The three-page “Copenhagen Accord“, spearheaded by the United States, China, India, Brazil and South Africa, is not a politically binding agreement, as Parties originally intended when they set out together on the Road to Copenhagen two years ago at COP 13.  The negotiations in Copenhagen, which came to a close on Saturday, were fraught with mistrust of the process chaired by Lars Lokke Rasmussen, the Danish Prime Minister who presided over the conference. In the last days, when over 100 Heads of State arrived in Denmark, an agreement was far from ready. Unwilling to go home empty handed, the small group of political leaders took pen to paper and hammered out an agreement, as the majority of leaders and their ministers sat in the plenary hall waiting. When the Accord emerged late in the evening, many leaders had not been effectively consulted and tempers flared. A number of countries ended up rejecting the Accord, and it was eventually relegated to an attachment that the final decisions of the COP “noted” in their conclusions.

In effect, the Accord is a political statement of a few, supported by some, and not accepted by others.  It is unclear what will happen to the agreement and what its formal status will be leading up to the next COP. The inclusive processes of the United Nations were sidelined in the interest of achieving a decision, under the noses of the General Secretary, and with the facilitation of the Secretariat of the Convention itself. The impact of COP 15 on the future of multilateral climate change decision making is yet to be determined; however, the damage to the trust of many countries in the system is undeniable.

Anatomy of the Accord

The Accord concedes that the world needs to curb global warming from rising above 2 degrees Celsius from pre-industrial times, although it does not specify deeper emissions cuts for developed countries - a key factor for avoiding the 2 degrees limit. Notably, a majority of the 193 signatories to the UN climate convention - those represented in the Alliance of Small Island States (AOSIS), the Least Developed Countries (LDCs) and the Africa Group - have all warned that 1.5 degrees is the absolute limit and that 2 degrees will mean hardship, mass migrations, and even death for many of their citizens.  In addition to lack of specificity on developed country mitigation, the Accord lays out a very general intention for developing countries to voluntarily curb their carbon intensity.

The Accord affirms a commitment of US$30 billion in funding over the next three years to assist developing countries with their mitigation and adaptation, and sets a goal of US$100 billion in annual funding by 2020. However, the level of funding aspired to falls far short of the sums calculated by entities such as the World Bank, McKinsey, and the United Nations Development Program, among others, to address adaptation and mitigation.[1] In addition, the fund will include an undetermined share of both public and private financing, with no certainty of reaching the level and, perhaps more importantly, does not guarantee the much needed sustainable financing or the ease of access that developing countries require.

A final element of the Copenhagen Accord that presented the most difficulty is the issue of reporting and transparency of emissions reductions. This issue was of key importance to the United States, but also the most contentious for the Chinese, who considered it an infringement on national sovereignty and a way for developed countries to monitor competitiveness. The final result was that mitigation actions taken independent of international support would be reported only through National Communications - a standard reporting tool under the UNFCCC for developing countries - every two years.  Mitigation actions carried out with international support will be entered in a registry and are subject to international measurement, reporting and verification. Notably, securing these transparency tools cost the US the reference to the “50% global cut by 2050″ that was initially in the agreement. The implications of these requirements will surely come to light as the LCA process advances and the political guidance from the Accord begins to weigh in on definition of the LCA text.

The goalpost has been pushed back for an international agreement on climate change, although it is not clear how far, since the Accord does not set a deadline for forming an internationally binding treaty. Among the Decisions of the COP, Parties were able to agree to continue the negotiating process of the Ad-hoc Working Groups on Long-term Cooperative Action (LCA) and on the Kyoto Protocol into next year.  Notably, a proposal to hold permanent negotiations in Geneva, Switzerland, for the coming year received some support. This format would resemble that of other complex international negotiations, and is favored by many developing countries because it would allow them to access support from their permanent missions in Geneva, where many have standing economic, social and environmental negotiating capacity.

Trade issues - the state of play

Reaching a global agreement that directly strikes at consumption and production necessarily requires consideration of trade implications. Indeed, the failure of the United States to sign the Kyoto Protocol was directly linked to the concern in its Congress that it gives developing countries unfair trade advantages because they are not held to the same production standards. This time around, labor and industry interest groups in the US are demanding border measures in order to allow passage of national legislation to address emissions and energy.  This issue has led commentators to warn that passage of the law may trigger a “green trade war” between countries, requiring WTO dispute settlement and stressing already delicate relations among countries.

On a related issue, the notoriously dirty fuels used in shipping and aviation came under the spotlight in Copenhagen, with a number of countries calling for international levies on bunker fuels.  These fuels were not subject to regulations under the Kyoto Protocol. That may change, however, under a new climate change agreement. A number of proposals have been tabled, ranging from a straight tax to a cap and trade system.

Given the sensitivity of the climate change issues that impact on international trade, it is not surprising that these are among the negotiating topics that remain unresolved. What follows is a summary of the outcome of the negotiations in those areas that touch most directly on international trade and development.

Border carbon measures

Whether they are called border carbon adjustments (BCAs), border tax adjustments (BTAs), or border tax measures (BTMs), it boils down to the same thing: unilateral measures that a state imposes when a good is imported from a country that has not ‘comparably offset’ the greenhouse gas associated with a given good’s production. Border carbon measures are highly contentious. On the one hand, interest groups in developed countries fear that domestic regulations on emissions will encourage industries to set up shop in countries that apply lesser standards. This is a concern expressed in Washington, where lawmakers are considering legislation that would implement BCAs as part of a larger package of climate change policies.

Yet many developing countries resist border carbon measures. “We are totally against it - totally against it,” said India’s chief climate change negotiator in Copenhagen, Jairam Ramesh, summing up the view that many developing countries have on BCAs. The specter of BCAs raises at least three concerns: (i) that BCAs may clash with international trade rules, which prescribe equal treatment among equal goods; (ii) that BCAs may be set as a disguised form of protectionism; and, (iii) that the notion of BCAs neglects and undermines the principle of common but differentiated responsibilities among countries at different levels of development.

Border carbon measures are being addressed within the text on the potential economic and social consequences of response measures. Three options have been placed on the table. The first is strong language prohibiting their use. The second option would borrow from the existing Article 3.5 of the UNFCCC, which uses language from GATT Article XX. Article 3.5 states: “Means taken to combat climate change, including unilateral ones, should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade…” A third proposal also borrows from Article 3.5, but includes more precise language providing additional comfort for parties and perhaps a middle of the road that all can accept.

In addition to BCAs, many countries in Copenhagen expressed concern over the competitiveness effects of free allowances as an integral tool of cap-and-trade regimes. Arguably, such allowances are tantamount to a subsidy and, as with the case of any differentiated response measures on carbon, it would affect the relative costs of production of internationally tradable goods. No language on BCAs or allowances is included in the Copenhagen Accord.

