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From Copenhagen to Mexico, the climate changes.

November 15, 2010 3 comments

Almost a year has passed since the COP15 in Copenhagen. An earlier note by the author highlights the aftermath of the Copenhagen Accord.

https://erictham.wordpress.com/2010/02/28/the-copenhagen-accord-and-its-aftermath/

The Copenhagen Accord closed with a list of salient points to be observed but are not legally binding on the signatories. The next COP 16 is taking place in Cancun, Mexico from Nov 29 to Dec 10 2010. Over the past year, much has changed in the climate policies taking shape in the various countries.

Firstly, instead of a multilateral binding emissions cap on the countries, there have been more national level programs to reduce emissions. The cap-and-trade program which would have seen emissions targets in place for the various countries appears to be dead. Instead, with rising social awareness a carbon tax regime appears to be gaining popularity among many nations. Among countries which have implemented the carbon tax are India in Jul 2010 and South Africa in Sep 2010. Carbon taxes are not new and have been in place in several European countries like Switzerland, Denmark and Finland in one form or another. They have also been in debate recently in countries like Singapore, Taiwan and more importantly China for implementation starting from 2012.  Being unpopular as they are, they are likely to face political pressure for passing into legislation. Any form of tax will likely see an equitable distribution to other forms of rebates as what have happened in several European countries in the past.

See the author’s note on hybrid of taxes and a state cap-and-trade program.   https://erictham.wordpress.com/2010/01/23/a-carbon-state-taxes-and-a-nations-cap-and-trade-hybrid/

On a national level, countries have also invested heavily in R&D and pilot plants on renewable technologies. Notably China has poured billions into solar power, wind and nuclear (if it qualifies as renewable energy), and will emerge as the leading nation on such technologies.

The mid term elections victory by the Republicans in the USA has also put a damper on multilateral agreement on emissions targets. The Republicans have been moving backwards on pledges on emissions targets and have even cast doubts on the scientific bases of global warming. With a lack of impetus from the largest emitter, it is unlikely that the COP16 will see any binding agreement among the nations on emission targets. Whilst carbon taxes have been studied by economists to be more efficient and distributional in its effects to reduce emissions, it lacks a volume target which the cap-and-trade program offers. Further it lacks a carrot-and-stick discipline amongst nations which only a volume target can provide.

Looking ahead, the COP16 is more likely to see piecemeal agreements in place. These may include technology transfer to poorer countries, financial aid to countries for reforestation and forestalling deforestation, and a central body for carbon monitoring and measuring. The highly successful clean development mechanism (CDM) over the past few years is likely to decline in importance over the next two years. This is partly as the Kyoto Protocol expires in 2012 for the European countries without a new deal in place. The main recipient of the deals, China has also seen a saturation of deals over the past few years.

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The Copenhagen Accord and its aftermath

February 28, 2010 1 comment

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.