Pre-Conference Overview

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.