Agriculture

The agricultural sector finally received particular attention in the climate change negotiations in the run up to Copenhagen and at the COP itself for two primary reasons: first, agricultural production is a large contributor of greenhouse gas, responsible for at least 14 percent of global emissions; second, the sector will be highly affected by the increased temperatures, droughts, floods, doubts and unpredictable rainfall associated with global warming. The negotiating group on sectoral approaches has developed a text that focuses solely on the agricultural sector.  Going into Copenhagen, this text was heavily bracketed, meaning there was little consensus. It remains so today. However, the text has evolved in the Copenhagen negotiations, and now emphasizes the relationship between climate change and food security. The text also recognizes the importance of traditional knowledge and calls for a special work programme on this issue. Many scientists and experts remain puzzled at the immensely unequal attention that forestry and agriculture have received in the UNFCCC context, dealing both as they do, with similar issues related to land use, carbon sequestration functions and emissions.

Technology and Intellectual Property

Arguably the biggest hurdle to significantly reducing greenhouse gas emissions is the development of new technologies that will wean the world off fossil-fuel dependency. This challenge is especially acute in the developing world, where the capacity to develop or access such technologies is often lacking. Efforts to make green technologies available, and useable, are being pursued on a number of fronts in the UNFCCC negotiations. Parties are considering an array of mechanisms, funds and plans, some of which mirror initiatives at the WTO. In this regard, it is notable that the Copenhagen Accord calls for the establishment of a “Technology Mechanism”, intended to enhance action on technology development and transfer. Such a mechanism will require further elaboration and steps for implementation within the negotiations under the LCA.

Adaptation and financing

Financing is the big ticket item in the negotiations. Although the estimates vary, there is no disputing the fact that climate change adaptation and mitigation will be costly. Especially for least developed countries (LDCs) and small island developing states (SIDS), predictable long-term sources of financing are essential if they are going to adapt to environmental and economic changes resulting from climate change. The World Bank estimated in 2009 that between US$140 billion and US$175 billion will be needed to help developing countries implement the mitigation measures required to keep the world from warming above 2 degrees Celsius. Billions more are needed to help developing countries adjust to the environmental changes wrought by global warming.

The United States, the EU and Japan grabbed headlines with their announcements on financing in Copenhagen. In the case of the EU, some US$10 billion has been committed over three years towards a ‘fast-track’ fund, which is more than was originally expected to flow from the EU’s coffers. Japan also offered US$15 billion over three years, bringing governments closer to raising US$10 billion annually in the next three years; a sum that was committed to in Copenhagen. Meanwhile, the United States voiced its support for a US$100 billion per year climate change fund by 2020, which would come from a combination of public and private sources. Yet the most important details related to longer-term financing remain missing, including how the annual $100 billion would be sourced.

Picking up the pieces

There is no doubt that international governance and the UN decision-making process took a hit in Copenhagen. Parties leave with less confidence and trust in the institutions, as well as in their ability to achieve results. World leaders are unlikely to come together again behind this cause, at least in the short term, considering the clumsiness, and some even claim disrespect, with which they were treated.

As for climate change, the world is no closer to resolving the issue through international political processes than two years ago.  In the absence of a treaty, trade issues will begin to encroach even further on the territory of climate policy, particularly with respect to the evolution of BCAs and responses thereto. Meanwhile, in the absence of clear regulatory signals at the international level, the carbon market, with all of its investment and technology potential, is left vulnerable and funds may not flow as abundantly towards R&D for climate change - another glaring omission in the Copenhagen Accord.

With twelve months until next year’s COP in Mexico City, the road ahead will not be smooth. Achievements in Copenhagen may be recorded in the realm of dialogue and awareness building. On the former, unprecedented frank exchanges took places between the major emitting economies at the highest political level. Differences were clearly articulated; acrimony cannot any longer be blamed on a presumed incapacity of negotiators to bridge technical differences. A gulf in political will and mandates has been exposed. On the other hand, while scepticism continues to increase among segments of the public, more of the world is aware of climate change, its causes and risks. These are important steps towards advancing into the realm of necessary and effective solutions. From here to Mexico in 2010, the ball is as much in the court of legislators in the US and of constituencies all over, as it is in political leadership.

[1] “Bridging climate change financing and trade-related assistance: Relevant issues for vulnerable developing countries”, BioRes Review, December 2009, http://ictsd.org/i/news/bioresreview/64075/

This is the official process by which this year’s negotiations under the UN Framework Convention on Climate Change advance towards their grand finale at the end of this week: a political agreement on enhanced cooperative action on climate change.

The process was intended, initially, to generate a new international agreement to address climate change - an outcome that island states and many least developed countries had been strongly urging.  But two weeks of intense negotiations have revealed what many expected: that the countries of the world cannot agree on how to proceed.

At this point, both the Kyoto Protocol and the LCA negotiating tracks have concluded their initial phases of work. The Parties will now consider how to proceed and may return the heavily bracketed texts to negotiators with some instructions on how to continue cleaning them up.

Although there are few paragraphs without brackets in the latest draft texts that are now under consideration, it is possible to give a quick rundown of the state-of-play of the trade-related aspects of the text. That said, the final outcome of the Copenhagen talks of course remains uncertain.

Trade issues in the latest draft texts

The chair of the LCA group has prepared a conclusion to the work of the group that indicates that the COP should decide on a set of ‘draft decision documents’. Each of those documents relates to a separate section of the Bali Action Plan, the roadmap for the negotiations that officials agreed two years ago.

On adaptation, the text includes bracketed proposal for the establishment of a Copenhagen Adaptation Framework (or Programme). It also includes language on building economic resilience in developing countries. To this end, trade is expected to play a role insofar as it can strengthen export and supply-side capacity in developing countries. The language on increased financial, technology and capacity building support for adaptation also presents significant synergies with national and international efforts to strengthen trade capacity, such as through the WTO’s Aid for Trade initiative and the Enhanced Integrated Framework for Least Developed Countries.

The draft conclusions on technology development and transfer envisage the establishment of a ‘Technology Mechanism’ with an executive committee and a climate technology centre. Notably, this proposal is not in brackets, meaning that no delegation has opposed it. The mechanism would support a list of activities; only one of those activities remains in brackets: the removal of barriers to technology development and transfer and enhancing means to promote technology transfer. The text on technology further proposes the establishment or strengthening of technology centres and networks, an initiative that would aim to help developing countries make use of new low-carbon technologies, while strengthening their ability to develop their own.

Notably, a section on intellectual property rights (IPRs), which is still in brackets, would create a global pool for IPRs on climate-related technologies, promote the removal of barriers to technology development and transfer, and possibly revoke IPR protection in developing and least developed countries. The technology text includes language that would continue deliberation on the issues under consideration, with a view to having a decision finalised next year.

The negotiations on cooperative sectoral approaches have led to an agriculture-focused text that emphasises the relationship between climate change and food security and that recognises the interests of small and marginal farmers and indigenous peoples. The text also places an emphasis on the importance of traditional knowledge and calls for the establishment of a special work programme on the topic. In brackets, the text stresses that international action in this sector should not lead to disguised restrictions of international trade.

The text on the potential economic and social consequences of response measures taken in response to climate change now includes three options on how to address the question of border carbon measures. The first option is strong language prohibiting their use. The second is simple language referring to the principles of the climate convention.

