The Copenhagen Accord - and Beyond

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The Copenhagen Accord - and Beyond By Roger Ballentine January 4, 2010 On December 19, the 15 th Conference of the Parties of the UN Framework Convention on Climate Change (UNFCCC) concluded with the

1 The Copenhagen Accord - and Beyond By Roger Ballentine January 4, 2010 On December 19, the 15 th Conference of the Parties of the UN Framework Convention on Climate Change (UNFCCC) concluded with the nations assembled taking note of the Copenhagen Accord, which President Obama called a foundation for global action to deal with climate change. Copenhagen was the culmination of a two year process, set in Bali in 2007, intended to produce the binding treaty to succeed the Kyoto Protocol, whose mandatory provisions are to conclude in While those expectations were set aside some time ago, the Copenhagen Accord a nonbinding political agreement among some 27 countries that was not formally endorsed by the Parties to the UNFCCC was at the same time much less and much more than was expected to result from the highly charged negotiations. As discussed below, I believe that the Copenhagen Accord only increases the imperative for incorporating climate considerations into business strategy and investment decisions because it sets a clearer path for more nations to enact strong climate policies and because it did not decrease and likely increased the prospects of major climate legislation being passed in the U.S. Congress. Dramatic, High-Level Negotiations * * * The two-week meeting in Copenhagen was deadlocked with roughly 36 hours remaining when Secretary of State Hillary Clinton announced that the U.S. (through a combination of public and private sources) would contribute up to $100 billion per year by 2020 to help developing countries reduce emissions and adapt to climate change. Secretary Clinton s announcement changed the tenor of the conference, which had shortly before seen a number of the least developed countries (LDCs) stage a walk-out. The promise of funding created an incentive for the least developing countries to push China to agree to international verification of its emission reductions, an issue that had become a major sticking point threatening to derail the negotiations. Nevertheless, when President Obama made his initial address in Copenhagen on the morning of the meeting s final (scheduled) day, the outcome of the conference was still in doubt. Typically in international negotiations, heads of government appear at the end of the meeting to sign an agreement already negotiated by ministers and staff. Copenhagen was remarkably unusual in that President Obama and his counterparts actually negotiated the final agreement. In the meeting s most dramatic moment, President Obama entered a meeting among the presidents of China, India, South Africa and Brazil. Brazilian President Luiz Inácio Lula da Silva reportedly gave President Obama his seat and President Obama helped broker the final Accord, negotiating extensively with Chinese Premier Wen Jiabao. The resulting Copenhagen 1 P age The Copenhagen Accord and Beyond

2 Accord included outlines for: 1) emission reduction commitments; 2) financing for mitigation and adaptation in the developing world; and 3) transparency. The full Conference of the Parties simply took note of the Accord, which Yvo de Boer, head of the UNFCCC, said is a way of recognizing that something is there, but not going so far as to associate yourself with it. Nevertheless, de Boer acknowledged the magnitude of the commitment, characterizing the three-page document a letter of intent to deal with climate change. The Copenhagen Accord: Reductions, Finance, and Transparency The Accord s approach to emissions reductions is for each nation to propose and pledge to fulfill its own emissions commitments. This approach was proposed by Australia in spring of this year and has been a favorite of American diplomats, who sometimes refer to it as a bottom-up process. Unlike in the Kyoto Protocol, in which the emission reduction commitments by nations were negotiated internationally, developed nations are expected to submit by January 31, 2010 a quantified economy-wide emission targets for 2020 using whatever base year they wish. In a more meaningful break with the Kyoto Protocol, the Copenhagen Accord also invites developing countries to submit their nationally appropriate mitigation activities by January 31. While the copy of the Accord released by the UN does not yet list any national commitments, most nations have already stated what their emission reductions or mitigation actions will likely be. For example, in November, President Obama pledged to reduce U.S. emissions in the neighborhood of 17% below 2005 levels by 2020 (consistent with the House-passed climate bill), and China agreed to reduce its carbon intensity, (i.e. the amount of greenhouse gases emitted per unit of GDP) by 40 to 45% by The Accord also makes two important financial commitments to address the needs of developing countries in mitigating and adapting to climate change. Collectively, developed countries pledge $30 billion in new and additional sources to the developing world for the period Moreover, developed countries commit to provide up to $100 billion to the developing countries per year by The $100 billion per year is to come from public and private sources and be delivered both bilaterally and multilaterally. A significant portion of such funding is expected to flow through the Copenhagen Green Climate Fund, which the Accord establishes as a financial mechanism operating under the UNFCCC to support adaption, mitigation, technology transfer and forestry programs and policies. Most importantly from the U.S. political perspective, the Copenhagen Accord addresses the issue of transparency in the reporting of mitigation actions by developing countries. As noted above, China had resisted international verification of its pledged carbon intensity reduction, but compromised in the final deal i. In the Accord, mitigation actions by developing nations will be measured, reported and verified domestically with international consultation and analysis, whereas emission targets for developed countries will be measured, reported, and verified according to guidelines to be established by the Parties. Any mitigation actions taken by developing countries with financial support from the developed world will be subject to an international verification process to be established by the Parties. ii The Implications of Copenhagen Here are my key take-aways from Copenhagen: The King is Dead; Long Live the King. The UN climate process has been badly weakened; the likelihood of strong global action to address climate change has never been 2 P age The Copenhagen Accord and Beyond

