations pursue in order to maintain rights to their historical EEZ, even after they are submerged:

  • Fred Soons of the Utrecht University School of Law offered one of the earliest proposals that the legal definition of “naturally formed” islands be broadened to include man-made barriers and other adaptation efforts such as artificial islets. This means as long as an island was originally considered “natural,” it should be able to keep this designation even with physical extensions that keep it above water. However, Soons recognizes that such physical modifications can only keep an island above water for so long, especially considering that many island nations can’t afford such expensive artificial fortifications.
  • Several legal scholars, including Professor David Caron of the UC Berkeley School of Law, have suggested “freezing” current boundaries in place, especially considering many nations will be faced with shrinking coastlines, not just island states. This would prevent a constant redrawing of maps and ensure that future drowned islands retain the economic benefits from their current coastal waters.
  • Rosemary Rayfuse of the University of New South Wales in Australia proposes another way for islands to retain their rights, even when they’ve been forced to relocate. She argues for the recognition of a new category of state by international law as the “de-territorialized state.” She points to the historic case of the Knights of Malta as a precedent. This group, which is a 900-year-old-lay Catholic order, is landless today but still has a nonvoting seat at the United Nations.
  • The fourth strategy rests on the assumption that strategies 2 and 3 are near impossible to realize due to the sluggish pace of international law and how cumbersome it is to enforce, especially for island nations with historically little geopolitical power. Rayfuse puts forth this final strategy, and she considers it the most appealing option. Just as Kiribati has purchased land from Fiji in preparation for “migrating with dignity,” each drowning island nation can find a neighbor willing to sell some of its territory. In this way the fleeing island state can still operate its maritime zones (as long as some part of it is still above water).

Each of these potential strategies leaves much to be desired, and in the end, Nasser points out that—given there were enough willing countries to absorb these populations—the final strategy would likely result in island nation’s trading economic access to their EEZs for a place to call home.

While not all island states will meet this extreme fate, at least within the foreseeable future, the article highlights the contentious issue of recompense for developing countries who are hit hardest by climate change impacts. On the whole, developing countries have demanded they be compensated for the irreversible economic and cultural losses they suffer due to the effects of climate change, as well as climate change-related damages that must be repaired from things like storms and flooding.

However, developed nations generally don’t want to admit responsibility for their historic and current emissions or pay for the resultant loss and damage. Besides the lack of political will, logistics of such reparations make a compensation mechanism tricky. How much should each developed nation be required to pay? Who gets to decide and who enforces it?

These are all questions that are being addressed through the United Nations Framework Convention on Climate Change (UNFCCC). The nations that are part of the UN negotiating block of the Alliance of Small Island States (AOSIS) and the unique challenges they face have shaped the specific outcomes they seek within the UNFCCC negotiations. The issue of loss and damage is one they’ve pursued within Working Group II that addresses impacts, adaptation and vulnerability. In 2011 at COP17 in Durban, South Africa, negotiators came to a consensus on elements to include in the Subsidiary Body of Implementation’s (SBI) Work Program on Loss and Damage, which formalized this topic as one to be addressed under the convention framework.

Since 2011, loss and damage has gathered steam as AOSIS and the Least Developing Countries (LDCs) seek reparation for the significant economic and cultural loss they’ve endured due to rising seas, warming and acidifying oceans, stronger storms, and increasing drought and desertification. Last year at COP19 in Warsaw, Poland, the topic of loss and damage garnered global attention on the heals of Typhoon Haiyan hitting the Philippines, when 132 country delegations walked out of the talks after developed Annex I nations refused to negotiate text on compensation until 2015.

The walk out was orchestrated by the G77 plus China negotiating bloc and the media amplified the story worldwide. G77 plus China, AOSIS and the LDCs felt Australia’s move to block changes to text that would have established loss and damage as a separate working group, rather than a topic of focus within Working Group II, demonstrated that Australia and other Annex I countries were being too dismissive of this serious issue. By the end of the COP, the countries were able to agree to what is now known as the Warsaw Mechanism on Loss and Damage, though it was weaker in nature than the version supported by developing nations.

In preparation for COP20, AOSIS has drafted a submission on what they deem an acceptable loss and damage mechanism to the UNFCCC, which they will present in Lima. The document outlines four key needs that the mechanism should fulfill including: 1) enhancing knowledge and understanding of how to address loss and damage associated with climate change, especially slow onset impacts; 2) preventing and reducing loss and damage from climate impacts; 3) providing support for loss and damage when it can be rehabilitated; 4) compensating for loss and damage when it is unavoidable and unrecoverable.

Additionally, the submission outlines how the institutional structure that supports the mechanism should be designed. It states that the international mechanism should be governed by an executive board under the guidance of and reporting to the Conference of the Parties of the UNFCCC and should have two operational arms. The first arm would be a technical facility to address gaps in knowledge, provide financial support, and provide assistance to develop technology that could help prevent and reduce loss and damage. The second arm would be a financial facility that could develop and manage the dedicated funding sources of the mechanism.