The third option - considered the compromise alternative - emphasises the specific language in the Convention so as to create a level of comfort for countries concerned with unilateral measures that the United States is contemplating in their national legislation. Finally, this text also includes a bracketed paragraph that would establish a forum with an array of functions, including identifying and evaluating the effects of response measures, both positive and negative. The power and extent of this forum has yet to be defined, but has been the subject of much debate in the negotiations.

Heads of state and government are gave speeches throughout the day on Wednesday and those who showed up will all likely participate in the closing of this year’s COP on Friday. Notably, the level of security and size of national delegations is so high that the participation of observer organisations has been restricted to just 90 people (out of 15,000) during Friday’s closing event. This new development has led many organisations to criticise the unusual lack of transparency and democratic process exercised this year. A number of heads of state have cancelled their participation, while others have already given their statements today.

Rumour has it that the elephant in the room, whose president has already confirmed his participation, may not actually show up on the 18th as expected. To officials in Copenhagen, this wavering on the part of the United States speaks volumes about the level of commitment and the strength of the Copenhagen outcome.

ICTSD will report on 21 December on the advances on trade issues and final outcome, as well as the perspective on the future, as it is accepted that negotiations on many details will continue past Copenhagen towards the 16th COP, which will be held in Mexico next December.

ICTSD reporting.

Tens of thousands of activists marched through the streets of Copenhagen, Denmark, this past Friday, calling on the countries of the world to take bold united action to address climate change. The mounting public pressure on the international climate conference in Copenhagen has energised governments and activists alike. The boost is welcome; heading into Copenhagen, morale was depressingly low following a series of high-level affairs, including the G8 and G20 meetings, the widely publicised bilateral meetings between the US and China, and the APEC Summit that failed to show decisive political intention for a new-more inclusive and responsive-global climate deal.

The confirmation of over a hundred and twenty heads of state to attend the high-level segment of the conference has helped to lift spirits. However, one week into the largest climate-change conference of all time, the distance between party positions on the key issues of mitigation commitments for developed countries and financial support for developing countries, as well as an array of finer details, ramains far apart.

Persisting divisions on Kyoto

Tension continues around the question of whether the Kyoto Protocol will advance into a second commitment period, as per its original mandate.  Although negotiations have been underway for nearly three years on the details of a second phase beginning in 2013, after the first period ends, and despite the fervent insistence by developing countries to strengthen the Protocol, developed countries are digging their heels in on the question of their next set of cuts, arguing that this should all be part of the new deal decision.

However, without a clear end date for that ‘new deal’, developing countries have refused to let go of what they admit is an insufficient tool for addressing climate change. For the time being, they see the new agreement as a complement to Kyoto. Thus, many developing countries insist that if there are no advances on Kyoto, the developed world should not expect much from the new deal. Nevertheless, the political visibility of the heads of state and government will mean some kind of deal is an absolute certainty, although its makeup and effectiveness is yet to be revealed.

Of leaks and leakage

The past week was further complicated by a proliferation of draft texts as a basis for a final agreement. The first is the draft text that parties have been building and working on over the past two years, which at one point reached 200 pages of options and proposals. On the fourth day of the meetings, the chairs of the two negotiation tracks presented two texts on their own initiative, which were met with mixed reviews. On the same day, the Africa group and the Alliance of Small Island States (AOSIS) presented their textual proposals for the ‘new agreement‘.  In addition, there was general knowledge of limited consultation around two additional texts, one prepared by the Danish Government and another prepared by the BASIC group of large developing economies, that include Brazil, South Africa, India and China.

Among the flurry of draft texts that circulated in the corridors of the Bella Center, a few have proven particularly controversial. Tempers flared on the second day of the conference when a draft document, dubbed the ‘Danish text’, was leaked to the public (and seen by some developing country delegations for the first time). The text, drafted by Denmark in consultation with other developed countries, was widely criticised for, among other things, contemplating binding emission cuts on developing countries. Apparently, the Danes were expecting to table this text mid-week into the final week of negotiations, yet broad dissatisfaction with the lack of ambition it contained has pretty much relegated it to the bin. Reportedly, the only country happy with the text as it stood was the United States.

In addition to the long-standing North-South divide, rumours spread of fissures forming within the historically unified G77 plus China (a group of 132 developing countries who join their position to create a strong negotiating block). A number of powerful developing countries, including China, India and Saudi Arabia, disagreed with a proposal from the Polynesian microstate Tuvalu, which was widely supported by AOSIS. This led many observers to sense the unity of the G77 was deteriorating; however, the group quickly organised a number of press briefings to underline points of consensus and solidarity, clearly eager to show a solid front line.

Some rays of possibility broke through the clouds when the Chairs of the two negotiating tracks-the Kyoto Protocol and the group on Long-term Cooperative Action (LCA)-presented leaner versions of the current texts for the parties to consider as a basis for final decisions. The presentation came on Friday, a day before ministers were to arrive in Copenhagen. A number of parties were disgruntled at the Chairs for presenting text without request. Yet, the proliferation of texts is becoming unmanageable, increasing the likelihood that the Chairs’ text may take the lead.  While the Alliance of Small Island States (AOSIS) and the Africa Group also presented draft texts the same day, it is yet to be seen how these will be considered or, possibly, incorporated.

Trade issues prove contentious

The climate change negotiations will impact trade and development in a number of respects, and these have emerged as central points of contention in the negotiations. These include:

Financing

According to the World Bank, between US$140 billion and US$175 billion a year will be needed to help developing countries curb emissions at a level that will prevent the world from warming more than 2°C. Large sums are also necessary to meet the cost of adapting to climate change: between US$30 to US$100 billion, depending on the source. The financing commitments made so far in the negotiations have not reached these levels. On Friday, the EU pledged some US$10 billion over the next three years towards a ‘fast-track’ fund. This is more than was originally expected to flow from the EU, although it remains far below the levels requested by developing countries. The pledges of other developed countries, as well longer-term financing commitments, remain in doubt. The US, for instance, is reluctant to commit to high levels of long-term financing, fearing it will not get Congressional approval.

Border measures

Governments also remain at loggerheads over unilateral trade measures. Some claim that such policies protect competitiveness, while others argue that they help to address climate change mitigation. In the United States, several interest groups — fearing that emissions cuts will drive US industry to countries with more relaxed standards — have pushed for protection through border measures. Asked in Copenhagen whether the United States would consider sanctions as part of its policy response to climate change, US Commerce Secretary Gary Locke said, “it’s very important that we have a level playing field for American companies.” That message was echoed in Washington last week, where Ohio Democrat Sherrod Brown said a Senate climate change bill would not pass unless it contained a carbon tariff-a sentiment shared by others in the US Senate and House of Representatives.

But carbon tariffs are fiercely opposed by developing economies, who view them as protectionist measures incompatible with multilateral trade rules. The G-77 and China is trying to include pre-emptive language against the use of unilateral trade measures for climate purposes. The negotiating groups covering the overarching “shared vision” and the “economic and social consequences of response measures” are both discussing the issue.

