Climate Negotiations in Poland Advanced Implementation of the Paris Agreement

During two weeks of sometimes boisterous plenary sessions and equally energetic backroom discussions, the 197 Parties of the Twenty-Fourth Conference of the Parties (COP-24) of the United Nations Framework Convention on Climate Change (UNFCCC), meeting in Katowice, Poland, sought to reach consensus on rules and guidelines for implementing the Paris Agreement.  That landmark 2015 accord came into force in 2016, and is scheduled to begin operations in earnest in 2020.  The fault lines at the Katowice negotiations were, as usual, largely between two groups:  the 43 industrialized countries, and the 154 developing nations.

Hanging over the negotiations was the reality that U.S. President Donald Trump announced in June 2017 that the United States would withdraw from the Paris Agreement (in November, 2020, the soonest that any Party can actually withdraw).  Since Trump’s announcement, the former co-leadership by the United States and China, which had been critical to the passage of the Paris Agreement, has evolved into something between sole leadership by China and co-leadership by China and the European Union.

Not long before midnight on Saturday, December 15th, a full 24 hours after COP-24 was scheduled to conclude, consensus was reached on the 156-page Rulebook, with considerable credit due to the Polish presidency of the Conference (not to be confused with the presidency of the Polish nation), in the person of Michał Kurtyka, Poland’s Deputy Minister of Energy. As Jean Chemnick wrote in E&E News, the Rulebook represents a transition from an “idealized expression of world solidarity” in the Paris Agreement to a “set of mechanisms that countries hope will deliver results.”

But was COP-24 Really a Success?

A simple “yes” or “no” response to this question would be misleading.  There were literally dozens of aspects of the Paris Agreement on which the delegates to the Katowice meetings wanted to make progress by filling in details in the 29 articles of the skeletal Paris Agreement.  In my mind, two areas stood out.  One is referred to as “transparency,” and other is characterized (somewhat inaccurately) as “markets.”  Combining the achievements and lack thereof on both fronts, I assess the outcome of the Katowice talks to be more than a half-full glass of water (or wine, if you prefer).

First of Two Key Issues:  Transparency

Transparency refers to the credibility of each nation’s measurement of its own performance – in terms of its emissions and its policies.  The Paris Agreement gave significant wiggle room to the vast majority of countries – the 154 developing countries – by granting them flexibility in meeting the transparency requirements (which were to be established for the industrialized countries).  The U.S. delegation – consisting of civil servants led by long-time State Department official Trigg Talley – again worked closely with the Chinese delegation to foster a remarkable consensus that all countries must follow uniform standards for measuring emissions and tracking the achievement of their respect targets (Nationally Determined Contributions or NDCs).  This was a significant achievement, and a major step forward toward a level playing field among the countries of the world.

Conceivably, it could make it easier for the Trump administration to remain in the Paris Agreement (if the President were to become convinced that such action would be politically advantageous in the run-up to the November 2020 U.S. presidential election).  And, likewise, it will make it easier for a future (Democratic or Republican) administration to rejoin the Paris Agreement if the current President follows through on his promise to withdraw.  That is a significant success.

Second of Two Key Issues:  Article 6.2 and Carbon Markets

Turning to the second key set of issues at COP-24, I have frequently written that there are two necessary conditions for ultimate success of the Paris Agreement:  adequate scope of participation, and adequate ambition of the individual national contributions.  The first condition has surely been met, with 97% of global emissions associated with countries taking on responsibilities under Paris, compared with 14% under the current commitment period of the predecessor international agreement, the Kyoto Protocol of 1997.  But the factor that brought about such broad participation – namely, that each country’s target is anchored in its own national circumstances and colored by its domestic political reality – suggests that the individual contributions will not be collectively sufficient (due to the global commons nature of the problem).

Because of this, a key question has been whether there are ways that the Paris Agreement itself, as it is fleshed out, can enable and indeed facilitate increased ambition over time?  One answer, on which I have carried out extensive research with colleagues, can be provided by the linkage of regional, national, and sub-national policies – connections among policy systems that allow emission reduction efforts to be redistributed across systems.

