Achieving the United States' Intended Nationally Determined Contribution
More than 180 nations representing more than 95 percent of global greenhouse gas emissions offered “intended nationally determined contributions” (INDCs) to the Paris Agreement reached in December 2015. The United States’ INDC is an economy-wide target to reduce net greenhouse gas emissions 26 to 28 percent below 2005 levels by 2025. Available analyses suggest that the United States could reduce emissions by as much as 22 percent with policies either already in place or soon anticipated. Options for achieving further reductions to meet the 2025 target may include additional policies, technological advances, and stronger action by cities and companies. Concerted efforts across multiple fronts could reasonably produce the reductions needed to meet the goal. This paper examines the progress that has been achieved since 2005, the effect existing and proposed policies will have by 2025 as well plausible steps to fill the gap.
The following was published in the February 2016 edition of Biores, a publication of the International Centre for Trade and Sustainable Development.
By Anthony Mansell, International Fellow, Center for Climate and Energy Solutions (C2ES)
The new climate deal includes several provisions relevant to market-based emissions reductions efforts.
At a UN conference in Paris, France in December countries agreed to a new framework for international cooperation on climate change. The “Paris Agreement” ties together nationally determined contributions (NDCs) with international rules and procedures to ensure transparency and promote rising ambition. Paris also provided a future for international market mechanisms as a tool for countries to fulfil their NDCs.
Many NDCs submitted as part of the Paris process demonstrate an enthusiasm for market approaches. Sixty-five governments say they will use international markets and another 24 will consider using them in the future. Many groups such as the Carbon Pricing Leadership Coalition (CPLC) urged support in Paris for the use of market mechanisms and a ministerial declaration issued by 18 governments at the close of the conference was designed to send “a clear signal to the global carbon market…that there is an important role for markets in the post-2020 period.”
The Paris Agreement includes provisions that can advance carbon markets in two ways: by ensuring there is no double counting when countries engage in emissions trading, and by establishing a new mechanism to facilitate trading. In both areas, however, the text provides only broad parameters and important details remain to be decided. This article addresses the current state of carbon markets, their history in international climate agreements, and relevant provisions of the Paris deal – including issues still to be negotiated before it comes into effect.
Carbon market context
Carbon pricing is currently in place in 38 jurisdictions, according to the World Bank, encompassing both carbon taxes and emissions trading schemes (ETS). A number of additional policies are scheduled to enter force between now and 2020 including carbon taxes planned for Chile and South Africa. Ontario will develop an ETS similar to neighbouring Québec and US states Washington and Oregon are considering the same. In terms of scale, the most significant will be a new national ETS in 2017 across China, the world’s largest greenhouse gas (GHG) emitter.
Not all carbon market programmes seek to trade internationally; some focus solely on domestic emission reductions. Nevertheless, bottom-up linkages are already occurring. For example, California and Québec have linked their cap-and-trade programs, making carbon allowances and offsets fungible between programs. There are also ongoing discussions in California about using sector-based offsets that reduce deforestation – known as REDD+ – from Acre, Brazil and Chiapas, Mexico. The EU Emissions Trading System (EU ETS) and Swiss ETS have agreed a link, pending ratification by each.
In addition, the International Civil Aviation Organisation (ICAO) is to decide by the end of this year on the design of a global market-based mechanism (MBM) to reduce emissions from aviation. The MBM would come into force in 2020, around the same time the Paris Agreement aims to be in place.
History of international market mechanisms
Market-based approaches are not referred to in the founding 1992 UN Framework Convention on Climate Change (UNFCCC) document, but were integral to the design of its first sub-agreement, the 1997 Kyoto Protocol.
Under Kyoto, participating developed countries have binding emission limits – “quantified emission limitation and reduction commitments” – inscribed in Annex B of the agreement. They are allocated “assigned amount units” (AAUs) in line with those targets and, to enable least-cost emission reduction, are permitted to trade AAUs and other certified emission units.
Kyoto established three methods for transferring units – either emission allowances or emission reductions – between countries. International Emissions Trading (IET) allows countries that have reduced emissions below their targets to sell excess allowances to countries whose emissions exceed their targets. Joint Implementation (JI) allows Annex B countries to earn emission reduction units (ERUs) through emission reduction or removal projects in other Annex B countries. The Clean Development Mechanism (CDM) allows Annex B countries to earn certified emission reduction (CERs) credits through emissions-reduction projects in developing countries.