By Saturday evening, agreement was achieved on an introductory paragraph, but the substance of the issue had not been resolved. Major developed countries, notably the US and EU, point to Article 3.5 of the UNFCCC, which borrows language from GATT Article XX. Article 3.5 states: “Means taken to combat climate change, including unilateral ones, should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade…”

Technology transfer has been proposed as one of the ways to address response measures, an interesting development that adds another layer to discussions on technology’s role in addressing mitigation and adaptation. One paragraph still under discussion proposes the formation of a “forum to undertake activities including identifying and addressing negative economic and social consequences of response measures, sharing information, promoting and cooperating on issues relating to response strategies and exploring ways to minimise negative consequences, in particular in developing [countries]“. This novel proposal could open the way for constructive collaboration between trade and climate institutions and actors.

Discussions on Economic and Social Consequences of Response Measures

• Discussions focused on two main points: the creation of a subsidiary body to deal with the economic and social consequences of response measures; and whether specific commitments should be established for developed countries.

• Developed countries asserted that the notification mechanisms already existent in the Framework Convention are sufficient, while developing countries said they are in favour of creating a subsidiary body. Developing countries said they are also in favour of commitments from developed countries on issues such as prohibition of unilateral measures and compensation for damage that has already occurred.

• The G77, in particular the African Group, support the establishment of a ‘Permanent Forum’ for dealing with the creation of an institutional mechanism.

• Developing countries said they are in favour of establishing detailed legally binding commitments for developed countries, a proposal that rich countries are generally against.

• India, in particular, said it supports the idea of creating a mechanism for preventing “arbitrary and unjustified” trade barriers. The Indian delegation was pushing for these barriers to be classified as “fiscal” and “non-fiscal” border measures related to carbon leakage.

• Consensus on trade and climate change remains elusive. The G77 supports the idea the text should make reference to article 3-5 of the Convention that prohibits the adoption of arbitrary or unjustified mitigation measures that could affect international trade.

Agriculture

Discussions on “cooperative sectoral approaches” in the agriculture sector continue to advance and clearly raise trade concerns for parties. Although the text remains within brackets, language includes restrictions on the creation of international performance standards or “any other measure that may adversely affect sustainable development and result in barriers to, or distortion of, the international trade system of goods and products in the agricultural sector.”  Principally, the operative language would promote cooperation on research, development and transfer of technologies for mitigation in the sector, including those that could support adaptation. It also would extend the work of the Subsidiary Body for Scientific and Technological Advice-a body under the UNFCCC-to mitigation in this sector “considering links to adaptation”, and establishing a programme of work under that body.  Notably, unlike the version of a month ago, the new text takes into account the relationship between agriculture and food security, as well as the interests of small and marginal farmers and traditional knowledge, which are issues of particular importance to the poorest developing countries.

Bunker fuels

Another trade-related issue is regulations on maritime and aviation transport fuels, known as ‘bunker fuels’. A transport fuel tax would have clear implications for world trade: some 80 percent of products are transported internationally by ship. While the fuels used to power ships, along with airline fuels, are not covered under the Kyoto Protocol, they may form a part of a new climate change agreement. There are multiple proposals on the table in Copenhagen, ranging from a straight tax to a cap and trade system. Australia, Norway, Brazil, and India have endorsed discussion of bunker fuel taxes at the UNFCCC. Others, however, including Mexico, Singapore, Canada, US, Japan, Panama, and China, argue that the International Maritime Organization (IMO) should deal with bunker fuels. An EU proposal entails the UNFCCC setting goals, with the IMO in charge of implementation.

The week ahead

Ministers arrived over the weekend and have been meeting in small groups to address some of the most difficult outstanding issues.  The Danes are consulting individually with countries as well as with groups.  Although there is no official programme of work for the coming days, it is expected that they will be working in groups, facilitated by ministers invited by Connie Hedegaard, the Danish Minister of Climate and Energy, who is presiding over the COP.  It is possible that a select group of heads of state may be required to meet in order to break any remaining impasse while they are here on Wednesday and Thursday.

ICTSD will report on 21 December on the advances on trade issues and final outcome, as well as the perspective on the future, as it is accepted that negotiations on many details will continue past Copenhagen towards the 16th COP, which will be held in Mexico next December.

ICTSD reporting.

Two years ago, the same countries now gathered in Copenhagen met in Bali, Indonesia and hammered out the Bali Action Plan (BAP) - a simple roadmap to carry through on previous agreements made under the United Nations Framework Convention on Climate Change (UNFCCC) still in dire need of stronger international cooperation. The most significant product of the Convention had been its Kyoto Protocol in 2005. Yet the Protocol reflected old scientific data and lacked both political ambition and the participation of the world’s largest emitter of greenhouse gases - the US - who abandoned the initiative while most other developed countries ratified the agreement. The scientific and economic analysis since has sent a strong message to decision makers: business as usual could provoke the perfect storm for catastrophic climate change. Instead, a transformation of all countries to low carbon development is the only viable alternative. Yet this option requires a global decision to enable all countries to participate fully and effectively.

While inclement conditions impeded the process, cumbersome negotiations over the past two years addressed each paragraph of the Bali Action Plan. And thus evolved an entangled draft negotiation text where every idea was incorporated but one could not see the carbon-capturing forest for the trees. As the clock counted down towards Copenhagen, the text evolved and political leaders put increasing weight behind the impending deal. And thus the storm brewed.

A ray of hope through stormy prospects

Since Danish Prime Minister Lars Lokke Rasmussen lowered expectations by announcing his view that Copenhagen would not deliver the legally binding agreement anticipated, many - especially among small and vulnerable states - have been uncertain about what Copenhagen could deliver.  Yet since this low point, many countries have come forward with strong messages of support for a robust political agreement with legal elements that would help advance global action. Notably, China, India, and Brazil have tabled their offers on mitigation, showing clear intention from the major economies in the developing world to contribute their part to the package.

Getting the US on board has proven difficult, despite US President Barack Obama’s outspoken support for global climate action.  The US has initiated legislation aimed at getting the country moving at the national level and support the international outcome. However, as much as the Waxman-Markey and Boxer-Kerry bills demonstrated the US’s intention to address climate change more seriously at home, it has also exposed some of the darker side of US domestic political economy. Interest groups insist that potential losses would harm US global competitiveness. Moreover, they have pushed for protection through border measures to level the playing field for US companies required to take on extra costs for the climate’s sake. The further insistence that the legislation would not survive without these measures has only shaken the delicate balancing act underway in the negotiations and has heightened tensions in high-level discussions aimed at seeking consensus.

This latter issue underscores a second major issue within the new deal: how to involve developing countries while continuing to support their sustainable development objectives. The gap between how developed and developing countries see the path to major up-scaling of mitigation and financing to address climate change is wide. The agreed principle of “common but differentiated responsibilities” has been a cornerstone of the bridge meant to span the distance between these two worlds, but the search for consensus on what these responsibilities are, or how they will be carried out, has not precisely brought the two sides together yet.