Heterogeneous Linkage

Linkage is typically framed as between cap-and-trade systems, but regional, national, and sub-national policies will be highly heterogeneous, including a variety of types of emissions trading systems, carbon taxes, and conventional performance and technology standards.  As my research in this area with Michael Mehling (M.I.T.) and Gilbert Metcalf (Tufts University) has found, linkage among such heterogeneous policies is not trivial, but is – in many cases – feasible.

This is important because linkage fosters: cost savings by allowing firms to take advantage of lower cost abatement opportunities in other jurisdictions; improved functioning of markets by reducing market power and price volatility; political benefits to linking parties; administrative economies of scale; and – perhaps most important – the possibility of satisfying the UNFCCC’s key criterion of distributional equity – “common but differentiated responsibilities” – without sacrificing cost-effectiveness.

Fortunately, such linkage can be consistent with the Paris Agreement, under the authority of its Article 6, focused on international cooperation.  In particular, Article 6.2 provides for cooperative approaches among Parties, with Internationally Transferred Mitigation Outcomes (ITMOs) potentially serving as an accounting mechanism to ensure that international linkages do not result in double-counting or other errors when comparing each country’s emissions to its stated target.

So, What Happened in Katowice?

In Katowice, the delegates sought to write guidelines for Article 6 that could make its promise a reality.  Negotiators had an opportunity to define clear and consistent guidance for the accounting of emissions transfers under Article 6.2.  My view in advance of the Katowice talks was that a robust accounting framework for ITMO transfers could foster better linkage of climate policies across jurisdictions, but that if the guidance extended much beyond basic accounting rules, restrictive requirements could actually impede effective linkage, and be counter-productive.

In precisely this regard, two potential impediments arose in Katowice.  Proposals were introduced to place an explicit tax on ITMO transfers under the rubric of “Share of Proceeds,” meaning a payment by the transferring parties to a fund intended to help vulnerable developing countries meet their costs of adaptation to climate change.  Whereas the objective of financing adaptation has great merit, it is well covered and belongs in other parts of the Paris Agreement, not as a tax on trading.

The other potential impediment was in the form of proposals for an implicit tax on transfers, known as “Overall Mitigation in Global Emissions,” meaning that each transfer must result in a net reduction in overall emissions.  Again, increasing ambition over time is important, but that is dealt with appropriately in other parts of the Agreement, not by making it an implicit tax on market activity.

Last-Minute Maneuvers

As the end of the second week of negotiations approached, it appeared that both of these potential impediments might be finessed, if not completely avoided.  But then a single country – Brazil – decided to hold up the talks all night on the final Friday by insisting that it would not let there be any progress on rules for Article 6.2 unless the Conference agreed to state – under Article 6.4, viewed by most as an extension of the Kyoto Protocol’s Clean Development Mechanism (CDM) – that it could use its large surplus of CDM credits (of questionable credibility) to help meet its Paris commitments in a manner that would have resulted in double-counting.  The Brazilian delegation refused to budge, and the result was that Article 6 was not included in the Katowice decision.  Rather, it was punted to COP-25, to be held next year in Santiago, Chile.

So, the outcome with this second issue was clearly not a great success, but was it a complete failure, or was it something in between?  This gets quite interesting.  On first blush, a lack of agreement on the rules of the road for Article 6.2 would seem to render ITMO transfers impossible – and hence reduce the scope for bilateral international linkages.

Does the Cloud Have a Silver Lining?

As Nathaniel Keohane (Environmental Defense Fund) has pointed out, countries can move ahead with international transfers even without guidance under Article 6.2, because that article is explicit that countries may use transferred mitigation outcomes toward meeting their national targets whether or not additional rules have been written.  The crucial phrase is that any transfer must be “consistent with guidance,” meaning that if guidance exists, it must be followed, but meaningful action does not depend on the existence of guidance.  Keohane indicates that this language was intentionally written into the Paris Agreement precisely because the United States and others feared that Brazil would try to hold Article 6.2 hostage to Article 6.4 — exactly as they did in Katowice.