AOSIS closes the document by stating that loss and damage is a matter of highest priority as it directly impacts their long-term survival as nations “including for some through the loss of territory.” There is no doubt in my mind that as the Boston Globe article foretells, the loss of island nation’s EEZs will be a hot issue at COP20 and will increase in importance at future COPs to come. Too much is at stake to ignore it.

Comic by Wesley Bedrosian. Boston Globe 10/19/14:
Comic by Wesley Bedrosian. Boston Globe 10/19/14:

Addressing the Needs of Traditionally Developing Countries is Key to Future Negotiations

Responsibility for action on climate change has traditionally been more portrayed as a burden for developed, industrialized countries. The Kyoto Protocol requires only the Annex I countries–which at that time were the more advanced economies–to commit to legally binding mitigation targets. In addition to that, UN organizations and the early COPs are also focused more on developed countries. However this approach is challenged as the world economy landscape has dramatically changed in the recent years. Although the initial COPs only required Annex I countries to commit to mitigation targets, recent negotiations have placed more responsibility and pressure on developing countries as new mitigation frameworks such as Nationally Appropriate Mitigation Actions become promulgated in more and more countries. One key rationale for letting traditionally developing countries commit more, is that emerging economies like China and India are taking over the developed countries as the major carbon polluters.

The changing role of emerging economies has quickly become a large obstacle for the climate negotiations. Although both the American and Chinese delegations claimed that their countries are committed to addressing global warming at the Climate Summit hosted by the UNSG in September, it is also known that President Obama implied that the US will not fully commit if China does not. China, on the other hand, emphasized the historical responsibility of industrialized countries. It is unquestionable that to fill the 2020 emission gap, the commitments from emerging economies are vital despite the fact that they do not belong to the Annex I category.

In addition to large emerging economies like China and India, the Convention also has the responsibility of negotiating mitigation and adaptation plans for smaller developing countries. Two of the most critical groups are the least developed countries (LDCs) and small islands states (AOSIS and CARICOM). These countries either have limited capability to mitigate (or even should have no responsibility to mitigate) or are very dependent on mitigation. Addressing the needs of them will also be critical in the upcoming negotiations.

Today, 80% of the fuel burned globally are fossil fuels. The developed countries might achieve their mitigation targets relatively easily, either because they have the technological capacity or because they have more transitioned and more advanced economy. The developing countries will still depend on fossil fuels for the near future and actually in the meantime suffer more from global warming. Among the developing countries, they are the most vulnerable group and also the ones who wish to protect their growing economies. They will need assistance from developed countries and the UN for both mitigation and adaptation purposes. The UN system should play a more constructive role in this.

This summer I was fortunate to have the opportunity to do an internship at the United Nations Environment Program (UNEP) in New York City. UN organizations today play an important role in addressing issues like climate change. UNEP, together with other UN agencies like UN Convention on Biological Diversity (CBD) and the UNFCCC will inevitably become more involved in the scientific investigation of climate change, the organization of the negotiations and the implementation of climate change adaptation policies. However, for a variety of reasons, the UN is not fully addressing the needs of developing countries especially in terms of climate change negotiations. For example, from my own experience, I found that the staff from developing countries are somewhat underrepresented. As the negotiating process for setting targets and adaptation becomes more important,  UN organizations need to focus more on the developing countries, by directing more resources to help both mitigation and adaptation. And in my personal opinion, the convention of dividing Annex I and Annex II is no longer appropriate.

Will the EPA Clean Power Plan Encourage or Discourage Transnational Carbon Market Linkage?

A key component of the Paris agreement next year will be a market-based mechanism, or set of market-based mechanisms, that prioritize mitigation effort by setting a price on carbon. The structure of that mechanism (the New Market Mechanism, or “NMM”) is yet to be negotiated, and could take a variety of forms.

As negotiations toward the 2015 agreement have incorporated bottom-up approaches, like individual parties developing their mitigation commitments through Nationally Determined Contributions, it appears that market mechanisms under the 2015 agreement will emerge through a bottom-up approach, rather than a top-down one. Under a bottom-up approach, an international market (or set of markets) may emerge as smaller national and sub-national markets link together, like California and Québec have done, and like the EU and Australia had planned before the Australian market’s repeal.

Where would U.S.-based elements of such a system come from? Assuming any proposal for a national cap & trade system is still dead on arrival in Congress, the primary potential source of U.S. carbon markets of a significant scale is EPA’s proposed Clean Power Plan, which would require states to reduce greenhouse gas emissions from the electricity sector, and allow them to use state-level or multi-state carbon markets to do so.

But the EPA regulation, under Clean Air Act Section 111(d), only covers emissions from American power plants, so its scope is limited to the domestic electricity sector. This presents some obstacles to the future linkage of 111(d)-compliant state or multi-state markets with any international systems.