Developed countries want developing countries - and especially the largest economies among them - to assume emission reduction targets that are enforced through “monitoring, reporting, and verification.”  Developing countries insist that developed countries assume greater cuts in emissions consistent with their historical contribution to the problem, and they insist on effective delivery of agreed financing and technology support for their adaptation and mitigation.

Trade and climate change: What to look for in Copenhagen

Trade and climate issues intersect where questions of economic growth, diversification, and security are in the balance. Several issues related to international trade remain a part of the Copenhagen discussions. And some may become a part of the expected “political agreement,” while others may end up in existing or new negotiating processes for future agreement.

Trade Issues to Watch for in Copenhagen

Competitiveness

• Border carbon measures - LCA: Shared vision and response measures

• Agriculture and Bunker Fuels for maritime and aviation transport - LCA: Sectoral approaches

Technology Drivers and Barriers

• Intellectual Property Discussions - LCA: Technology Development and Transfer

• Enabling factors for development and diffusion - LCA: Financing

Development & Economic Diversification

• for Vulnerable Countries - LCA Adaptation and Financing

• for Developing Countries - LCA Response Measures

Various concerns related to competitiveness arise in the context of new or existing national policies and measures taken, or envisioned, intended to stimulate low carbon opportunities or dissuade high-carbon practices. On a related front is the potential use of subsidies, as countries strive to support sectors such as agriculture, transportation, energy, and building to adapt and survive in a low-carbon world. The impact of climate policies to export markets is of particular concern to many countries in this forum, not only in relation to oil exporters but also energy or carbon intensive products such as steel, aluminium, and cement. And a final set relates to international standard setting in sectors where the playing field for developed and developing countries remains out of balance.

Other trade considerations emerge around the question of whether transferring low-carbon and energy efficient technologies will be a driver or a barrier to addressing climate change. National industries and sectors will need to innovate, access, and implement a host of new technologies to reduce their greenhouse gas emissions and adapt to the changing climate. But technology development, deployment and diffusion will not come cheaply, nor is access readily available to all countries.

Upscaling global mitigation and financing will be a predominant focus in Copenhagen; in fact, these two fundamentally interrelated issues hold the make or break offers of the political deal. According to the World Bank’s 2009 World Development Report published this month, between US$ 140 billion and US$175 billion will be needed annually to help developing countries implement the mitigation measures needed to prevent the world from warming more than 2°C, while investments necessary to assist developing countries in meeting the costs of equipping their countries for climate impacts average between US$30 to $100 billion, above and beyond the current development assistance of US$100 billion. What is certain is that the more mitigation is achieved early on, the lower costs of adaptation later.

What to expect from Copenhagen

Negotiations will take place concurrently under two tracks - the Convention and the Protocol.  Each stream of work will either conclude in a decision or continue under further negotiation. The most novel outcome will be the ‘political agreement’ delivered by over 100 Heads of State in attendance. This decision may contain solutions for climate change or, simply, a lot of hot air. On the most ambitious end, it could include: definitive new targets for all developed countries; quantified and verified mitigation actions from some or all developing countries; set levels and timing for financing to support developing country adaptation and mitigation; a clear commitment on technology assistance; new institutions to assist with delivery of financing and technology transfer; and a mandate for a new legal agreement within 6 months to a year. Alternatively, the agreement could either fall through or simply restate some reformulation of the BAP, whereby negotiations would continue.

Countries may decide to continue the outstanding discussions by mandating a new process for continued negotiations on these issues. They could also parcel each topic out into existing negotiation processes under the Convention, where technology, financing, offset mechanisms, and adaptation have been under negotiation for years - notably, with minimal outcomes.

What the two weeks ahead truly need - more than thundering protest and torrential commentaries - is a perfect storm of political will, technical understanding, and a spirit of cooperation to pave the way forward for global action.

ICTSD will report on the developments in the negotiations in our mid-COP stock taking on 14 December and at the conclusion of talks. Recent in-depth coverage of trade and climate change issues from the Bridges Copenhagen Updates are at http://ictsd.org/climate-change/copenhagen-updates/english/.

Current negotiations under the United Nations Framework Convention on Climate Change (UNFCCC) are working towards a new agreement that will serve to enhance the implementation of the Convention. The Convention, together with its Kyoto Protocol, include commitments that address climate mitigation and adaptation globally, but implementation has historically been weak. Recent scientific evidence and public pressure are pushing countries to ratchet up their efforts in order to avoid the disastrous consequences that, according to the International Panel on Climate Change (IPCC) and other sources, will ensue if atmospheric concentrations of greenhouse gases exceed amounts that would trigger a temperature rise above 2 °C.

The new agreement intends to more meaningfully include the US - which is a signatory to the UNFCCC and the Kyoto Protocol (but never ratified the latter) - and developing countries - which have no fixed mitigation commitments under the Convention or its Protocol. One area under negotiation in the context of discussions on mitigation is that of “cooperative sectoral approaches and sector-specific actions.” Agriculture has received pointed attention in these talks.

Two options posed in the current draft text

Agriculture accounts for 14 percent of global GHG emissions. The economic, social, and environmental impacts of climate change on the agriculture sector will be significant, varied, and complex. In a few cases, these impacts could be positive, but in most - as a result of increased floods, droughts, and even the expansion of biofuel production - global food security could be considerably threatened.

Countries are currently working on a draft text that is broken down into sections, which are being negotiated by sub-groups on the topics signalled within the Bali Action Plan - a decision that initiated the new negotiations and outlined the areas that the new agreement would include. The cooperative sectoral approaches sub-group text, which is currently riddled with brackets and alternative paragraphs, contains a specific section on the agricultural sector.

In the negotiations, the issue unifies interests across developed and developing country lines, but also heightens sensitivities about potential trade impacts. A short paragraph in the draft text  stresses the importance of development priorities but also emphasises the need to ensure activities in the sector do not “result in barriers to or distortion of the international trade system of goods and products of the agricultural sector” - a clear reference to potential sectoral targets, carbon labelling, carbon ‘footprinting’, border tax measures, or other national approaches that could impact global trade competitiveness.

The text poses two alternatives. The first option instructs Parties to make efforts to enhance mitigation in the agriculture sector. The second instructs them to promote and cooperate in the research, development, application, and diffusion of technologies, practices and processes, as a means to enhance sector-specific mitigation. In other words, whereas in the first option sector-specific mitigation efforts would be a binding obligation that could be achieved through various means, including through promotion and cooperation, in the second option mitigation in the agricultural sector is an outcome that could result from such promotion and cooperation.

Food security overlooked?

A significant omission from both options appears to be an explicit reference to the importance of food security.

The first option contains an important reference to the efficiency and productivity of agricultural production systems - widely seen as critical to addressing global food security over the long term in a sustainable manner, especially in developing countries. It also contains a number of references - albeit bracketed - to considerations that could be important to developing countries, such as the need not to harm the interests of small and marginal farmers; the need to take into account traditional knowledge and processes; the need to acknowledge linkages between mitigation and adaptation; the need for agricultural production systems to be improved in a sustainable manner; and the need to promote and cooperate on technologies, practices, processes and methodologies. As all of these elements are bracketed, it remains unclear which, if any, might remain in an eventual compromise text.