I hope very much that Dr. Keohane’s interpretation is correct.  My lingering concern, however, is that in the absence of knowing what some potential future guidance and rules might bring, Parties may be very hesitant to pursue bilateral linkages (and try to justify those in the context of their national targets via ITMO transfers).  Only time will tell.

A Sideshow:  The IPCC 1.5o C Report and U.S. Schizophrenia

            There were several sideshows at the climate talks.  One revealed the schizophrenia that has marked U.S. participation in the annual negotiations during the Trump years.  The State Department civil servants who continue to represent the United States in the climate negotiations, again played a helpful role, working constructively with other delegations, and in some cases, even played a (admittedly diminished) leadership role, as in the work on transparency I described above.  But, in addition, the White House again sent a group of political people to make symbolic statements supporting the use of coal and doubting the urgency of action on climate.

This resulted in the bizarre reality of the United States joining Russia, Saudi Arabia, and Kuwait to block language that would have endorsed the findings of the recent Intergovernmental Panel on Climate Change (IPCC) report on the Paris Agreement’s aspirational target of limiting warming to a 1.5o C increase this century.  All other countries wanted to include text that would “welcome” the IPCC report, which would indeed have had the effect of endorsing it.  The group of four countries maintained that the report should simply be “noted.”  In what has become classic climate diplomacy, the final language said that the Conference “welcomes the timely completion” of the report, not necessarily its findings.

The Bottom Line

Any sound judgment of the ultimate success or failure of the Katowice climate talks – and more important, the success or failure of the Paris Agreement – will depend upon future climate negotiations and upon the domestic policy actions of the key countries of the world.  For that, it remains too soon to observe or even predict the long-term outcome.

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A Few Additional References:

For a much more succinct assessment of the Katowice climate negotiations, see my column in The Conversation:  “An Economist’s Take on the Poland Climate Conference.”

For a summary of the outcomes of the Katowice meetings, see this report from the Center for Climate and Energy Solutions.

For a detailed summary and assessment of the Katowice outcome, see Axel Michaelowa’s slide deck.

For an assessment that focuses on the process and outcome of the Katowice negotiations with regard to the role of carbon markets, see the COP24 Summary Report of the International Emissions Trading Association (IETA).

For a detailed description of the processes and outcomes on transparency, finance, and stock taking, see Jean Chemnick’s story in ClimateWire.

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Harvard Project on Climate Agreements at COP-24

Along with my Harvard colleagues, David Keith, Robert Stowe, and Jason Chapman, I will be at the Twenty-Fourth Conference of the Parties (COP-24) of the United Nations Framework Convention on Climate Change (UNFCCC) in Katowice, Poland, leading our delegation from the Harvard Project on Climate Agreements (HPCA), December 10-13, 2018.

In addition to holding a series of bilateral meetings with various national delegations, the Harvard Project will participate in (at least) five events.  Two of these are panel sessions organized by HPCA, while the three others are panel sessions organized by national delegations.  My team and I will be at COP-24 in Katowice during the week of December 10, 2018.  COP-24 attendees who wish to meet with the Harvard Project during the conference should send an email Jason Chapman, Project Manager (jason_chapman@hks.harvard.edu).

Five Events in Brief

A Dialogue on Promoting China and US Climate Action
Robert Stavins, Panelist
Hosted by the Counsellors’ Office of the State Council (China) and World Resources Institute
Monday, December 10; 15:30 – 17:00
Location:  China Pavilion

Elaborating and Implementing Article 6 of the Paris Agreement
Hosted by the Harvard Project on Climate Agreements and the Enel Foundation
Tuesday, December 11, 2018;  15:00 – 16:30
Location:  Side Event Room “Wisla”

Governance of Solar Geoengineering Deployment
Hosted by the Harvard Project on Climate Agreements
Wednesday, December 12, 2018;  11:00 – 12:30
Location:  Pavilion of the International Emissions Trading Association (IETA)

