Development of a carbonconstrained world

Until now, industrialised countries have emitted the large majority of anthropogenic greenhouse gases. However, shares of developing countries are rising very rapidly and are projected to continue to do so. To shift towards a carbon-constrained world, mitigation measures now taking shape within industrialised countries will need to be refined and complemented by comprehensive efforts worldwide.

International mitigation measures

Complementing various national policies and measures, the Kyoto Protocol of the UNFCCC is by far the most comprehensive multinational effort to mitigate climate change, both politically and geographically. Having entered into force in February 2005, the Protocol commits industrialised countries to curb domestic emissions by about 5% as a group relative to 1990 by the 2008-2012 first commitment period. The Protocol also creates "flexible mechanisms" by which industrialised countries can transfer emission allowances among themselves and earn emission credits from emissions reductions of developing countries and countries with economies in transition.

Despite its possible worldwide influence, the Protocol is limited in its potential to address global emissions since not all the major emitters are included. The United States remains outside of its jurisdiction and though most of the developing countries (i.e. nonAnnex I countries) signed the Protocol, they committed to no emissions targets. The Kyoto Protocol implies action on less than a third of global CO2 emissions as measured in 2007 (Table 1).

The Protocol's quantitative emissions reductions further engendered a commoditisation of carbon, as detailed in the following examination of emissions trading schemes.

Emissions trading schemes

Emissions trading schemes (ETS) are developing or being proposed in several regions and countries around the world. While some have definite and defined rules in the short term (e.g. EU ETS, ten Northeastern and Mid-Atlantic US states, New Zealand, Norway), others have not yet finalised their precise rules of functioning (e.g. Australia, Canada, Japan). Nonetheless, even for those schemes in which trading has commenced, policy makers have allowed flexibility in the changing design options over the longer term. Indeed, lessons from the first years of existing schemes are helping the elaboration of others.27

In the European Union, the largest scheme in operation is the EU ETS. The lessons from its first phase helped to shape the scheme's post-2012 design.28 In December 2008, the European Council and the European Parliament endorsed an agreement on the climate change and energy package, which translates into details a political commitment by the European Union to reduce its GHG emissions by 20% by 2020 compared to 1990 levels.29 The ETS will play a key role in achieving this target, as the 2020 cap for ETS installations is 21% below the actual level of 2005 emissions.30

27. Reinaud, J. and C. Philibert, 2007. Emissions Trading: Trends and Prospects, IEA information paper.

28. Convery, F., Ellerman, A.D. and C. de Perthuis. 2008. The European Carbon Market in Action: Lessons from the First Trading Period, APREC research program on the ex-post evaluation of the European CO2 market, Paris. Downloadable at www.aprec.net.

29. A 30% reduction target is proposed if other Parties were to take equally ambitious mitigation objectives.

30. Annual cap: 1 974 Mt in 2013, falling in linear fashion to 1 720 Mt by 2020; average annual cap over 2013-20: 1 846 Mt (compared to an annual cap of 2 083 Mt in phase 2).

Mt CO2

Table 1. World CO2 emissions from fuel combustion and Kyoto targets

1990

2007

% change 90-07

Kyoto Target (1)

KYOTO PARTIES

8 792.2

8 162.1

-7.2%

-4.7%

North America

432.3

572.9

32.5%

Canada

432.3

572.9

32.5%

-6%

Europe

3 158.7

3 281.3

3.9%

Austria

56.2

69.7

24.0%

-13%

Belgium

107.9

106.0

-1.8%

-7.5%

Denmark

50.4

50.5

0.2%

-21%

Finland

54.4

64.4

18.5%

0%

France (2)

352.1

369.3

4.9%

0%

Germany

950.4

798.4

-16.0%

-21%

Greece

70.1

97.8

39.5%

+25%

Iceland

1.9

2.3

24.6%

+10%

Ireland

30.6

44.1

44.1%

+13%

Italy

397.8

437.6

10.0%

-6.5%

Luxembourg

10.5

10.7

2.5%

-28%

Netherlands

156.6

182.2

16.4%

-6%

Norway

28.3

36.9

30.6%

+1%

Portugal

39.3

55.2

40.5%

+27%

Spain

205.8

344.7

67.5%

+15%

Sweden

52.8

46.2

-12.4%

+4%

Switzerland

40.7

42.2

3.6%

-8%

United Kingdom

553.0

523.0

-5.4%

-12.5%

Pacific

1 346.5

1 668.1

23.9%

Australia

259.8

396.3

52.5%

+8%

Japan

1 065.3

1 236.3

16.1%

-6%

New Zealand

21.3

35.5

66.4%

0%

Economies in Transition 3 854.7

2 639.8

-31.5%

Bulgaria

74.9

50.2

-33.0%

-8%

Croatia

21.6

22.0

2.1%

-5%

Czech Republic

155.4

122.1

-21.4%

-8%

Estonia

36.2

18.0

-50.1%

-8%

Hungary

66.7

53.9

-19.1%

-6%

Latvia

18.4

8.3

-54.6%

-8%

Lithuania

33.1

14.4

-56.4%

-8%

Poland

343.7

304.7

-11.4%

-6%

Romania

167.1

91.9

-45.0%

-8%

Russian Federation

2 179.9

1 587.4

-27.2%

0%

Slovak Republic

56.7

36.8

-35.1%

-8%

Slovenia

13.1

15.9

21.2%

-8%

Ukraine

687.9

314.0

-54.4%

0%

1990

2007

%change 90-07

Kyoto Target (1)