The second option places a cooperative approach at the heart of mitigation strategies. It explicitly specifies that measures taken should not result in barriers to, or distortion of, the international agricultural trading system. It also calls on the Subsidiary Body for Scientific and Technological Advice (SBSTA) to develop a mitigation work programme, and invites Parties to submit their views on this. Given the evident need for further analysis and rapid progress on agricultural climate change issues, this would appear to be a welcome inclusion.

Another bracketed clause specifies that sectoral approaches shall not lead to carbon offsets or initiatives that adversely impact forestland; while the goal here appears to be to ensure a focus on international sectoral cooperation, rather than an uncoordinated focus on national emissions targets, some observers say that it may be helpful to rephrase the drafted text to clarify this. Other say that the text could also be revised to covers carbon sinks more generally, in addition to forestland.

Countries may further refine this text during a negotiating session taking place this week in Barcelona, Spain (see related story, this issue). The Barcelona meeting is the final negotiating session prior to the Copenhagen Conference of the Parties this December.

ICTSD reporting.

Should countries be allowed to apply a penalty - in the form of a tariff or an obligation to purchase carbon credits - on imports from other countries that use less stringent emissions practices?

Opinions vary widely on this question, both within and outside the countries intending to apply such measures. But opinions are especially split within the global climate change negotiations, in which 192 nations are striving to find consensus on an international deal that is both effective and equitable. This issue promises to be particularly contentious in the final stretch of the Copenhagen meeting.

Known variably as border carbon adjustments (BCAs), border tax adjustments (BTAs), or border tax measures, (BTMs), it all boils down to the same thing: unilateral measures that a state imposes when a good is imported from an industry or firm in a country that has not ‘comparably offset’ the greenhouse gas emissions associated with the good’s production. The BCA could be a flat tariff, a tax, or a requirement for the importer to purchase carbon credits that would compensate the country with more stringent regulations for the loss of competitiveness that it incurs because of its emissions standards.

Advocates of BCAs claim that the measures are intended to address three factors. First, competitiveness concerns where some industries in developed countries consider that a BCA will protect their global competitiveness vis-a-vis industries in countries that do not apply the same requirements. The second argument for BCAs is ‘carbon leakage’ - the notion that emissions might move to countries where rules are less stringent. A third argument, of the highest political relevance, has to do with ‘leveraging’ the participation of developing countries in binding mitigation schemes or to adopt comparable measures to offset emissions by their own industries.

Indeed, from a political perspective, both experts and politicians argue that it may be impossible for some countries, notably the US, to take strong climate action in the absence of BCAs.

BCAs could, in theory, be applicable to any importing country. In practice, however, they would initially be directed at developing countries, and would be primarily aimed at exports of those industries that exceed a certain threshold of global emissions, or that account for more than a certain percentage of the BCA-imposing country’s imports of the good in question.

The United Nations Framework Convention on Climate Change (UNFCCC) differentiates between the global responsibilities of developed and developing countries regarding mitigation. Currently, the Kyoto Protocol only binds developed countries to emissions reduction targets. A future global agreement will also most likely differentiate between developed and developing countries on the basis of their “common but differentiated responsibilities and respective capabilities,” as laid out in the UNFCCC, taking into consideration the historic responsibility of developed countries whose industrial development precipitated the current climate crisis.

Developing countries oppose the measures

Proponents also argue that BCAs would motivate developing countries to increase their mitigation action. However, from a developing country perspective, at least three arguments run counter to that idea: 1) that the use of BCAs is a prima facie violation of the spirit and letter of multilateral trade principles and norms that require equal treatment among equal goods; 2) that BCAs are a disguised form of protectionism; and 3) that BCAs undermine in practice the principle of common but differentiated responsibilities.

The issue has sparked heated discussions in the context of the global climate negotiations and will likely be a point of contention through negotiations at the Conference of the Parties (COP) in Copenhagen this December.  The issue arises in two sections of the current draft negotiation text for a new climate deal.  At a negotiating session in June, India and China, supported by dozens of developing countries, introduced language in two areas of the draft text to prevent the use of such measures. The current text reads as follows:

“Developed country Parties shall not resort to any form of unilateral measures including countervailing border measures, against goods and services imported from developing countries on grounds of protection and stabilization of the climate. Such unilateral measures would violate the principles and provisions of the Convention, including, in particular, those related to the principle of common but differentiated responsibilities (Article 3, Paragraph 1); trade and climate change (Article 3 paragraph 5); and the relationship between mitigation actions of developing countries and provision of financial resources and technology by developed country Parties (Article 4, Paragraphs 3 and 7).”

The BCA paragraph has received most discussion under the informal group on ‘economic and social consequences of response measures’ - one of six mitigation sub-categories under the Bali Action Plan. This sub-section is intended to consider and include provisions that would abate the impacts arising from actions taken by countries to mitigate climate change. The BCA paragraph was also introduced into the draft section on ‘a shared vision,’ which is the introductory section of the draft text. This section contains principles and goals for the new agreement and reflects the tone and approach of the entire text.  Since initial discussions at the introduction of the paragraphs, they have not been altered or received substantial further discussion, thus leaving their consideration to Copenhagen.

BCAs in US climate legislation

Language on BCAs - both in favour and opposed - appeared in the global climate negotiating text shortly after the US House of Representatives approved draft climate legislation in June (see Bridges Trade BioRes, 26 June 2009, http://ictsd.org/i/news/biores/49571/). Despite some internal controversy, the issue has survived into the Senate version of the proposed legislation, known colloquially as the Boxer-Kerry Bill, where it is currently under consideration. If passed in the Senate and approved by the president, the bill will become law and the details on institutions and implementation of the BCAs will be hammered out in an internal Senate Committee.

Despite some uncertainty as to whether the US legislation will successfully run its course, the bill now on the table has significant bipartisan backing. In a recent New York Times op-ed by Democratic Senator John Kerry and Republican Senator Lindsey Graham, the two lawmakers expressed their confidence that the legislation will pass. Notably, the senators also said that the climate legislation will have to include a BCA provision if it is to win lawmakers’ approval.[i]

“We cannot sacrifice another job to competitors overseas,” the senators wrote. “China and India are among the many countries investing heavily in clean-energy technologies that will produce millions of jobs. There is no reason we should surrender our marketplace to countries that do not accept environmental standards. For this reason, we should consider a border tax on items produced in countries that avoid these standards. This is consistent with our obligations under the World Trade Organization and creates strong incentives for other countries to adopt tough environmental protections.”

But US President Barack Obama has on numerous occasions criticised the use of BCA. “At a time when the economy worldwide is still deep in recession and we’ve seen a significant drop in global trade, I think we have to be very careful about sending any protectionist signals out there,” Obama said in Washington in June. He has also noted that the draft legislation already included various other kinds of transitional assistance for energy-intensive industries even before the border tax adjustment provisions were reinserted, and he has underlined the importance of maintaining a level playing field internationally.