Enhancing Capacity of Developing Countries to Address Climate Change: Issues and Opportunities
Robert Stavins, Keynote Speaker
Hosted by Korea University, Global Green Growth Institute, and others
Wednesday, December 12, 2018;  15:00 – 18:00
Location:  Korea Pavilion

Sixth Global Climate Change Think Tank Forum: Global Climate Governance and a Community with a Shared Future for Mankind
Robert Stavins, Keynote Speaker
Hosted by the National Center for Climate Change Strategy and International Cooperation (China)
Wednesday, December 12, 2018;  17:30 – 19:00
Location:  China Pavilion

Two Harvard Project Events in Detail

Elaborating and Implementing Article 6 of the Paris Agreement
Hosted by the Harvard Project on Climate Agreements and the Enel Foundation
Tuesday, December 11, 2018
15:00 – 16:30
Location:  Side Event Room “Wisla”

Participants:

Kelley Kizzier
Co-Chair, Article 6 negotiations
UNFCCC Subsidiary Body for Scientific and Technological Advice

Michael Mehling
Deputy Director, Center for Energy and Environmental Policy Research
Massachusetts Institute of Technology

Daniele Agostini
Head of Low Carbon and European Energy Policies at Enel
Enel Group

Robert Stavins
A. J. Meyer Professor of Energy and Economic Development, Harvard Kennedy School
Director, Harvard Project on Climate Agreements

Other participant(s) to be determined

Abstract:

Speakers will consider progress in elaborating Article 6 and what remains to be done, with reference to the potential of Article 6 to enhance ambition. Discussion will be based on practical experience with market mechanisms, academic research, and a close reading of the Paris-Agreement negotiations. The discussion will be based in part on a background paper by Michael Mehling.

Governance of Solar Geoengineering Deployment
Hosted by the Harvard Project on Climate Agreements
Wednesday, December 12, 2018
11:00 – 12:30
Location:  Pavilion of the International Emissions Trading Association (IETA)

Participants:

Daniel Bodansky
Regents’ Professor
Sandra Day O’Connor College of Law, Arizona State University

David Keith
Gordon McKay Professor of Applied Physics, Harvard John A. Paulson School of Engineering and Applied Sciences
Faculty Director, Harvard’s Solar Geoengineering Research Program

Robert Stavins
A. J. Meyer Professor of Energy and Economic Development, Harvard Kennedy School
Director, Harvard Project on Climate Agreements

Other participant(s) to be determined

Abstract:

“Solar geoengineering” (SG) refers to technologies that help reduce radiative forcing and cool the planet. Governing SG deployment poses some unique challenges, in part driven by the incentive structure associated with SG, its risks and uncertainties, and its interaction with mitigation. Panelists will discuss these challenges and the potential role of SG in addressing climate change – relative to mitigation and adaptation. The panel is based in part on a research workshop held at Harvard Kennedy School in September 2018, which I wrote about in my previous entry at this blog.

The Path Ahead

After COP-24, I hope to post an essay at this blog assessing the progress (or lack thereof) made in Katowice.  In the meantime, if you will be at COP-24, and would like to meet with the Harvard Project on Climate Agreements, please contact Jason Chapman (jason_chapman@hks.harvard.edu).

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Will the Paris Agreement Help or Hinder Cooperation among Nations?

I just returned from Florence, Italy, where I participated in the Second Carbon Market Workshop, organized by the European Commission, and hosted by the European University Institute.  This workshop, which brought together government representatives from around the world (with a sprinkling of academics and NGO representatives to add some spice to the discussion), was convened to examine how regional, national, and sub-national jurisdictions can cooperate in ways that could increase the effectiveness and/or reduce the costs of their respective climate change policies.  One of my tasks at the workshop was to make a brief dinner speech.  Jos Delbeke, the long-time,  legendary Director-General of Climate Action for the Commission, asked me to talk about how the Paris Agreement might help or hinder practical climate policy cooperation around the world.  I drew extensively upon my research with Michael Mehling and Gilbert Metcalf.  Here is the gist of what I said in my dinner speech.