1 577.8

19 778.3

70.8%

5 106.3

6 097.0

19.4%

116.1

62.7

-46.0%

none

126.9

265.0

108.8%

none

4 863.3

5 769.3

18.6%

-7%

6 471.5

13 681.3

111.4%

546.2

882.0

61.5%

none

588.2

1 389.0

136.1%

none

106.1

91.4

-13.9%

none

581.6

406.7

-30.1%

none

897.0

1 453.9

62.1%

none

1 508.4

3 387.1

124.6%

none

2 244.0

6 071.2

170.6%

none

356.9

61 0.4

71.1%

253.6

41 1.6

62.3%

0 980.5

28 962.4

38.0%

-4.7% e NON-KYOTO PARTIES

Non-pa rticipa ting Annex I Parties Belarus Turkey United States

Other Regions Africa

Middle East Non-OECD Europe (3) Other FSU (3) Latin America (3) Asia (excl. China) (3) China

INTL. MARINE BUNKERS INTL. AVIATION BUNKERS

WORLD

Gt CO2

International Bunkers ___

Non-Annex I Parties

Kyoto^argetw

Non-Participating AnnexI Parties

Kyoto Parties

1990 1992 1994 1996 1998 2000 2002 2004 2007

1990 1992 1994 1996 1998 2000 2002 2004 2007

(1) The targets apply to a basket of six greenhouse gases and take sinks into account. The overall EU target under the Protocol is 8%, but the member countries have agreed on a burden-sharing arrangement as listed. Because of lack of data and information on base years and gases, an overall "Kyoto target" cannot be precisely calculated for total Kyoto Parties: estimates applying the targets to IEA energy data suggest the target is equivalent to about 4.7% on an aggregate basis for CO2 emissions from fuel combustion.

(2) Emissions from Monaco are included with France.

(3) Composition of regions differs from elsewhere in this publication to take into account countries that are not Kyoto Parties.

(4) The Kyoto target is calculated as percentage of the 1990 CO2 emissions from fuel combustion only, therefore it does not represent the total target for the six-gas basket. This assumes that the reduction targets are spread equally across all gases.

Key point: Existing climate goals have not always led to reductions in CO2 emissions from fuel combustion.

The trajectory of the ETS cap proposed by the Commission in January 2008 is retained, but there will be less auctioning and more imports of credits from the Kyoto flexible mechanisms CDM and Joint Implementation (JI) than the Commission had proposed. Although this will make the ETS less effective in terms of emission reductions in the European Union than it would have been under the Commission's proposals, overall this agreement is still an achievement, establishing an aggressive trajectory for ETS emissions reductions over 2013-20 and meaningful scarcity. At present, the lower energy demand is expected to have created a surplus in the system.

In addition, since December 2006, the Commission has adopted legislation to broaden the scheme to the aviation sector. In July 2008, the European Parliament backed the proposal to include aviation in the EU ETS from January 2012, based on a deal struck by negotiators from the European Council and the European Parliament in June 2008.

Several other ETS are being developed, including in countries that are not Parties to the Kyoto Protocol. In the United States, the first regional scheme (i.e. in the Northeastern States) began on January 1, 2009. Others may follow. Further, on June 26, the House of Representatives passed the American Clean Energy and Security Act of 2009 (ACES), a comprehensive draft climate change and energy legislation introduced by the House Energy and Commerce Committee Chairman Rep. Henry Waxman and Global Warming Subcommittee Chairman Ed Markley. The bill calls for a cap-and-trade programme covering 85% of US GHG emissions, including power, industry, transport, commercial and residential sectors. The targets are set against 2005 emission levels, at 3% reduction by

2012, 17% by 2020, 42% by 2030 and 83% by 2050. ACES is currently under consideration in the Senate.

In New Zealand, the government announced an emission trading system (NZ ETS) in September

2007, proposing a staged introduction with the aim of having all the major sectors included in the scheme by

2013. In addition, unlimited use of Kyoto Protocol project credits is foreseen. The ETS, which currently only covers the forestry sector, started on 1 January 2008 and was approved by parliament in September

2008. However, the new government that came into place in 2008 established in December 2008 a committee to review the ETS. Its recommendations are currently translated into amendments to the existing legislation, and a revised law is expected to be passed by December 2009.

In Australia, the federal government published its revised climate change policy in July 2007, announcing a plan to establish an emission trading scheme (the so-called "Carbon Pollution Reduction Scheme (CPRS)") as part of an effective framework for meeting the climate change challenge. The proposal includes broad coverage of GHG emissions and sectors, covering around 75% of Australian GHG emissions, a mix of direct and upstream point of obligation and assistance to help households and business adjust. The draft bill to enact the scheme was introduced in May 2009 into parliament. The CPRS bill will be considered in the parliament before the end of 2009.