Emissions trading under the Kyoto Protocol relies on international oversight. All transfers are tracked using a registry called the International Transaction Log (ITL). A common accounting standard applies to all countries with emission targets. An executive board must approve the methodology CDM projects propose using. Finally, under the Protocol, only the international transfers it sanctions are considered legitimate to fulfil a country’s emissions-cutting obligations.
The Kyoto model provides important infrastructure for an international carbon market. Common accounting procedures ensure that any transfer meets an internationally agreed level of environmental integrity. An AAU allocated to Switzerland represents a metric tonne of emissions measured using the same standard as an AAU allocated to Norway. Common offset methodologies give a blueprint to replicate in projects across the globe. The CDM has been able to issue 1.4 billion credits – each representing a metric tonne of avoided emissions – and mobilise over US$400 billion in investment using this international rulebook for managing offset projects. Moreover, when countries submit their national GHG inventories, any recorded transfers can be verified by checking the international registry thereby reducing the potential for emissions double counting.
The Kyoto Protocol's market mechanisms have, however, lately encountered shrinking participation. One reason has been a reliance on the EU ETS as a source of demand, where low economic growth and restrictions placed on the types of credits has created a generous oversupply of CDM credits.
The Paris Agreement and carbon markets
The Paris Agreement establishes a fundamentally different framework from Kyoto. Rather than binding emission limits, which readily lend themselves to market approaches, the new climate regime requires all parties to undertake nationally determined contributions of their own choosing. As of writing, 187 countries had put forward NDCs, presenting various 2020-2030 target reduction dates. These contributions are not legally binding and come in many forms, ranging from absolute economy-wide targets to peaking years, carbon intensity reductions, and so on. A new transparency system will apply to all parties, but will be less prescriptive than the accounting of AAUs that underpinned the Kyoto Protocol.
Fitting market approaches into this new landscape poses a different set of challenges. In a literal sense, the Paris Agreement is silent on markets, in that the term does not feature in the text. This is not unusual, the Kyoto Protocol also did not include the term. Instead, the new agreement houses markets under Article 6, geared towards addressing “voluntary cooperation” between parties in achieving their NDCs.
Article 6 recognises that parties may choose to pursue voluntary cooperation in implementing their NDCs. If these “cooperative approaches” involve the use of “internationally transferred mitigation outcomes,” or ITMOs, robust accounting shall be used to avoid double counting. The use of ITMOs are voluntary and authorised by participating parties.
The same article also establishes a mechanism to contribute to GHG mitigation and support sustainable development. The new mechanism will be under the authority of meeting of parties to the Paris Agreement. It has four listed aims including to promote greenhouse gas mitigation while fostering sustainable development; incentivise and facilitate participation by public and private entities who are authorised by a party; contribute to reduction of emissions level in host country, which can also be used by another party to fulfil its NDC; and deliver an overall reduction in global emissions. In addition, emission reductions occurring from the new mechanism must not be double counted. A share of proceeds will be used to cover administrative expenses and assist developing countries to meet the costs of adaptation, which is similar to the share of proceeds under the CDM, a portion of which was channelled to the Adaptation Fund. Article 6.8 and 6.9 contain a framework for promoting “integrated, holistic and balanced non-market approaches.”
So what comes next? When the CDM, JI, and IET were established under the Kyoto Protocols, the details were not finalised until the Marrakech Accords four years later. Similarly, the COP21 outcome sets a work plan for negotiators to deliberate and decide how the Paris system will work, to be addressed in upcoming UNFCCC meetings.
Cooperative approaches accounting
The existing UNFCCC accounting system is bifurcated between developed and developing economies. Under the Convention, GHG inventories are required each year for industrialised countries, while these are included in national communications submitted every four years for developing nations.
The Paris Agreement establishes an “enhanced transparency framework for action and support,” with built-in flexibility to take into account national capacities. Under this framework each party must submit a national greenhouse gas inventory. An accompanying decision elaborates that all countries – except least developed countries and small island developing states – shall provide these inventories at least biennially.
On markets the Subsidiary Body for Scientific and Technologic Advice (SBSTA) will develop and recommend guidance on how to apply “robust accounting” for cooperative approaches, for adoption at the first session of governing body of the Paris Agreement, known as the CMA . Countries will need to be “consistent” with this guidance, but not necessarily follow it strictly. How to determine if a country’s accounting is consistent is not clarified in the Paris agreement, though it will likely be reviewed as part of the new transparency system.
