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The Copenhagen Accord and its aftermath

The Copenhagen COP 15 ended in Dec 2009 with an announcement at the last plenary meeting to ‘take note’ of the following salient points:

( see http://unfccc.int/resource/docs/2009/cop15/eng/l07.pdf for original accord)

  1. that global temperature rise will be capped at 2 degree Celsius in view of sustainable development
  2. that an assessment be completed by 2015 of the impact of any rise above 1.5 degree Celsius
  3. USD 30 billion be made available for the period 2010-2012 for mitigation measures in the developing countries. Thus far, Japan has pledged $11b, EU $10.6b and the USA $3.6b.
  4. USD 100 billion be made available per year by 2020 for mitigation measures in the developing countries
  5. that by 31 Jan 2010, Annex I countries will pledge the percentage of carbon dioxide reductions from a base year http://unfccc.int/home/items/5264.php
  6. that by 31 Jan 2010, non-Annex I countries list down mitigating measures for carbon dioxide reduction    http://unfccc.int/home/items/5265.php

The accord is not legally binding as five countries – Venezuela, Bolivia, Cuba, Nicaragua and Sudan opposed the vote. After the accord, much finger-pointing was made amongst the members. How the accord will impact climate change and mitigation measures however are not much reported. The author takes the view that the accord is not a set-back as it appears. In fact, whilst it delays global agreements of its kind, regional blocs and national efforts at mitigation and adaptation will continue to persist.

Noticeably the lack of a visible accord after the expiry of the Kyoto Protocol in Dec 2012 has caused the drying up of the Clean Development Mechanism (CDM) over the past two months. The CDM allows developed EU countries to acquire emission credits through investing in projects that reduce emissions in developing countries. Most CDM projects have long project life span, and the uncertainty over its replacement has dampened its interest.

The closure of the accord caused an initial 10% knee jerk drop of EUX prices (€15.7 to 14.0 for the Dec 12 contract). Prices have since languished in the €14.0s, with the lack of an alternative after the Kyoto Protocol. The EUX is the only liquidly traded carbon instrument globally. Whilst its price does not reflect the global price of carbon, the fall in its value does indicates the lesser significance placed on carbon dioxide reduction.

In addition, talks of retaliatory measures among the developed countries have surfaced. This includes imposing carbon import taxes on exporting countries that ‘don’t do enough’. This helps to reduce carbon leakage, when carbon intensive industries shift to those countries having less strict regulations.  A carbon import tax is not socially optimal and does not help in reducing overall emissions. They may act as the carrot-stick that forces conformance to global emissions standards ultimately.

In fact, countries are more likely to resort to allowances and rebates to protect their own carbon intensive industries.  This is already happening globally for example with the CPRS in Australia and the Waxman-Markay Bill in USA. These policies grant rebates and carbon emission allowances on the materials and the energy industries at least for the first few years of bill enactment, effectively acting not much of a disincentive.

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