Some Paris Agreement Fundamentals

The hybrid design of the Paris Agreement was key to its successful enactment in 2015 and its coming into force in November, 2016.  The hybrid design to which I refer is the combination of top-down (centralized) and bottom-up (decentralized) elements.  The top-down elements include, for example, the requirement that countries state their national contributions every five years, a schedule which is binding under international law for those jurisdictions that have ratified the Agreement.  The key bottom-up element is the set of individual Nationally Determined Contributions (or NDCs) themselves, which are not part of the Paris Agreement itself, but rather are listed in a separate Registry.  These are not binding under international law, but rather are left to the domestic authority of the respective countries.

This dual structure led to the achievement of one of two necessary conditions for ultimate success of the Paris Agreement, namely adequate scope of participation, which now includes countries accounting for 97% of global emissions, compared with the 14% that are covered by the current, second commitment period of the Kyoto Protocol.

But adequate scope of participation is only one of two necessary conditions; the other is adequate collective ambition.  Unfortunately, the fundamentally voluntary nature of the NDCs – which is precisely what facilitated the exceptionally broad scope of participation – works against adequate ambition to address this global commons phenomenon, which is plagued by free rider problems.

The Challenge for Climate Negotiators

This raises the key overall challenge that faced the negotiators in Bonn in May and will face them in Katowice, Poland, in December (at the Twenty-Fourth Conference of the Parties of the United Nations Framework Convention on Climate Change):  What can they do, when writing rules to put flesh onto the skeletal Paris Agreement, to encourage countries to increase their ambition over time?  That’s where carbon markets and cooperation among jurisdictions potentially come in.

International Cooperation under the Paris Agreement

Largely because cooperation among jurisdictions — including through carbon markets — can lower abatement costs, such cooperation may be essential for the ultimate success of the Agreement.  This cooperation might take the form of international linkage, where by “linkage,” I mean connections among policy systems that allow emissions reduction efforts to be redistributed among those systems.

Such linkage is typically framed as between cap-and-trade systems, but regional, national, and sub-national policies are and will be highly heterogeneous, including not only cap-and-trade, but offset systems, carbon taxes, performance standards, and technology standards.  Note that we already see this sort of heterogeneity within the European Union’s own set of climate change policies, as well as within California’s suite of climate initiatives.

The good news is that linkage among highly heterogeneous policies is eminently feasible, as I have written about previously in this blog, drawing on my research with Michael Mehling (MIT) and Gib Metcalf (Tufts University).  The even better news is that one part of the Paris Agreement provides a potential home for such international cooperation, linkage, and carbon markets – Article 6.  (If you are interested in the details, I recommend a recent report from the Asian Development Bank, “Decoding Article 6 of the Paris Agreement.”)

The Promise and Problems of Article 6

In the negotiations that led up to the 2015 Paris climate talks, it was by no means clear what role — if any — market mechanisms would play in the Paris Agreement.  In the negotiations, the European Union, Brazil, and other countries played crucial roles in generating the compromise that became Article 6 of the Agreement.

That compromise resulted in text that — to put it kindly — is very much subject to interpretation.  Now, as Benito Müller, Kelley Kizzier, and their colleagues have observed, intentional vagueness and ambiguity of text can be quite helpful in achieving a negotiated compromise, but such vagueness is decidedly not helpful when it comes to making an agreement operational.

This compromised home for markets emerged in Article 6 despite the entrenched opposition of a small set of vocal countries — including some Latin American socialist economies (the so-called ALBA coalition) — who wanted nothing of the kind to appear in the Paris Agreement.  They succeeded in keeping the word “market” out the Paris Agreement, but the concept and the potential reality is very much there!  (Ironically, at their insistence, the phrase “non-market” does appear in the Agreement.)

