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As the first week of negotiations at COP 7 drew to a close, major fault lines emerged on several key issues. Umbrella Group countries frequently were at odds with the European Union and G-77/China, which appear to be coordinating their positions more closely than in past negotiations. Overall, progress has been slower than many delegates had hoped, and a number of issues already have been put aside for Ministers to consider when they arrive next week. Many view the goal of resolving the remaining "technical" issues by Sunday morning as a significant challenge.

Key areas of disagreement include: whether or not the Bonn agreement provides for binding consequences for failing to meet emissions targets; the rules determining whether Parties are eligible to participate in emissions trading and Kyoto's other flexibility mechanisms; and the composition of the bodies that will oversee Joint Implementation and the Clean Development Mechanism. There has been no progress on another key issue: Russia's request to for a higher ceiling for forest management activities under the country-by-country allowances adopted in Bonn.

Key Developments

Compliance - Major differences have emerged over interpretation of the compliance component of the Bonn agreement. Umbrella Group countries maintain that the agreement defers a decision on whether the compliance regime is binding until the first meeting of Parties after the Protocol's entry into force. The EU and the G-77 have consistently opposed that view here in Marrakech. The EU also has opposed motions by Umbrella Group Parties to delete text referring to noncompliance with requirements such as annual inventories, adjustments, and national systems. Australia and Russia also have proposed eliminating any opportunity for Parties to request a review of other Parties' implementation status.

The review of the adequacy of commitments, which must be undertaken by 2005, was discussed briefly. It quickly became apparent that the Umbrella Group Parties hope to use the review of the adequacy of commitments as an opportunity to take a forward look at commitments for developing countries. Developing countries responded that the intention of the review is to assess progress by developed countries. The Chair deferred further discussion of the adequacy of commitments until COP 8.

Mechanisms - Significant headway was reported on the Joint Implementation text. Work on the CDM text has been minimal thus far. The negotiations have bogged down on a portion of JI text that would require a Party to accept a binding compliance regime in order to be eligible to participate in the Mechanisms. Despite strong objections by the Umbrella Group, the EU and the G-77 have held a common line in favor of this provision.

Significant progress has been reported on standards and procedures for the accreditation of operational entities for the CDM. Less progress has been made on the more technical issues of baselines, monitoring, accreditation and verification procedures. Talks have been slowed by disagreements over the make up of the CDM Executive Board, the JI Supervisory Committee, and previously unidentified issues. For instance, the Umbrella Group representatives raised concerns that a portion of previously unbracketed JI text could be interpreted to preclude the sale of ERUs generated by private entities if their home country falls into non-compliance.

There reportedly have been far more applicants for the CDM Executive Board than the spaces allotted under the representation formula in the Bonn agreement. Several G-77 countries have been lobbying for an expansion of the Executive Board.

In debate over the make up of the JI Supervisory Committee, members of the Umbrella Group have maintained that the Committee should be comprised exclusively of representatives of Annex I Parties. The G-77 has called for representation according to the traditional UN formulation. The G-77 (Samoa and China in particular) have made repeated attempts to harmonize the JI text concerning the make up of the Committee with the text on the make up of the CDM Executive Board. These interventions have resulted in lengthy debates. To date, these Parties have successfully introduced text that would make JI Supervisory Committee meetings open to all accredited observers. The issue of representation of the Committee has been bumped to the Ministerial session.

Articles 5,7 and 8- Despite early optimism that issues surrounding articles 5, 7 and 8 (monitoring, reporting and review) progress has slowed in recent days. The most contentious issue has been Mechanism eligibility. The EU and G-77 are calling for mandatory reporting under article 3.14 (efforts to minimize adverse effects of climate change and climate mitigation on developing countries) as a condition of eligibility. Their position has been persistently opposed by the Umbrella Group. This impasse has slowed negotiations on other topics related to articles 5,7 and 8, and many issues have been referred to drafting groups.

LULUCF- Talks on LULUCF have been delayed pending the arrival of the Russian lead negotiator on the topic.

SBSTA- Several items on the SBSTA agenda have been covered in the past few days with varying results. On public education and outreach, the only consensus that could be achieved was that there should be an international Climate Change Day. Further consultations will be conducted and draft conclusions will be presented next week.

The scheduled review of the AIJ pilot phase was one of the few topics that has been dealt with quickly. The US delegate noted the extent to which the US has participated in the program and the G-77 noted the lack of investment in projects on the African continent. Conclusions on the session will be produced following informal consultations.