In Europe, France’s President Nicolas Sarkozy has been promoting BCAs since France crafted its own draft legislation last September. Yet, despite strong criticism from European Union’s Environment Commissioner, Stavros Dimas, members of the French delegation at the climate meetings claim the country is currently working to extend the legislation to the entire European Union with some success. A number of EU member states have reportedly indicated that they would look on such an option favourably.

Apart from being a controversial issue for political reasons, analysts have long expressed doubts both regarding the efficacy of such measures with regards to leakage concerns and their compatibility with WTO-rules. Moreover, the administrative exercise that would be necessary in order to calculate carbon contents is considered to be near to insurmountable. On top of this are the political costs: trying to impose environmental considerations on countries through tariffs risk creating bad will in the negotiations on climate change, in the trade negotiations of the DDA and in the multilateral trading system. As stated by China’s Minister Cheng in response to the language approved in June in the House, it will likely trigger retaliatory action, in the worst case leading to a trade war. Costs could be considerable both in terms of economics and environment

The issue of BCAs will likely remain on the table until late in the negotiations in Copenhagen. Yet the clear conflict with US forthcoming legislation casts a shadow of doubt over whether it will appear, as formulated, in the final agreement.  Considering the complexity and political sensitivity of the issue, there may be need to craft some place-holding language for Copenhagen and continue negotiations on the topic into the future - a fate that is likely to be shared by many issues that cannot be readily solved in Denmark this December.

ICTSD reporting.

Precisely because climate change is caused by emissions from a broad spectrum of economic activities, efforts to address it will impact the way goods and services are produced and traded around the globe. Furthermore, the inevitable impacts of a changing climate imply vast social and ecological implications, especially in the most vulnerable areas of the world like the least developed countries (LDCs) and the small islands developing states (SIDS). For these countries, effective and predictable sources of funding are fundamental to helping their economies such as to mitigate climate change while adapting to impacts or, in the worst of cases, responding to disasters.

Estimates of the total global costs of mitigating greenhouse gas emissions and adapting to the changing climate vary widely from source to source, yet all of the figures are head-spinning. According to the 2009 World Development Report published this month, between US$ 140 billion and US$175 billion will be needed annually to help developing countries implement the mitigation measures that would be needed to prevent the world from warming more than 2°C. Notably, up-front investments will need to be even greater, as the economic savings associated with energy efficiency and the use of renewable energy sources only appear over time. McKinsey & Company, the global consulting firm, estimates that an extra US$ 563 billion above and beyond business-as-usual investments will be needed to jump-start the process (McKinsey 2009).

Current financing for both mitigation and adaptation falls far short of such estimates, amounting to less than 5 percent of the projected requirements. But political promises from developed countries in recent weeks indicate that the tide may be shifting. Aside from individual country statements, the G8 and the G20 have stressed that financing for climate change is a top priority.

Financing top of the agenda for the Copenhagen outcome

This past week, heads of state and government at the APEC Summit backed the Danish Prime Minister, Lars Løkke Rasmussen, in signalling that Copenhagen will produce a ‘political agreement’ in lieu of the legally binding treaty that was originally expected, with a possible treaty emerging after continued negotiations (see related story, this issue). With the two largest emitters and a solid regional block leaning in this direction, any major variation of this scenario is highly unlikely. However, US President Barack Obama was quick to clarify this week that the Copenhagen meeting should result in an “accord that covers all of the issues in the negotiations and one that has immediate operational effect.” The question remains: what will Copenhagen produce, and how far can the outcome go to set the objectives of the forthcoming treaty?

Two issues have emerged as top priorities in the talks: financing and mitigation. The two topics are deeply linked. Stronger mitigation will both avert climate impacts and reduce the costs of adaptation, but, at the same time, greater mitigation measures will require greater funding. Mitigating emissions is particularly complicated for countries that are concurrently struggling with basic development needs such as access to water, health care, education, and civil strife. The same goes for adaptation costs in such countries.

Sourcing financial support

Identifying sources of financing has been one focus of the climate negotiations. Countries recognise that developed countries will need to provide new and additional financial resources, but they continue to disagree over how such sources can be made reliable and sufficient. Many developing countries assert that financing for climate change - and especially for adaptation - should come primarily from the public sector. But most rich countries counter that public monies should only be used to leverage the much greater levels of financing that are available in the private sector.

Officials also continue to debate whether climate financing should be bundled into overseas development assistance (ODA) or kept strictly separate. Proponents of the former stress the efficiency of using existing institutions and the apparent overlap of objectives and activities. Opponents assert that the intermingling of ODA and climate funds will result in less per-country financing for each objective, that current institutions already struggle to deliver finance effectively, and that ODA decision-making is an inherently unbalanced process.

According to the OECD, the total volume of private investment flows that aim to mitigate greenhouse gas emissions is between six and ten times larger than the amount of public money devoted to the same cause. Further exploration of how to catalyse foreign direct investment (FDI) to help finance the climate fight is critical. According to the OECD, FDI to developing countries amounted to US$ 259 billion between 2003 and 2005. However, 54 percent of those funds were directed to activities that are not relevant for climate change mitigation. Likewise, less than a quarter of bilateral overseas development assistance commitments between 2003 and 2007 were directed to mitigation-relevant activities in developing countries.

In addition to the broad discussion on where the funding will come from, the climate financing negotiations are also considering proposals on a variety of issues, including a possible uniform global levy on CO₂ emissions (LDCs would be exempted); levies on international aviation and maritime transport, except for journeys from or to LDCs; how to use the proceeds generated by the Clean Development Mechanism and emissions trading; and possible external debt swap/relief for sustainable development in developing countries. These proposals are under discussion and will require substantial time for refinement and agreement.

Maximising opportunities for resilience

Another potential source of funding - and one that has not received much attention in the global climate talks - is the WTO’s Aid for Trade initiative.  Aid for Trade is a development assistance approach that has emerged from the WTO’s Doha Round of trade negotiations. The initiative is intended to help developing countries take advantage of trade opportunities while strengthening their ability to fight for their interests in trade negotiations. It includes measures such as trade negotiation capacity building, infrastructure and marketing development, and ultimately is intended to help build economic resilience, particularly in LDCs and small and vulnerable economies. Notably, these countries, along with Small Island Developing States, are at the greatest risk for climate change impacts and require the greatest and swiftest adaptation support.

Because Aid for Trade and climate change financing address many of the same objectives, the two instruments could be conceived and implemented in a coherent and supportive manner. Specifically, climate change adaptation objectives could be targeted in two major Aid for Trade sub-categories: economic infrastructure and building productive capacity. Within economic infrastructure, adaptation projects could play a major role in transport and storage, as well as in energy supply and generation. Within building productive capacity, the agriculture and fisheries industries represent key sectors that are relevant from the perspective of economic resilience and climate change.

In this sense, officials could bolster climate financing by streamlining it with ‘Aid for Trade’ activities that are ongoing in many developing countries.

Governing finance

Another key issue in the current discussions is how financing will be governed. Among other questions, officials are debating the institutional structures for delivery and the question of direct access for recipient countries. The negotiations have already narrowed options significantly, but differences remain over many of the details of what a financial architecture for climate change should look like.  One key discussion relates to the monitoring of funds, referred to as “monitoring, reporting, and verifying” or MRV. The question cuts both ways, as some parties wish to create a system that increases certainty about the delivery of adequate funds from developed countries, while others wish to ensure that whoever uses those funds will be held accountable.

