By Mathew Carr
October 1, 2020 — London — A key global climate deal is under threat this week and it’s nearly Friday.
Another potential failure of the multi-nation process looms, as storm, drought and wildfire costs mount across the world.
If tomorrow’s deadline in a United Nations negotiation is missed, it will anger emerging countries already unhappy with the level of ambitiousness of their richer counterparts.
It will be another in a long series of missed opportunities because much of the world says it’s seeking to lock in at least some of the greenhouse gas cuts provided by the global coronavirus pandemic. We are all continuing to learn this painful lesson: what the world says and what the world does is entirely different.
Nations need to “ratify” an extension of the Kyoto Protocol climate deal by tomorrow, according to the UN climate secretariat. As usual, they are leaving it to the last minute.
Remember Kyoto, whose first period ran from 2008 to 2012? It set targets for selected rich countries willing to cut emissions, covering nations mainly in the EU, but also Australia and Ukraine. The U.S., the nation most responsible for climate change, alongside Canada, Japan, New Zealand and Russia pulled out.
Failure to win support for the extension of Kyoto through 2020, known as the “Doha Amendment,” would not mean the end of the world. But it would damage trust in the multilateral process, according to Patricia Espinosa, executive secretary of the UN unit responsible. She has repeatedly called on Twitter for nations to sign up.
It’s a little sad and shameful she has to do that. In the final three months of an eight-year deal and a day before the deadline, at least two more countries are needed to lock in the deal, meeting the hurdle of 144 parties. UN officials were not immediately available to comment on the situation.
The multilateral climate process is crucial because, without it, nations can sidestep their responsibility to cut emissions by not participating – they could argue it’s their right as a sovereign state to stay a little dirty, especially if they’ve not been a major cause of the historical emissions stoking the crisis.
U.S. President Donald Trump has already said he will pull the country out of the unfinished Paris climate deal (should he win a second term next month) and his administration has also been weakening global trade rules under the umbrella of the World Trade Organisation.
The Kyoto Protocol’s most successful product, a market known as the Clean Development Mechanism, is also under a threat. That’s because the pandemic has delayed meetings of the UN climate envoys that oversee it. Few people seem to care.
Given the danger to the climate and the opportunity that UN carbon trading presents, “isn’t it fascinating that no one gives a toss about this?” asked Renat Heuberger, chief executive officer of Swiss-based South Pole Group, a company that has managed about 700 emission-reduction projects in 40 countries. “The Kyoto Protocol is undervalued — it at least set targets and it was the only time we had a functioning carbon marketplace created by the UN.”
So people certainly should care: the CDM created emission reduction credits from renewable-energy and industrial gas-capturing projects from China to India to Brazil. It’s prevented roughly the equivalent of a full year of EU emissions from escaping into the atmosphere.
It’s been in deep trouble for years because of weak demand and now the global climate talks meant to happen later this year, which oversee the market, have been delayed until November 2021 in Glasgow, Scotland.
That leaves a 10-month gap where the market may have to halt operations. “Investors and project developers face a dire situation of rising uncertainty on what will happen to their projects from Jan. 1, 2021,’’ said Stefano De Clara, a representative of industrial, banking and finance companies at the International Emissions Trading Association.
Emission-cutting projects may need to halt, boosting greenhouse gas output, and investors might curtail “tens of millions of dollars” of clean investments, De Clara told a virtual meeting of the CDM’s administrators earlier this month. A panel that sits under the climate envoys is getting together via video conference calls through next week in a bid to try save the situation.
The regulatory gap also has “very severe consequences” for the audit firms that ensure the reductions at the greenhouse-gas cutting projects are credible, said Werner Betzenbichler, a representative of those auditors. If a project is not allowed to seek issuance of emission credits, there will be nothing for the carbon bean counters to count. Activity would shift to an “even slower level from a low level,’’ Betzenbichler told the regulators.