Canada's concerns over GHG emissions emerging from "clean energy" exports to the United States were raised under the miscellaneous portion of the agenda. Canada presented the results of a workshop held on the topic prior to the Conference and with support from other Parties agreed to hold a follow-up workshop. Nigeria is to coordinate informal consultations on the topic.

The Seventh Conference of the Parties opened in Marrakech Morocco on Monday October 29 with a plenary session in the morning followed by simultaneous SBI and SBSTA sessions in the afternoon. Jan Pronk opened the session with a brief statement congratulating the Parties on achieving a successful compromise in Bonn and called on all Parties to undertake the important task of translating the agreement into legal text and addressing all remaining issues so that the Protocol will be in a position to enter into force by the opening of the World Summit on Sustainable Development (WSSD) in Johannesburg in 2002.

Opening remarks by the majority of Parties and negotiation blocs were limited to statements of appreciation for outgoing Conference President Jan Pronk, UNFCCC Executive Secretary Michael Zamitt Cutajar and statements of welcome to new President Mohamed Elyazghi of Morocco who was officially elected in the opening plenary session. With the exception of the opening statement by the G-77 and China who called on all Parties to resist the temptation to reopen any issues that were settled in Bonn and went on to state that neither this Conference, nor the WSSD were the appropriate settings for discussing new commitments for Non-Annex I Parties, the opening statement lacked the substantive indication of intentions and positions that have been common at previous Conferences.

Key Developments in the Negotiations

The first day was largely dedicated to administrative and organizational matters. The second day of the conference saw negotiators get down to business with full SBI and SBSTA sessions covering a number of issues and negotiation sessions on LULUCF, the Mechanisms and Compliance. Wednessay featured an additional negotiation session on Articles 5,7 and 8.

SBI- The SBI sessions over the first three days of the conference covered topics ranging from the progress made on the construction of a new UN campus in Bonn Germany to a review of the budget of the UNFCCC secretariat. Delegates also discussed the location of the next CoP. No Parties have yet applied to host CoP 8 but many observers have speculated that the Bahamas will make its intentions to be the next host known before the week is out.

SBSTA- The SBSTA sessions have covered an equally diverse if more substantive array of topics thus far. The treatment of bunker fuels has been a topic that has generated considerable discussion in the hallways. The omission of bunker fuels from coverage under the Protocol has been criticized as a loophole by environmental groups, a position that has been bolstered by the results of an IPCC special report on the topic that found the environmental effects of emissions from international transport to be both significant and growing rapidly. The International Civil Aviation Organization (ICAO) indicated its intention to proceed with an analysis of policy option to reduce these emissions, including an analysis of emissions trading design options. This course of action was supported by Switzerland (Environmental Integrity Group) and the EU who stated their intention to levy charges on bunker fuels unilaterally if sufficient progress was not made by 2002. Other topics covered include technology transfer, GHG inventories and the IPCC's work plan to develop good practice guidance for LULUCF activities. Informal consultations are to be conducted on a number of issues and will be reported back by the close of the technical session.

Mechanisms- In the first full session of the negotiating group on the Mechanisms progress was limited to a single paragraph in each of the CDM and JI texts. The session was marked by a heated exchange between the representative of Nigeria and Co-Chair of the session Raul Estrada. The Nigerian delegate (supported by Saudi Arabia) stated his belief that the Parties preoccupation with getting issues addressed in short order was coming at the expense of getting things right. He then proceeded to work through a list of concerns including what he called contradictions in the agreement. The primary concern raised was the fact that the portion of the Bonn agreement referring to the fast track for the CDM made reference to Parties to the Protocol but no country is a Party to the Protocol until it is ratified so there could be no prompt start to the CDM.

Mr. Estrada described the intervention as an intentional disruption and refused to enter Nigeria's intervention into the record.

Compliance- Compliance is also proving to be a contentious issue. Inconsistencies within the Bonn agreement have bred divergent interpretations of the compliance regime. In the first session on the topic the Secretariat tabled a "non-paper" which indicated areas of disagreement. Japan, Australia, Canada and Russia submitted a joint proposal that would see a decision on legally binding consequences deferred to the first session of the CoP/MoP. The G-77 has objected strongly, stating their opinion that the Bonn agreement includes binding consequences.