Pending decisions will provide greater clarity on a number of issues. On ITMOs, it will be useful to define the scope of what can be considered a “mitigation outcome” transferred between countries. Under Kyoto, AAUs serve as a unit of account for transferring obligations, but also define the scope of accepted international transfers. In other words, only transfers involving AAUs are accepted when submitting national GHG accounts. Parties will also need to consider whether other forms of co-operation – such as Japan’s Joint Crediting Mechanism (JCM), which is similar to the CDM, or the bilateral linking of two ETSs –would be considered ITMOs. Transfers involving one or more countries without absolute economy-wide targets could complicate the methodology needed to avoid double counting.
On the accounting system, the CMA could take an active role in facilitating transfers, including through a central registry similar to the ITL. Alternatively, in a more decentralised system, it may require that parties maintain their own accounting – such as double-entry bookkeeping – and rely on the transparency arrangements to provide oversight. The provision referencing ITMOs also requires parties to “promote sustainable development and ensure environmental integrity.” The SBSTA guidelines will need to define these terms and how countries will meet them when undertaking transfers.
Another accompanying COP decision recommends that the CMA adopt “rules, modalities, and procedures” for the new mechanism at its first session. The parameters for these are: voluntary participation authorised by each party involved; real, measurable, and long-term benefits related to the mitigation of climate change; specific scope of activities; reductions in emissions that are additional to any that would otherwise occur; verification and certification of emission reductions resulting from mitigation activities by designated operational entities; experience gained with and lessons learned from existing mechanisms and approach adopted under the Convention.
This leaves much to be hammered out by governments. A key area to address will be the type of system. The new mechanism may continue to credit at a project level. A Brazilian proposal in Paris envisioned a mechanism similar in scale to the CDM, referred to as an “enhanced CDM,” or “CDM+.” Conversely, in prior discussions for a “new market mechanism” (NMM), both the EU and the Environmental Integrity Group negotiating group have proposed a scaled-up or sector-based crediting mechanism.
The future of the Kyoto flexibility mechanisms is also unclear, in particular whether the new mechanism will succeed the CDM and JI, or will sit alongside either of these. The Paris Agreement does not mention the CDM or JI, but notes that the new mechanism should draw on the experience gained from existing mechanisms. Similarly, it is unclear whether units generated under the Kyoto mechanisms will be eligible for compliance after 2020 and if so, whether they will need to be converted to an alternative credit type to conform with credits issues under the new mechanism.
Negotiators may also decide to transfer project methodologies over from the CDM to apply to the new mechanism, discard some of these existing approaches, or move away from project level crediting altogether as noted above. They may also consider other methodologies used outside the UNFCCC. Finally, the Paris Agreement frames sustainable development on a par with GHG mitigation, so parties may require measured sustainable development outcomes to be eligible for crediting.
Parties will need to decide on governance arrangements for the new mechanism. The CDM is managed by an Executive Board of ten government officials, comprising one member from each of the five UN regional groups, two other members from parties included in Annex I, two other members from non-Annex I parties, and one representative of the small island developing states. Similarly, JI has a supervisory committee (JISC) to oversee the verification of projects. The new mechanism could incorporate governance from either of these existing platforms.Guidance on rules and procedures will also need to be clarified. The CDM and JI have existing procedures for developing projects that are ultimately credited. Countries could transfer these rules to the new mechanism or adopt new procedures.
Given the breadth of views across governments on the role of market mechanisms, reaching conclusions on these issues will be challenging. The slow progress since 2011 in the UNFCCC toward a “framework for various approaches” (FVA) and NMM demonstrated the difficulties in gaining consensus on the subject. Nevertheless the importance afforded to international markets by many countries in their NDCs implies there is a strong impetus to find a workable system for international transfers.
Efforts beyond UNFCCC
It is possible that initiatives undertaken outside the UNFCCC will inform efforts within. The Carbon Market Platform established under the G7, for example, is a strategic political dialogue that can complement the UNFCCC in developing guidance on accounting for international transfers. The system that ICAO builds could seek consistency with the Paris Agreement. For example, it would be beneficial if credits used for compliance in the UNFCCC and ICAO are fungible, to prevent project developers choosing between separate customers. It remains to be decided what types of international credits will be used for compliance in the ICAO MBM, but this should take into account the emergence of the new mechanism. In addition, the accounting system used by ICAO should at least be consistent with that used under the Paris system, insofar as this would avoid the double counting of units used for compliance in both ICAO and the UNFCCC.