The proposed rule doesn’t prohibit states from developing multi-sector cap & trade systems (like California’s, which covers additional sectors beyond the electricity sector) or accepting offset credits into their systems (like California’s), or linking markets internationally (like California and Québec). But it does prohibit states from counting those sources of reductions against their obligations within the electricity sector (see the rule’s Technical Support Document, section V.B.1).

So while California is free to cover multiple sectors, accept offsets, and accept allowances from Québec, it has to demonstrate to the EPA that its electricity sector is meeting the state’s 111(d) target without counting any progress from those other sources – that is, the electricity sector is achieving significant reductions through mitigation actions within the electricity sector (plus allowable demand-side energy efficiency and conservation measures).

This has implications for California (though the state is confident that its current program will meet its 111(d) obligations), but more importantly for future state and multi-state markets. Though the Clean Power Plan could position the U.S. to participate in a post-2020 system of transnationally linked carbon markets by encouraging states to state and multi-state markets in the nearer term, it does not encourage states to design those markets in a way that facilitates linkage.

One of the primary benefits of linkage is cost-effectiveness: by joining together, markets can expand their coverage of potential mitigation opportunities, increasing the market’s ability to find the lowest-cost solutions.

But if a state is building or joining a market in order to comply with 111(d), it would not face any additional benefits from linking outside the U.S. because it would have to achieve the minimum reductions in the electricity sector without any help (i.e. allowance trades) from the market with which it has linked. The same goes for accepting offsets, which is a manner of linkage, since those offset credits may be accepted in other markets, as well.

Further, such a state may not even be able to link outside the U.S., since its electricity sector, the largest source of emissions in the U.S., may be effectively off-limits to a broader market.

Though California believes that it won’t have to change its market to comply with the Clean Power Plan, some observers suggest that the state will have to bifurcate the market – close off the electricity sector to trades with other sectors – in order to demonstrate to EPA that its electricity sector is meeting the required reductions without purchasing allocations from other sectors or markets.

Beyond the effects that would have on California’s market (carving off its power plants into a standalone market would certainly impair cost-effectiveness), such a bifurcation requirement would present a significant obstacle to international linkage for other states. If the electricity sector were off-limits to transnational trades, states with markets built for 111(d) compliance would have nothing to offer to potential links. They would have to build segmented multi-sector markets (with no efficiency gains from incorporating additional sectors), and only present the sectors outside of the electricity sector for linking. Potential linking partners may not be interested in linking with markets that narrow, particularly if the partners have multi-sector markets themselves.

From a domestic policy perspective, the Clean Power Plan is likely the best available near-term option for the U.S. to take significant, nationwide mitigation actions. And it may drive the creation and expansion of state and multi-state carbon markets. But its narrow sectoral scope may impair one of the potential long-term benefits of those markets by discouraging participation in a post-2020 system of transnational carbon markets.


Intended Nationally Determined Contributions: What to Expect at COP20

At COP 19, all Parties agreed to initiate or intensify preparation of their intended nationally determined contributions (INDCs) to “facilitate the clarity, transparency and understanding of the intended contributions, without prejudice to the legal nature of the contributions”. Even though currently there is a lack of clear guidance on the scope of INDCs, it is expected that at COP 20 in Lima, Peru, a clear understanding of INDC and a process that ensures the effective communication of the INDCs proposed by all Parties could be determined.

The broad definition of INDC provides Parties with the flexibility to decide the actual types of goals based on their own initial circumstances and development stages. To fit in their domestic policy setting and development stage, forms of INDCs could include:

  • A straightforward economy-wide emissions target
  • A deviation from a Business as Usual (BAU) scenario
  • An intensity target (i.e. target GHG emissions per unit GDP (or capita))
  • Action plans, policies, and metrics that evaluate emissions reduction impacts

The concept of INDC incorporates both a top-down collective ambition of emissions reduction set by all Parties to ensure the increase in global temperature is below 2 degrees Celsius, as well as bottom-up commitments of public policy and action plans proposed by each Party. The submission and review process will greatly help countries to effectively communicate their mitigation goals, revise their emissions reduction targets, and propose future INDCs.

Consensus on the scope of INDCs is expected to be reached at COP20 in Lima. In addition, several issues need to be addressed as well for Parties to put forward their contributions, such as:

Pre-2020 Action Plans: Even though INDCs are focused on the post-2020 period, the short-term mitigation ambition and action plans for pre-2020 period could be enhanced as well.

Transparency: All parties will need to agree on the timeline and the types of the information such as domestic mitigation goals, action plans, and policy development to be submitted and effectively communicated under UNFCCC.

Equity: All Parties are responsible for the collective effort to achieve the long term global goal. This effort is made of contributions from each country. It is important to ensure that each country–developing or developed–shares common but differentiated responsibilities in the mitigation commitments in the 2015 agreement.