Articles 5,7 and 8- The technical issues associated with these articles have proven even more complex than previously anticipated. Little progress has been made thus far. Members of the Umbrella Group have expressed concern that eligibility to use the Mechanisms could be threatened if inventory and registry requirements are made more rigorous or subjective if new qualitative criteria are added.

LULUCF- Prior to the open of the Conference the head of the Russian delegation made a formal request to the Secretariat that Russia's allocation of eligible domestic sinks be increased from 17 Mt to 33 Mt, an action that resulted in the fossil of the day award. The Russians who received the largest allocation of any Party in the Bonn agreement have received considerable criticism from members of the EU and the G-77 delegations.

Side Events

While this Conference has not been as well attended as previous CoPs, there has been a full slate of very well attended side events. Topics have ranged from alternative energy systems to public education and outreach initiatives. During the first three days there have been a total of three side events on the topic of adaptation, which is a topic that is receiving more and more attention. Particularly well attended sessions have included a presentation on the Dutch Erupt program and a presentation of the EU emissions trading program.

Looking Forward

The long awaited election of the CDM executive board is scheduled to take place before the close of the conference. Speculation about the make up of the CDM Executive Board has been coupled with ongoing speculation about who the next Executive Secretary of the UNFCCC Secretariat will be.

The majority of the talk in the halls has been centered around what has not been said thus far. There are two potentially controversial issues that are expected to be raised before the close of the Conference. The first is a proposal by Canada that would allow emission offsets from the export of natural gas to the United States to be recognized, despite the fact that the US is not involved in the Kyoto process. The EU is also expected to raise the issue of a prompt start for JI. Whether either of these issues will be raised or what the response will be remains to be seen.

International climate change negotiations resume October 29, in Marrakech, Morocco, with the aim of completing the "rulebook" for implementing the Kyoto Protocol.

Success at the two-week conference - the seventh session of the Conference of the Parties to the UN Framework Convention on Climate Change, or COP 7 - would set the stage for countries to ratify the Protocol and bring it into force.

Major political issues relating to Kyoto implementation were resolved at COP 6.5 in July in Bonn, Germany. In Marrakech, the primary challenge will be turning the broad principles of the Bonn Agreement into detailed "legal" text more clearly defining the operating rules for new instruments and institutions created under Kyoto. While the outstanding issues are more "technical" in nature, many have significant implications for parties and for the viability and effectiveness of the Protocol. Beyond these issues, there are indications that some parties will seek to reopen major political issues such as compliance and sinks. This could seriously complicate negotiations and hinder prospects for a successful outcome.

The United States, while maintaining its opposition to Kyoto, plans to participate in the Marrakech conference. It is not expected to offer any new proposals and has pledged not to impede other parties from moving forward with Kyoto.

The Bonn Agreement

The Kyoto Protocol, negotiated in 1997, established a broad framework for international action against climate change: it set quantified emissions targets for Annex I (developed) countries, and established market-based mechanisms such as international emissions trading to help reduce emissions cost-effectively. A host of critical details, however, remained to be negotiated. Parties had hoped to complete those negotiations at COP 6 last year in The Hague, but could not reach agreement on key issues. Talks resumed at COP 6.5 in Bonn and, to the surprise of most observers, the parties reached broad political agreement on the major issues. The Bonn agreement covered four principal areas: operating rules for emissions trading and the other market-based mechanisms; how the sequestration of carbon by forests and other "sinks" will be credited toward Kyoto emission targets; funding to help developing countries combat and cope with climate change; and mechanisms to encourage and enforce compliance with the Kyoto targets.

Key decisions included:

• No quantitative limits were established on the use of the mechanisms. Instead, the agreement provides simply that domestic action shall constitute "a significant element" of the effort made by Annex I parties to reach their targets.
   
• A broad group of land use activities will be eligible for sinks credits, including forest management, cropland management and revegetation. There is no overall cap on sink credits. For forest management, countries are assigned specific upper limits on the amounts that can be credited against their emissions targets.
   
• Sinks projects will be allowed under the Clean Development Mechanism (CDM), but will be limited to afforestation and reforestation projects during the first target period (2008-2012). Sink credits under CDM will be capped at 1% of a country's base year emissions.
   
• Three new funds were established to help developing countries address climate change and cope with its adverse effects. One of the three - an adaptation fund - will be supported by a 2% levy on CDM projects. Otherwise, contributions to the funds are voluntary. A number of developed countries pledged to contribute $410 million a year by 2005.
   