While some western officials say the UN climate unit has no right to extend the CDM beyond 2020, Jose Miguez, a former Brazilian government official who sits on the panel overseeing it, said there is also no mandate to stop its operations, a move that wouldn’t be “fair or appropriate”.
In the existing UN greenhouse-gas market, emerging nations sold emission credits to companies in richer nations, mainly in the EU. It was presented under Kyoto as a way for developing nations to generate revenue by selling valuable financial securities to the west. For a while, earlier this century, UN credits did surge in value, but it was short lived because the climate talks repeatedly failed, and then demand died.
The emergency CDM talks through next week are effectively a curtain raiser for the wider debate set for envoys in Glasgow. Rich nations covering about 1 billion of the world’s population set up the 1997 Kyoto Protocol promising the poorer countries with 7 billion people that the carbon markets would deliver them cash if they went green. But not only did that cash not arrive, the 1 billion wealthier folks were able to double down on coal, oil and natural gas as Kyoto’s targets were shown to be weak.
Emerging nations won’t fall for feeble carbon markets again. If Paris’s markets are to have any hope, they’ll need to be built on extremely ambitious targets adopted largely by the richer nations that caused most of the climate problem. Setting the targets to create scarcity will be very tricky because technology improvements have come so far. Price floors and ceilings seem probable, as do high prices above $40 a ton.
Formally extending Kyoto by tomorrow would signal the multilateral effort is maintaining at least some of its momentum — and certain rich nations can be trusted to do what they say they will (despite the cost of the pandemic and the political uncertainty in the U.S.).
President Xi of China earlier this month said the world’s biggest emitter and most populous nation will seek to reach carbon neutrality by 2060, a hugely ambitious undertaking that is apparently not conditional on extra effort from the U.S.
That may well spur the confidence of smaller emerging countries to participate in a rapid energy transition and boost trade with whichever nations are on board.
Officials have done a tremendous amount of work to try to scale up the CDM and potentially change it into something that might work better — and then slot into the Paris deal starting in 2021 or 2022.
The market’s administrators are also this week considering plans that would digitize the program, dramatically cutting transaction costs while dealing with some of the credibility problems that carbon markets have suffered up until now.
They’re also planning to allow international finance organisations such as multilateral and regional development banks to use the system to spur emissions-cutting-and-adaptation projects in at least 97 poorer nations. This four-year-old program has also been hampered by the pandemic, yet the numbers of projects at stake in so much of the world would seem to be a strong incentive for countries to make sure that the Kyoto extension through December happens and the CDM actually operates in the first 10 months of next year, and beyond.
Meanwhile, the EU, the world’s biggest trade group, is seeking to form that coalition of like-minded nations determined on climate action and strong on international trade rules, a partnership that would probably include China.
That could help redraw not only the industrial and energy policy landscape around the world, but also set greener rules governing the sale of goods and services across borders. In turn, that might add to global political pressure on the U.S. and on other countries holding out on urgent climate action.
In that alternative world, perhaps one where the Biden/Harris ticket beats Trump next month, the use of carbon pricing would be on the brink of a substantial expansion.
Finalising the accounting and trading rules under Paris and creating that coalition would probably result in a multilateral carbon market, which might in quick time grow to three or four times the size of existing emission-pricing programs. Investors’ confidence to spend on cleantech would surge and there would be more demand for greenhouse gas-reduction projects across the globe and for the tradable carbon credits they create.
Right now, while countries can’t even ratify a pre-agreed effort that is pretty meak, that more-positive scenario seems pretty unlikely. The next few weeks and the U.S. presidential election might make it less so.
“Everybody is pledging and pledging and pledging, but no one holds their feet to the fire,’’ said South Pole’s Heuberger. “The private sector isn’t to blame for green washing. Private investors have put real dollars into real projects, despite the lack of clarity. But where is that getting us? Not far enough and not fast enough.”
(This story was updated Thursday evening London time. See the section highlighted in bold, for instance. I fixed some garble, too, apologies.)
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