Paris reaffirmed carbon markets as an instrument for meeting climate goals. Outside of the agreement itself, groups such as the CPLC are building strong momentum for market approaches as a key component to meeting the mitigation targets set by NDCs. COP21 did not, however, finalise a new system of international carbon markets or cooperative approaches. Accounting for ITMOs and other forms of voluntary cooperation require elaboration and guidance. The role of the new mechanism remains to be negotiated. And if these talks become stalled, as was the case for the FVA/NMM deliberations, interested countries may pursue bottom-up linkages elsewhere rather than continue to search for solutions within the UN climate talks. The pace and extent of progress under the UNFCCC will determine how central a role multilateral platforms will play on these issues in the future and the prospects of a truly global carbon market.
|United Nations area at COP 21 in Paris. (Photo Courtesy of UNFCCC via Flickr).|
The Paris climate summit is a tale of lessons learned – lessons both in how to manage an unruly negotiating process that can easily veer out of control, and in how to craft a multilateral approach that gets everyone to do more.
The Paris agreement is a pragmatic deal that delivers what’s needed – tools to hold countries accountable and build ambition over time. By giving countries greater confidence that all are doing their fair share, it will make it easier for each to do more.
I’ve engaged closely with the U.N. climate talks since their launch in 1992, and here are some of my takeaways on the ingredients for Paris’ success:
Expectations are a powerful force
Even before the summit started or a single word was agreed, more than 180 countries had offered concrete plans for how they intend to address climate change. This was not because they were obliged to, but simply because there was an expectation set two years ago in Warsaw that they would.
This unprecedented, and largely unanticipated, show of political will created powerful momentum heading into Paris.
The agreement that emerged sets some binding commitments (see below), but much of its force will hinge on the further expectations that it sets: that, going forward, countries will put forward their best efforts, and will strengthen them over time. It creates a succession of political moments, like the one we just experienced, when all can judge whether those expectations are met.
Two days into the final week of climate talks here in Paris, the French hosts have artfully managed to avert any of the usual procedural showdowns, and the contours of a deal are finally beginning to emerge.
With the formal handoff of a draft text to the French presidency over the weekend, the most immediate challenge was structuring a process for this week’s Ministerial-level talks that is “transparent” and “inclusive” but also allows for the private give-and-take among key players that’s necessary to get to a deal.
The process devised by the French has distributed the issues across a number of working groups that are “open-ended” (open to all parties, and thus inclusive), which report daily to a Comité de Paris, whose proceedings are open to all, including observers (and thus transparent).
Simultaneously, the Ministers appointed to facilitate the working groups are engaging in furious rounds of private bilateral discussions to triangulate among parties’ positions and move them toward consensus.
Although a handful of parties are pushing to move into a full-group, line-by-line negotiation (which would more likely slow than accelerate the process), this diplomatic balancing appears so far to have earned the trust of most parties and avoided the kind of procedural blowups that have stymied previous COPs.
And, judging from the initial reports from the working group facilitators on Monday night, progress is being made.
Between those reports, and conversations in the hallways, it appears that the “landing zones” we’ve seen emerging in recent months are now becoming clearer to the Ministers too.
On the whole, Paris will produce a hybrid accord coupling countries’ "nationally determined” contributions (NDCs) with a set of rules and norms promoting accountability and ambition. All but 10 parties have submitted NDCs, demonstrating how the bottom-up flexibility of “nationally determined” achieves broad participation. Now we need the top-down pieces to hold countries accountable and push them to do more.
It’s never safe to predict a COP outcome, but here’s how we see key issues shaping up:
Legal Issues in the Durban Platform Negotiations
C2ES will present a report on legal issues in the 2015 agreement, with responses from negotiators for the European Commission, the Marshall Islands, South Africa and Switzerland. Topics include the legal form of the agreement and the “anchoring” and legal character of NDCs.
June 9, 2015
Plenary building – Rhine Level, Room Bonn 2
Sandra Day O’Connor College of Law, Arizona State University
Principal Adviser, DG Climate Action
Permanent Mission of the Republic of the Marshall Islands to the United Nations, New York
Sandea de Wet
Chief State Law Advisor
Department of International Relations and Cooperation, South Africa
Federal Department of the Environment Transport, Energy and Communications
Executive Vice President
Center for Climate and Energy Solutions
Addressing Adaptation in a 2015 Climate Agreement
By Irene Suarez, Progresum
With the adverse effects of climate change becoming more frequent and intense, all countries face increasing climate risks and adaptation needs. The negotiations toward a new climate agreement in 2015 present an unparalleled opportunity to elevate and advance climate adaptation both within countries and under the United Nations Framework Convention on Climate Change (UNFCCC). The 2015 agreement could establish a clearer global vision for adaptation under the Convention; provide a framework for presenting
national adaptation contributions to catalyze adaptation action; streamline and enhance UNFCCC institutions; and mobilize resources to help particularly vulnerable developing countries cope with climate impacts. This brief provides an overview of: 1) UNFCCC provisions and institutional arrangements addressing adaptation, and 2) issues and options in addressing adaptation in the new agreement due at the 21st session of the UNFCCC Conference of the Parties (COP 21) in Paris. (Issues and options related directly to the provision of finance for adaptation are beyond the scope of this brief.)
