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Doha provides gateway to a 2015 global agreement

London, December 2012

The 18th Conference of the Parties to the Kyoto Protocol (COP-18) has come to a close in Doha with a more detailed roadmap to a 2015 global agreement and a renewed Kyoto Protocol. In keeping with recent custom, the negotiations ran over time with a final agreement reached late on Saturday night. The final result failed to produce strong commitments to new binding greenhouse gas (GHG) emissions reductions. However, Doha ultimately achieved its two overriding goals of keeping the Kyoto Protocol operational as a transitionary measure and laying the path for a more comprehensive international agreement for the post 2020 period to be agreed by 2015.

The stated objectives of the meeting were set out by the Executive Secretary of the UNFCCC Christiana Figueres in her opening address. According to the Executive Secretary Doha needed to ensure that:

?    there is agreement on a amendment to the Kyoto Protocol;

?    there is a clear path forward on climate finance;

?    there is an effective review of the long-term goal of staying below 2° C;

?    there is an urgent response to the widening emissions gap; and

?    there is a firm foundation laid for a long-term framework that is applicable to all, equitably instituted and responsive to science.

While tension once again persisted between developing and developed countries throughout the negotiations, the final agreement was accepted by all major parties, although the US, EU and China each had varying reservations to the final text.

Summary of Key Decisions

A number of key decisions were reached over the 12 days in Doha:

?    The Kyoto Protocol has been extended with a second commitment period of 8 years, commencing on 1 January 2013 and end on 31 December 2020;

?    Annex 1 Parties that have agreed to second commitment period obligations will review their quantified emission limitation or reduction objective (QELRO) during 2014;

?    only parties with a QELRO under the second commitment period of the Kyoto Protocol are eligible to transfer and acquire second commitment period Kyoto units (CERs, ERUs, AAUs, RMUs);

?    unused AAUs are to be carried over into second commitment period and stored in a previous period surplus reserve account with limits on their transfer;

?    the share of proceeds for adaptation will be extended to the issuance of ERUs and the transfer of AAUs.

?    The Ad-hoc Working Group on Long-term Cooperative Action (AWG-LCA) has been closed with the work on the Bali Action Plan elements either finalised or new work programmes established (see table below);

?    The host country for the Green Climate Fund (GCF) was approved - to be based in the Republic of Korea, with operational procedures for guidance to the GCF to be developed between the GCF Board and the Standing Committee on Finance by COP 19;

?    The Work Programme on Long-Term Finance is to be extended for a further year and will focus on assessing developing country parties' needs for financial resources and how to mobilise those resources and ensure their sustainability;

?    Signals that institutional arrangements will be put in place for a Loss & Damage Mechanism at COP 19 and a request that developed party countries provide finance, technology and capacity building to developing countries (while this decision does not expressly refer to compensation, by some developed country parties were particularly concerned about the possibility that they may be held accountable for loss and damage); and

?    Agreement on the framework elements of a new market mechanism (NMM) and recognition that credits generated from the NMM may be used to satisfy pre-2020 Kyoto compliance obligations.

Further details of specific decisions are set out below:

The Second Commitment Period

As the first commitment period of the Kyoto Protocol expires on 31 December 2012, to maintain continuity in the Kyoto-based markets, it was essential that an agreement was reached to commence a second commitment period from 1 January 2013. At Doha, The Conference of Parties serving as the Meeting of the Parties to the Kyoto Protocol (CMP) decided to adopt amendments to the Kyoto Protocol to allow the commencement of an 8 year second commitment period from 1 January 2013. Specifically, the amendments adopted:

?    replace Annex B with a new Annex that sets out the QELRO for Annex B Parties for the second commitment period (2013-2020);

?    replace the list of GHGs in Annex A with a new list that adds nitrogen trifluoride to a revised basket of 7 GHGs;

?    supplement Article 3 of the Kyoto Protocol to provide for an initial obligation for Parties listed in Annex B with a commitment for the second commitment period to reduce overall emissions by 18% below 1990 levels by 2020, with a process to review the level of ambition of the QELROs;

?    provide for the carry over of unused AAUs and transfer to a previous period surplus reserve account with limits on transfers from these accounts; and

?    allow units generated from future market-based mechanisms established under the Convention to be used by Annex 1 Parties to meet their QELROs.

Whilst the decision allows all Annex B Parties to continue to participate in CDM project activities, the Decision states that only Annex B Parties with a second commitment period QELRO can "transfer and acquire" certified emissions reductions (CERs). Similar restrictions apply to the use of AAUs, ERUs and RMUs. This raises the potential that countries not participating in the second commitment period (such as Canada, Japan, Russia and New Zealand) may be excluded from the CER/ERU market from 2015 (the end of the true up period). On its face the decision does not prevent their participation in the primary market as there is no prohibition on CERs being issued or forwarded into national registry accounts for surrender within domestic emissions trading schemes (ETS). However, it is likely to limit the ability to engage in secondary trading between national registries linked by the International Transaction Log (ITL). Some commentators have queried whether non-second commitment period Annex B Parties (e.g. New Zealand and Japan) may consider using the voluntary cancellation account in the CDM Registry or establishing a shadow account mechanism similar to that proposed by the Australian Government to support its link with the EU ETS.