3 stronger. The UNFCCC process, which has been the organizing forum for multilateral climate policy development for two decades, has been mortally wounded iii. The Copenhagen Accord had little or nothing to do with COP-15 other than the fact that the leaders who negotiated it happened to be physically together because of it. The Accord was blatantly negotiated out of the view and without the participation of the vast majority of nations and thus was not subject to the requirement of global unanimity which was and always will be impossible. The Copenhagen Accord signaled a shift of focus to economic alliances and forums, particularly among major economies, as the place where climate policy will be developed and implemented. The economicdiplomatic venues like the Major Economies Forum or the G-20 along with major bilateral and regional agreements represent far more effective processes to create markets and reduce emissions. Capital Markets vs. Carbon Markets. Perhaps not surprisingly, the Kyoto-oriented carbon markets took a dive after Copenhagen. This may have been the result of high expectation of diplomatic success within the COP process. A more accurate reason for decline would have been the recognition that the Copenhagen Accord signaled that markets built explicitly around UNFCCC-defined instruments of carbon value may not have staying power. This is not to say that Copenhagen portends a decrease in the longer term value of carbon reductions just the opposite, for two reasons. First, as discussed, the Copenhagen Accord increases the likelihood of meaningful multilateral actions to reduce emissions and inevitably (and explicitly referenced in the Accord) markets and market mechanisms will be central to those efforts. Second, for the first time, the Accord calls for mid-term reduction targets. And unlike pledges about 2050, mid-term (i.e. 2020) is within the time-frame of many capital deployment decisions being made today and in the near future. For this reason, while Copenhagen may have caused a temporary wilting of the Kyoto carbon markets, it should invigorate carbon-impact evaluations of capital market decisions and increase the argument for carbon/climate informed business decision making. The Triangulation of Developing Nations and the Elevation of Commerce. I and many in the U.S. have long believed that the climate problem is best solved through markets, investment and innovation once the rules of the game (not the least of which is the pricing of carbon) are put in place. On an international scale, this means that commerce and trade can create wealth, improve living standards and reduce emissions. Historically and not without some justification, most developing nations viewed this argument with great skepticism and when presented with the choice of engaging with the developed nations on the basis of commerce, investment and trade on the one hand, or on the basis of direct aid on the other, nearly all developing nations chose the latter. What was profoundly foreshadowed by the Copenhagen Accord was that some major developing countries most notably China and even, perhaps, India seem to be coming to the conclusion that they are better off engaging on the basis of commerce than on the basis of direct foreign aid thus their agreement to adopt some sort of carbon price/market-impacting emissions target. It is now quite possible that we will see more and more developing nations aspire not to be in the aid camp but in the commerce camp when it comes to climate. 3 P age The Copenhagen Accord and Beyond

4 The second part of the Copenhagen Accord that to me signals a movement to a commerce-based climate foreign policy on the part of more and more nations is the remarkable announcement by Secretary Clinton that developed nations would provide $100 billion per year to developing countries. What was remarkable was not the size of the pledge but the explicit acknowledgement that the funds would be a mixture of public and private sources. The wording of the Accord carefully left open a large role for private capital and private sector actions to reduce emissions to essentially substitute for some portion of traditionally delivered aid-like funding. To be sure, the Copenhagen Accord and the Clinton announcement divide the developing nations into at least two categories: the market/commerce/trade countries (China, Brazil, India etc.); and the least developed and most climate change vulnerable nations. The latter are the nations that must be the focus of the traditional aid-based climate foreign policy of the developed world and indeed the language of the Accord makes clear that the adaptation portion of the $100 million commitment will be delivered through multilateral political structures and processes. Left out of either category, it seems, are the petro-economy nations mostly of the Middle East and the obstinate political economies of Venezuela, Cuba, Bolivia, etc. As these are the countries that inevitably would have blocked consensus in any UNFCCC process, ironically they may have created for themselves the worst of all worlds. Looking Forward It has always been the case that the essential factor in any successful multilateral climate policy efforts would be the commitment and leadership of the U.S. On the domestic front, the single biggest factor in whether or not we will adopt climate legislation in the U.S. has been the role of China, given its political profile and new status as the world s leading emitter. In Copenhagen, the U.S. demonstrated extraordinary leadership and effort (regardless of one s view of the outcome) and for the first time China made an emissions pledge with some degree of transparency. For these reasons alone, I think both the global dialogue on climate and the prospects for domestic legislation were strengthened at COP-15. Moreover, the broadening global movement toward a commerce-centric response to climate will present more opportunities for investment in lower carbon technologies and businesses and only increases the case for seeking competitive advantage from business practices and strategies aimed at reducing climate impact. 4 P age The Copenhagen Accord and Beyond

5 ENDNOTES i While China in particular had made some significant commitments prior to Copenhagen, U.S. opponents of climate legislation in particular were quick to point out that there was no way for those commitments to be verified. ii Some might find it strange that the least developed countries would be subject to the more rigorous verification standard; these nations might have realized that such as standard would greatly increase the likelihood that developed country capital could produce monetizable emissions reductions and thus make LDCs a more attractive target for investment. iii One could argue that the Kyoto Protocol and the process by which its successor might be negotiated died in utero in Berlin in when the U.S. and developed nations agreed to leave developing nations out of any subsequent binding treaty. 5 P age The Copenhagen Accord and Beyond

ASIL Insight February 12, 2010 Volume 14, Issue 3 Print Version. The Copenhagen Climate Change Accord. By Daniel Bodansky.

ASIL Insight February 12, 2010 Volume 14, Issue 3 Print Version The Copenhagen Climate Change Accord By Daniel Bodansky Introduction Since the Kyoto Protocol's entry into force in 2005, attention has focused