Key Legal Issues in a 2015 Climate Agreement
By Daniel Bodansky, Sandra Day O’Connor College of Law, Arizona State University
In fashioning the new international climate change agreement to be adopted later this year in Paris, parties to the United Nations Framework Convention on Climate Change (UNFCCC)1 must address a range of legal issues. This brief outlines some of the key issues and concludes that: The Paris outcome arguably must include a core legal agreement constituting a treaty under international law; the exact title of the core agreement is legally irrelevant; the agreement can contain both binding and non-binding elements;
the legal nature of parties’ nationally determined contributions (NDCs) is independent of where they are housed; and consistency with the UNFCCC does not require that the agreement adopt the same structure.
Addressing Finance in a 2015 Climate Agreement
By Anthony Mansell, Center for Climate and Energy Solutions
A central issue in the Paris climate negotiations is how the new global climate agreement to be reached this year can help strengthen climate finance for developing countries. Developed countries have committed under the United Nations Framework Convention on Climate Change (UNFCCC) to help developing countries reduce their greenhouse gas emissions and adapt to the impacts of climate change. The new agreement will build on steps already taken and define an approach to climate finance for the post-2020 period.
This brief provides an overview of: existing finance commitments, institutions and mechanisms under the UNFCCC and the Kyoto Protocol; current climate finance flows; potential finance-related objectives in a 2015 climate agreement; and options for addressing finance in the 2015 agreement.
In Brief: Legal Options for U.S. Acceptance of a New Climate Change Agreement
By Daniel Bodansky, Sandra Day O’Connor College of Law, Arizona State University
U.S. acceptance of the new climate agreement being negotiated under the United Nations Framework Convention on Climate Change (UNFCCC) may or may not require legislative approval, depending on its contents. U.S. law recognizes several routes for entering into international legal agreements. The president would be on relatively firm legal ground accepting a new climate agreement with legal force, without submitting it to the Senate or Congress for approval, to the extent it is procedurally oriented, could be implemented on the basis of existing law, and is aimed at implementing or elaborating the UNFCCC. On the other hand, if the new agreement establishes legally binding emissions limits or new legally binding financial commitments, this would weigh in favor of seeking Senate or congressional approval. However, the exact scope of the president’s legal authority to conclude international agreements is uncertain, and the president’s decision will likely rest also on political and prudential considerations.
The brief is based on the report, Legal Options for U.S. Acceptance of a New Climate Change Agreement, which provides a fuller legal analysis.
Legal Options for U.S. Acceptance of a New Climate Change Agreement
By Daniel Bodansky, Sandra Day O’Connor College of Law, Arizona State University
The success of ongoing negotiations to establish a new global climate change agreement depends heavily on the agreement’s acceptance by the world’s major economies, including the United States. The new agreement is being negotiated under the United Nations Framework Convention on Climate Change (UNFCCC), a treaty with 195 parties that was ratified by the United States in 1992 with the advice and consent of the U.S. Senate. U.S. acceptance of the new agreement may or may not require legislative approval, depending on its specific contents.
U.S. law recognizes several routes for entering into international agreements. The most commonly known, under Article II of the Constitution, requires advice and consent by two-thirds of the Senate. In practice, however, the United States has accepted the vast majority of the international agreements to which it is a party through other procedures. These include congressional-executive agreements, which are approved by both houses of Congress, and presidential-executive agreements, which are approved solely by the president.
The President would be on relatively firm legal ground accepting a new climate agreement with legal force, without submitting it to the Senate or Congress for approval, to the extent it is procedurally oriented, could be implemented on the basis of existing law, and is aimed at implementing or elaborating the UNFCCC. On the other hand, if the new agreement establishes legally binding emissions limits or new legally binding financial commitments, this would weigh in favor of seeking Senate or congressional approval. However, the exact scope of the President’s legal authority to conclude international agreements is uncertain, and the President’s decision will likely rest also on political and prudential considerations.