The duration of the second commitment period was another contentious issue in the lead up to Doha. It was agreed that the second commitment period would be extended to 8 years, ending on 31 December 2020. Some developing countries were pushing for a shorter 5 year period to address concerns about the lack of ambition in the second commitment period targets. A compromise was reached which allows parties to revisit and increase their QELRO up until 2014. This is backed by a streamlined process to agree to further amendments to Annex B of the Kyoto Protocol to increase the ambition of targets. With the EU already meeting its 2020 target, this provision could encourage it to increase its QELRO to 30% below 1990 levels by 2020. Such a move is already being discussed as part of the EU ETS climate change reform package.

A more controversial issue was the carry over of units from the first commitment period. Surplus AAUs held in a Party's national registry will not be added to the AAU amount for that Party's second commitment period but will be transferred to a "previous period surplus reserve account", which would significantly reduce their value. In addition ERUs and CERs held in a Party's nation registry that have not been retired or cancelled, may be carried over to the second commitment period up to a maximum of 2.5% for each unit type.  A number of countries, including Australia, Japan, Liechtenstein, Monaco and Norway made political declaration that they would not purchase AAUs carried over from the first commitment period.  The EU and Switzerland similarly indicated that their legislation did not allow the use of surplus AAUs to meet emission reduction objectives.

New Market Mechanisms

Agreement on the details of a new market mechanism (NMM) at Doha was always unlikely. Instead the procedural groundwork was laid for the NMM to be elaborated over 2013-2014. The EU put forward draft modalities and procedures that would provide a framework for a NMM. However, Parties felt that they did not have sufficient time to consider these. Instead, the Parties adopted a work plan to establish a NMM and agreed on the basic principles that would underpin a future NMM.

Principles included:

?    the voluntary participation of Parties in the mechanism;

?    standards that deliver real, permanent, additional and verified mitigation outcomes, avoid double counting of effort and achieve a net decrease and/or avoidance of GHG emissions;

?    requirements for the accurate measurement, reporting and verification of emission reductions, emission removals and/or avoided emissions;

?    means to stimulate mitigation across broad segments of the economy, which are defined by the participating Parties and may be on a sectoral and/or project-specific basis;

?    the promotion of sustainable development; and

?    the facilitation of the effective participation of private and public entities.

There is a growing expectation among some Parties and market commentators that the NMM will not be one mechanisms per se, but instead a flexible framework will emerge from bottom up sectoral crediting or sectoral trading schemes being developed at a national level and that the role of the COP will be to put in place oversight arrangements to ensure that there is comparability of MRV standards, accounting rules and ambition.

As mentioned above, the decision at Doha allows units generated under potential new NMMs to be used by Annex I Parties to meet their QELRO's during the second commitment period. This provides an incentive for the creation of future potential REDD+ or sectoral based NMMs as it provides an existing market for units to be sold into.

Clean Development Mechanism

The renewal of the Kyoto Protocol into a second commitment period ensured the future of the CDM mechanism. However, the focus on amending the Kyoto Protocol seemed to overshadow the CDM Guidance adopted by the CMP, resulting in only modest improvements being put forward. None of the key recommendations of the CDM Policy Dialogue were adopted, which postpones significant reform of the CDM to CMP 9 next year in Warsaw, where there will be a mandated review of CDM modalities and procedures. The CMP did request that the Executive Board (EB):

?    further simplify modalities for the demonstration of additionality, including positive lists, to a wide scope of small-scale project activities;

?    streamline the registration process and the issuance of CERs, to ensure that the average time between the receipt of a submission and the commencement of the completeness check is fewer than 15 calendar days;

?    submit recommendations on possible changes to the modalities and procedures for the CDM in preparation for the review of modalities and procedures at CMP 9; and

?    continue enhancing support for Parties underrepresented in the CDM.

One important aspect of CDM reform not agreed to at Doha relates to an appeals mechanism against decisions of the EB. Although the EB recommended procedures for such an appeals process in 2010, the CMP has been unable to reach agreement upon the scope of reviews, persons able to commence appeals and the composition of the appeals body.  There is concern from participants in the CDM that what should be a legal and administrative review process is becoming politicised and associated with stakeholder concerns regarding the merits of project activities, which are matters more appropriately addressed through host party sustainable development rules. In this environment, progress on the issue is likely to be further delayed.

Inclusion of transboundary CCS projects was also delayed, with the CMP calling on the Subsidiary Body for Scientific and Technology Advice (SBSTA) to consider the issue at a future session. While the CMP recognized that transboundary CCS projects would merit inclusion in the CDM, more practical experience of such projects would be beneficial.