The government of Canada is committed to reducing Canada's total GHG emissions by 20% from 2006 levels by 2020 and by 60 to 70 % by 2050. The creation of a carbon market is part of the government's commitment to reduce total GHG emissions. In June 2009, the Canadian government published new guidelines for Canada's Offset System for Greenhouse Gases. The domestic offset system is an important step in the creation of a carbon market in Canada, establishing tradable credits for GHG reductions and encouraging cost-effective domestic emission reductions in areas that will not be covered by planned federal regulations (e.g., forestry and agriculture). Under the proposed regulations, firms will have several options to meet their compliance obligations including domestic offset credits and emissions trading as an important component of the government's market-driven approach to reducing GHG emissions. The government has indicated that it will continue to monitor and consider US developments to ensure harmonised rules.

In September 2008, Japan unveiled an outline of a GHG emissions trading scheme, which was launched on a trial basis in October 2008. Initially, the system is voluntary and Japanese companies are allowed to set their own emission reduction targets. In addition to allowance trading, companies will be able to use CDM credits, national offset credits and credits from Japan's voluntary emissions trading scheme. Only recently, the new Japanese Prime Minister announced plans to introduce a mandatory domestic emissions trading system, tentatively scheduled for 2011.

Steps for future action

Held in late 2005, the first Meeting of the Parties to the Kyoto Protocol (COP/MOP 1) witnessed the official opening of talks on post-2012 climate change policy. Parties organised two official fora: the Ad Hoc Working Group (AWG) on Further Commitments for Annex I Parties and the UNFCCC "Dialogue on long-term cooperative action to address climate change by enhancing implementation of the Convention" (UNFCCC Dialogue).

The AWG focuses on the design of post-2012 commitments for Annex I Parties under the Protocol. Ideally, it would also provide some certainty to carbon-constrained investments in infrastructure and to the carbon market itself. However, the AWG has no mandate to encourage participation from non-Annex I Parties or from non-participating Annex I Parties.

The broader UNFCCC Dialogue was instead designed to explore worldwide climate change mitigation and adaptation through an "open and non-binding exchange of views, information and ideas". Participants in its first meeting discussed strategic adaptation to climate change, sustainable development, and the mitigation potential of technology and market mechanisms. The Bali Road Map adopted at COP/MOP3 in Bali established a two-track process, i.e. both for the Convention and Kyoto Protocol strands, aiming at the identification of a post-2012 global climate regime to be adopted by COP15 and COP/MOP5 in Copenhagen in 2009. While the Bali Action Plan, adopted under the Convention track, did not introduce binding commitments to reduce GHG emissions, it included the request for developed countries to contribute to the mitigation of global warming in the context of sustainable development. In addition, the plan envisaged enhanced actions on adaptation, technology development and on the provision of financial resources, as well as measures against deforestation.

The challenge of post-2012 discussions is the need to engage developing countries with approaches, possibly including the carbon market, that suit their capacity and their legitimate aspiration for economic and social development. The Asia Pacific Partnership for Clean Development and Climate (APP or AP6), the G8 2005 Gleneagles Plan of Action, and the Major Economies Forum on Energy and Climate (MEF) seek to involve developed and developing nations in common measures to address climate change.

The AP6, which groups Australia, China, India, Japan, Korea and the United States, is one of many initiatives. AP6 focuses on the emissions of specific sectors: iron and steel, cement, aluminium, mining, buildings and appliances; and the methods of clean fossil energy use, renewable energy generation and more efficient power generation and transmission.

Canada, France, Germany, Italy, Japan, the Russian Federation, the United Kingdom and the United States launched the July 2005 G8 Gleneagles Plan of Action to, in part, promote clean energy and sustainable development while mitigating climate change. Through the Plan of Action the G8 members committed to: 1) transform the way they use energy, namely through means of energy efficiency; 2) foster research and development of lower-emission technology; 3) finance the economic transition to cleaner energy and 4) manage the effects of climate change. The IEA was tasked under the Plan of Action to develop concrete recommendations to help the G8 achieve these four objectives. Additionally, the G8 sought to engage South Africa, India, Brazil, China and Mexico in an official Dialogue to address climate change, clean energy, and sustainable development worldwide. This commitment by the G8 was reiterated at the St. Petersburg summit in July 2006 and subsequently at the 2007 summit in Heiligendamm, the 2008 summit in Hokkaido and the 2009 summit in L'Aquila.

In L'Aquila, Italy on 9 July 2009, 17 heads of industrialised and non-industrialised countries participating in the MEF set a clear goal for international climate policy: the increase in global climate temperature above pre-industrial levels ought not to exceed 2°C.

In all these efforts, timely and accurate CO2 and other GHG statistics will prove essential to ascertain compliance to international agreements and to inform carbon market participants. The ability of countries to monitor and review emissions from their sources is essential in their engagement towards global GHG mitigation.

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