• A compliance regime that requires a country failing to meet its emissions target to make up its shortfall, plus 30 percent, in the next target period was agreed. However, the legal character of the regime - whether it is "binding" - will not be decided until the first meeting of parties following Kyoto's entry into force.

Issues in Marrakech

In Bonn, after the broad political agreement was reached, negotiators began working on detailed decision texts to reflect what had been discussed and agreed for the past three years. That work will continue in Marrakech with the hope that any issues not resolved in the technical negotiations can be settled by ministers when they arrive for the closing days of the conference. The goal is formal adoption of 15 decision texts covering the full array of issues.

Key outstanding issues include:

Fungibility. Kyoto establishes three market-based mechanisms: emissions trading (the buying and selling of emissions allowances among Annex I countries); joint implementation (allowing an Annex I country to receive emissions credit for a project undertaken in another Annex I country); and the Clean Development Mechanism, or CDM (allowing an Annex I country to receive emissions credit for an emissions-reducing project in a developing country). Full fungibility -- treating credits under all three mechanisms equally - is important to ensure maximum cost-effectiveness. Some developing countries, however, want to restrict the trading of CDM credits.

Eligibility for mechanisms. The Bonn Agreement establishes criteria a country must meet in order to participate in the Kyoto mechanisms: a national emissions monitoring system; a registry to track trades; inventories of base-year and current emissions; and acceptance of the Kyoto compliance regime. Among the outstanding issues are whether inventories must include sinks and what constitutes acceptance of the compliance regime. Decisions on these could affect two key countries: Japan, which has resisted a binding compliance regime; and Russia, which would be a major seller of emissions allowances but may have difficulty meeting strict eligibility criteria.

Clean Development Mechanism. The CDM allows Annex I countries credit for emissions reduction projects undertaken in developing countries. A major remaining issue is how to assess whether the emissions reductions are "additional" to any that might otherwise have occurred. Another issue is whether developing countries can undertake "unilateral" CDM projects - with no Annex I partner - and market the resulting credits. This may be critical for smaller developing countries less likely to draw major Annex I investments and for businesses, including those in the United States, hoping to market clean technologies in developing countries. Also, the nine members of the CDM Executive Board will be elected.

Joint Implementation. A key question is how Annex I countries that do not meet the eligibility criteria for trading, and therefore cannot participate in "budget-based" JI, will be able to generate emissions reduction credits through a second "project-based" JI track. This may be critical for Russia and other parties hoping to sell emissions credits if they do not meet the eligibility criteria for emissions trading or budget-based JI; it also is important for parties that would hope to secure such credits. As with CDM, there is concern that overly burdensome rules could discourage the investment needed for successful projects.

In addition, major political issues thought to have been resolved at COP 6.5 may be reopened and could prove decisive. These include:

Compliance. Although the parties agreed in Bonn to defer the question of "binding" consequences until after Kyoto enters into force, some parties may seek decisions in Marrakech tilting the regime in one direction or the other. While developing countries and the European Union strongly favor binding consequences, other developed countries, in particular Japan, will continue to insist that a decision be deferred.

Sinks. Russia is seeking a higher ceiling for forest management activities under the schedule of country-by-country allowances adopted in Bonn. If other parties also seek higher ceilings, the delicate political balance struck in Bonn could be jeopardized. Further increases in the sinks allowances, which effectively relax the parties' emissions targets, also could undermine the environmental integrity of the Protocol.



Beyond Marrakech

A successful COP 7 will produce agreements that put parties in a position to ratify Kyoto and bring it into force. Entry into force requires ratification by 55 parties including developed country parties representing 55 percent of developed country carbon dioxide emissions in 1990. Without the United States, entry into force will require ratification, at a minimum, by the European Union, Russia and Japan. Some parties have voiced hope that entry into force could be achieved by the World Summit on Sustainable Development in September 2002 in Johannesburg, South Africa.

In the United States, legislation proposed or being developed in Congress could result in significant domestic efforts to reduce emissions in parallel with Kyoto. There may be opportunities to link the separate regimes - for instance, by allowing U.S. businesses to acquire Kyoto allowances and apply them toward a domestic target. The parallel regimes could ultimately merge in a subsequent agreement establishing international commitments beyond the Kyoto targets.

• Update - Oct. 31, 2001
• Update - Nov. 2, 2001
• Update - Nov. 6, 2001
• Update - Nov. 8, 2001