In any event, provision for markets and international cooperation is implicit in Article 6.2, which allows for cooperative approaches involving Internationally Transferred Mitigation Outcomes (or ITMOs), which are vague and without definition, but can function as an international accounting mechanism for international trades, exchanges, and cooperation.  And Article 6.4 establishes a more centralized mechanism to contribute to emissions mitigation and support sustainable development, essentially as a successor to the Clean Development Mechanism (and may soon come to be called the “Sustainable Development Mechanism” or SDM).

Advantages and Concerns about Cooperation and Linkage

Despite the opposition I mentioned, most parties to the Paris Agreement are supportive of cooperative approaches (and more than half explicitly mentioned carbon markets in their respective NDCs).

This may be because of six important advantages of such cooperation:  first, cost savings by allowing firms to take advantage of lower cost abatement opportunities in other jurisdictions; second, reducing market power of individual firms by enlarging the market’s scope, and reducing total price volatility by thickening markets; third, political benefits to Parties, by providing a sign of “momentum” as jurisdictions band together, possibly influencing other parties to participate; fourth, administrative economies of scale through knowledge sharing in design and operations, as well as shared administrative and oversight costs; fifth reducing leakage and competitiveness impacts by harmonizing the shadow price of carbon across jurisdictions; and sixth, allowing for the achievement of the UNFCCC’s critical principle of “Common but Differentiated Responsibilities” without sacrificing cost-effectiveness.

There are also real concerns about linkage:  first, distributional impacts within and across linked jurisdictions; second, automatic propagation of certain design elements, in particular, cost-containment elements (banking, borrowing, and price collars); and third, decreased national autonomy.

Back to the Article 6 Negotiations and International Policy Linkage

Article 6 can be a home both to linkage of the sort we usually talk about, as well as “soft linkage,” such as an agreement — explicit or implicit — to harmonize carbon prices either at some level or within overlapping bands.

Thinking about the UNFCCC negotiations taking place now, most types of heterogeneity – of policy instruments, level of political jurisdiction, and nature of NDC targets – do not present insurmountable obstacles to linkage, but some do present real challenges, and indicate the need for specific guidance as the rulebook of the Paris Agreement is written.

Unfortunately, some countries want the Article 6 guidance to go beyond fundamental issues of accounting and environmental integrity to broader matters of environmental ambition, which properly belong in other parts of the Paris Agreement.  Whereas, accounting provisions to avoid double-counting of NDC actions through ITMOs surely belong in the Article 6 rulebook, some countries have proposed, for example, that all ITMO exchanges themselves must actually reduce net emissions.

This sounds very much like the U.S. Environmental Protection Agency’s 20% rule in its 1970’s Emissions Trading Program, which required that net emissions fall by 20% with each trade.  This was a tax and an inhibition on trading, and the result was that virtually no trading occurred.  This reminds me of a corrupted version of George Santayana’s admonition that those who do not learn from history are doomed to repeat it.  Instead we have, “I’ve learned from my mistakes, and I can repeat them exactly the same again.”

The general problem is that if the guidance extends much beyond basic accounting rules, then restrictive requirements could actually impede effective cooperation.  True to the nature and spirit of the Paris Agreement, less can be more!

UNFCCC Update from Bonn

I closed my dinner comments in Florence with a brief update on the negotiations that concluded the previous week in Bonn.  The two weeks of meetings of the Article 6 group were reported to be much tougher than they had been previously, yet the progress on the Article 6 work is actually ahead of that of groups focused on other parts of the Paris Agreement.  Although positions on Article 6 are hardening, there is no clear blocking party or coalition (unlike in the work on some of the other parts of the Agreement).  There may be less resistance to agreement simply because participation in Article 6 instruments would ultimately be voluntary.

The Path Ahead

So, as the negotiations proceed, a combination of common accounting rules and an absence of restrictive conditions can accelerate linkage, allow for broader and deeper climate policy cooperation, facilitate the emergence of a robust global carbon market, and – most important – increase the latitude of the Parties to the Paris Agreement to scale up the ambition of their long-term contributions to global greenhouse gas emission reductions.

Whether that will come to pass, we simply do not know as of now.  As usual, only time will tell.

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