Key issues and concerns for SIDS, LDCs, and Small and Vulnerable Economies

Constructing and strengthening institutional capacities in LDCs will also be fundamental to addressing pressing climate challenges. LDCs like Malawi and Tanzania are currently struggling to fill critical posts and create effective financial mechanisms to support their climate efforts. Moreover, National Adaptation Plans of Action (NAPAs) and their implications in both countries are not well understood at the regional and local levels, and the two countries’ national budgets seem to neglect to provide any funds for climate change.

ICTSD reporting.

Governments around the world will need to access and implement a host of new technologies to reduce their greenhouse gas emissions and adapt to the changing climate. But whether countries, especially poor countries, will be able to harness those technologies largely hinges on whether climate negotiators will be able to establish mechanisms to make those products readily available - and useable.

The development and transfer of clean-energy technologies, with the support of adequate financing, has the potential to multiply countries’ emissions reductions. Such technologies have the added benefit of fuelling economic and social development by increasing investment flows and enhancing countries’ capacity to develop and use technologies. As many rich-country politicians have stressed, massive investments in new climate tech can create new jobs in ‘green’ manufacturing and services.

If developing countries can gain access to both climate technologies and climate financing, they will be better equipped to both address climate change and promote sustainable development at home. Indeed, the potential synergies between technology and financing have been front and centre in the negotiations of the United Nations Framework Convention on Climate Change (UNFCCC). Although a legally binding deal is no longer expected to emerge from next month’s meeting in Copenhagen, technology and financing will no doubt be major elements of the political agreement that is likely to emerge from the conference. Details will be further elaborated in future negotiations towards a legal treaty, when the time comes.

Technology - making it happen

Developing countries’ access to and ‘uptake’ of mitigation and adaptation technologies will require a broad array of support systems. In particular, regulatory and financial policy tools are important first steps to ensuring that technologies and financing are delivered effectively and equitably. In the context of the UNFCCC negotiations, countries have called specifically for the establishment of funds, mechanisms, and plans that ‘enhance enabling environments’ for climate technologies, including technology-specific policies and measures that generate adaptation or mitigation benefits.

Recent studies show that regulations and fiscal incentives can play an important role in creating markets for renewable energy and may in fact be more important than tariffs in affecting trade flows for a number of renewable energy goods. Thus, any tariff reductions on ‘environmental goods’ - like solar energy collectors and hydrogen fuel cells - will need to be supplemented by regulatory and fiscal policies that can help build markets for those products.

The role of international assistance in creating such an ‘enabling environment’ is particularly significant for developing countries, which may not yet have the resources or institutional capacity to do so on their own. Such assistance could come in the form of soft loans or financial incentives, including for research and development, which could help leverage private capital flows. (See section on financing below.)

In addition to finance and technology through the market-based mechanisms, parties have also put forward proposals that would aim to directly spur technology transfer and development. Some of these proposals - especially those on environmentally sustainable technologies (ESTs) - are strikingly similar to requests that have been made in the ongoing WTO negotiations on environmental goods and services (EGS).

One specific proposal in the climate talks, for example, would provide financial support through the UNFCCC to help developing countries build new EST manufacturing facilities fitted out with low-GHG emission technologies. Another relates to the creation of a ‘technology mechanism’ to accelerate the development, adoption and transfer of environmentally sound technologies. Both of these proposals directly echo demands that a number of developing countries have made in the EGS negotiations at the WTO. In those talks, poorer countries have stressed that they will need help building their supply-side capacities for EGS, and that the transfer of technology must be one of the outcomes of the EGS negotiations.

Speaking informally, some delegates have pointed out that technology transfer and diffusion can only be meaningfully operationalised outside the WTO. At least as far as climate change is concerned, the UNFCCC certainly appears to be the forum where discussions have been most advanced. Meanwhile, WTO members are still haggling over how to give shape to a deal on technology transfer. Broader discussions on the issue have been going on within a Working Group on Technology Transfer, but critics say that the group has failed to deliver meaningful results.

Another trade issue — the development and application of international standards and testing procedures - has also arisen in the climate discussions, with notable links to WTO rules.  Draft UNFCCC negotiating text includes proposals for countries to “…participate, to the extent possible, in international programmes that support the development and use of common performance standards, testing, verification and certification programmes.” Such standards and testing procedures are particularly important with regard to trade in energy-efficient products. Standards that do not conform to the procedures set out in the WTO’s Agreement on Technical Barriers to Trade (TBT) could be considered illegal non-tariff barriers. The language in the UNFCCC text has echoes of Article 2.4 in the TBT Agreement, which calls on members to base their national standards on international ones, with some limited exceptions.

Financing is key

Financing will play a critical role in helping developing countries make use of any new technologies they might gain through a global climate deal. Proposals in the UNFCCC negotiations address this question by, for example, suggesting that the UNFCCC provide financial support to cover technology-related incremental costs borne by developing countries, including research and development and patent-related costs.

Another particularly constructive proposal in the draft text on financing would establish a global fund to support a global ‘feed-in tariff’ programme.  Financing for feed-in tariffs in developing countries would more readily incentivise utilities and consumers to switch to renewable energy sources. Many countries and regions have already carried out national- or state-level versions of such a programme. Recent research by Jha (2009) indicates that feed-in tariffs are particularly important in the creation of a market for renewable energy.

The Kyoto Protocol’s Clean Development Mechanism provides a telling example that can offer lessons for future offset and technology transfer initiatives. The CDM is a flexibility mechanism that allows developed countries to offset their Kyoto-based emissions commitments by purchasing carbon credits from developing countries. These credits are created from new carbon reduction projects that typically involve the purchase and introduction of new technologies for the sector in question.

During recent climate negotiations, Argentina pointed out that its most significant barrier to developing CDM projects has been a lack of access to up-front investment finance. Private sector investment specialists point out that investment naturally flows to the projects with the largest mitigation potential; this is the ultimate objective of the offset mechanism, they say. However, as the CDM is the UNFCCC’s only source of finance and technology, and as offset mechanisms will certainly play a significant role in a future regime, it is critical that a wide range of countries be able to make use of the mechanism.

To address such concerns, some parties have suggested engaging the business and financial sectors by providing national-level incentives to mobilise private capital. Such incentives could come in the form of concessional loans, risk guarantees, tax exemptions or subsidies for the owners of patented environmental technologies who willingly make their products available to developing countries. Notably, this recommendation has echoes of Article 66.2 of the WTO’s Agreement on Trade-Related Aspects of Intellectual Property, which states that rich country members “shall provide” incentives for domestic businesses to “promote and encourage” technology transfer to least developed countries. Critics note that Article 66.2 has yet to be meaningfully operationalised. It is possible, however, that the gravity of the climate crisis could act as a catalyst for the effective implementation of both the WTO and UNFCCC commitments.

ICTSD reporting.