Green Finance

Another key agenda item at Doha was the implementation of Climate Finance commitments. Progression on this point was often used by developing countries as a pre-condition for approval of other decisions throughout the negotiations. Debate centred around the scaling up of funding for climate finance to USD 100 billion annually in 2020.

It was the clear intention of developing Parties to gain firm commitments on short term and mid term climate financing leading up to 2020. However, only limited additional funding was pledged by developed countries such as the UK. The COP called upon Parties from developed countries to provide resources of at least the average annual level of the fast-state finance period for 2013-2015.  In addition, the decision called upon developed countries to announce climate finance pledges and to diversify the sources of climate finance to include public and private, bilateral and multilateral, and including alternative sources to reach the USD 100 billion goal. While no binding agreements were reached, the COP did agree to extend the work programme on long-term finance for one further year and initiate an assessment of climate finance flows.

The Co-Chairs of the Ad-hoc Working Group on the Durban Platform (ADP)  convened a special event at the end of the first week of the COP to invite the views of observers on matters related to ambition and finance.  Representatives from the private sector discussed, amongst other things, how financing for the GCF could be scaled up and the private sector could be leveraged.

Green Climate Fund

The COP officially approved the city of Songdo in the Republic of Korea as the location for the GCF and called upon it to expeditiously develop its funding procedures and administrative structure so that it may become operational as soon as possible. It clarified that the GCF would be accountable to and function under the COP. The COP also reiterated that the GCF should be the primary conduit for all new climate financing for adaptation activities.  A number of Parties agreed to provide funding for its administrative budget to assist it in achieving these goals.

Of note, the GCF is considering the establishment of a separate private sector facility (PSF) within the GCF.  Selected market and non-market stakeholders were canvassed for their views on how such a facility could operate through the ADP Co-Chairs special event and in discussions on the margins. These frank discussions highlighted the potential tensions between public financing arrangements and the commercial environments in which private finance is provided, in particular regarding confidentiality and financial market regulation.

REDD+

There were two objectives for the REDD+ work programme and Doha. First, to reach an agreement on the basic principles of REDD+, such as guidelines on monitoring, review and verification (MRV) so that a concrete REDD+ based NMM could be developed over the coming year. The second was to ensure that REDD+ remained on the COP agenda with the wind up of the AWG-LCA.

The debate on the first issue reached a rapid impasse with Norway and Brazil unable to agree on the verification of emissions saving from avoided deforestation in the SBSTA negotiations. This will be further discussed at the next SBSTA meeting in June 2013.

The second issue of continuing the development of REDD+ under the COP process was more successfully resolved. A work programme was established, involving two workshops in 2013 that will continue to lay the groundwork for the development of a REDD+ based NMM. The decision calls upon the SBSTA to consider market based mechanisms in these two workshops, which is likely to result in the inclusion of the private sector in the ongoing negotiations.

In addition, it was agreed that ways to incentivize non-carbon benefits needs to be considered in the development of REDD+. This breakthrough allows issues such as biodiversity and the preservation of forest people to be included in the value proposition for REDD+ projects. However, it is unclear how these incentives are likely to be supported.

Loss & Damage

Another significant development at the Doha conference, was the agreement to investigate institutional arrangements, including a possible mechanism, to address loss and damage suffered by developing countries as a result of climate change. Although the relevant clause was constructed in very general terms, it does suggest that developed countries may be willing to assist developing countries for climate change caused loss and damage in direct financial terms.

Technology Transfer

Progress was made in a procedural sense on the issue of technology development and transfer. The COP agreed to consider at its next meeting the relationship between the Technology Executive Committee and the Climate Technology Centre and Network. It also called upon the Technology Executive Committee, to elaborate its future work plan in coordination with the Climate Technology Centre and Network.

The Advisory Board of the Climate Technology Centre and Network was called upon to engage in the following activities:

?    Providing advice and support to developing countries in relation to capacity-building and conducting assessments of new and emerging technologies; and

?    Identifying currently available climate-friendly technologies for mitigation and adaptation that meet the key low-carbon and climate-resilient development needs of Parties.

Similarly to the discussions on finance, Parties and organisations engaged in the technology discussions are also looking to leverage private sector finance to deploy new clean energy technologies in developing countries.  In a number of side events there was robust discussion regarding the conditions under which the private sector would participate in technology initiatives, in particular with respect to the terms under which finance could be provided and technology providers concerns about protecting intellectual property rights.

Adaptation

Adaptation was another issue that was largely relegated to the sidelines at Doha. In a three paragraph decision, the COP committed to continuing their work to enhance action on adaptation under the Cancun Adaptation Framework.  The idea of an annual adaptation forum was also suggested but not decided upon by the COP.

Streamlining Negotiations

One of the primary aims of the Doha conference was to streamline the overlapping and inefficient negotiation process that had developed in recent COPs. It was agreed leading into the conference that the AWG-LCA would be discontinued and the issues either resolved or reassigned to subsidiary bodies.

Ends --


Baker & McKenzie's Global Environmental Markets Team

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