Although the next binding climate change agreement remains some way off, small steps in the right direction were achieved at the recent Cancun talks

Never mind that many countries have strings attached to their pledges for fighting climate change. Or that even with these commitments, there is still a big potential gap between what’s been promised and what may be required.

Or that this gap that could still lead to as much as a catastrophic 5C rise in temperature, well above the “safe” 2C limit agreed to in December at the annual global climate conference held in Cancun, Mexico.

Despite failure to set stronger goals for limiting emissions, Cancun was given positive reviews – principally because it restored faith in the multilateral system for tackling climate change. Major players were relieved there was no repeat of the acrimonious 2009 Copenhagen summit, which failed to agree on a successor deal to the present Kyoto protocol, the ultimate aim of the talks.

Similarly, though, the Cancun accord sets no firm deadlines for an elusive legally binding accord to succeed Kyoto, which obliged almost 40 industrialised nations to cut emissions by at least 5.2% below 1990 levels by 2012

The first round of Kyoto, set to expire next year, does not of course include China or the US – the world’s two biggest emitters – and there is still no consensus over whether developing nations should have binding targets to cut emissions or whether rich countries have more to do first.

And so, an ensuing standoff between rich and developing countries nearly derailed the Cancun talks. Led by Japan, Canada and Russia, some countries opposed extending Kyoto for fear that the move could entrench a framework that exempts emerging economies and the US from commitments to reduce greenhouse gas emissions.

Developing nations, on the other hand, say that the rich must extend their Kyoto commitments, as they are responsible for causing the problem of global warming in the first place.

Acceptable architecture

Yet by taking small steps to clarify the architectural framework – on everything from forest conservation and technology transfer to streamlined offset mechanisms and a green adaptation fund – delegates emboldened themselves into foreseeing a workable agreement that goes beyond political statements.

“We have a long, challenging journey ahead of us. Whether it’s possible in a short period to get a legally binding deal, I don’t know,” the European Union’s climate commissioner Connie Hedegaard says of a deal beyond 2012.

The host Mexican government and Christiana Figueres, head of the UN climate change secretariat, were given credit for cobbling together stronger developing country influence, thus codifying elements of the non-binding Copenhagen accord into a broader-based UN agreement. Bolivia was alone in bitterly criticising the Cancun agreements, saying they were inadequate to slow climate change.

The feeling among delegates that they accomplished something significant was perhaps typified by the two standing ovations bestowed upon Patricia Espinosa, the Mexican president of the conference.

But, at best, they were awarding themselves a medal for their own acceptance of defeat. Climate change is still accelerating, say scientists, with a disastrous 4C rise a likely outcome given current world intransigence. Such a scenario, as painted recently by the Royal Society, will mean rising seas, ferocious floods, prolonged droughts and erratic weather patterns.

The engaged process itself will embolden the private sector – principally through burgeoning carbon markets and UN offset mechanisms such as the Clean Development Mechanism (CDM).

The CDM has been improved considerably. The tools with which to achieve reductions are now a whole lot clearer, but with Europe and the US bogged down in moving their economies out of recession, there’s scant likelihood for bold political leadership on carbon markets. Meanwhile, China, India and Brazil are even less likely to agree to limitations on their economic growth.

The conference postscript is sure to play out in fitful starts and stops – as already exemplified by Japan’s announced scrapping of its planned carbon emissions trading scheme.

“All countries, but particularly industrialised nations, need to deepen their emission reduction efforts and to do so quickly,” Figueres says.

Some consensus

However grindingly slow the progress, business can take some solace from a widening and more solid consensus aiming for a maximum 2C rise coupled with a congealing set of international mechanisms capable of domestic market inclusion.

“Business has been calling for the UN to deliver an international commitment to those targets – and I think we’re one step closer to that,” says Jonathan Shopley, managing director of The CarbonNeutral Company, chair of the Carbon Market Investor Association’s voluntary markets working group and a long-time observer of the United Nations process.

“The second reason why business, particularly the carbon business, needs to feel heartened,” Shopley says, “is that the proposed role of carbon markets in the drafting has grown rather than diminished.”

Third, the CDM will survive the uncertainty surrounding Kyoto – owing to the EU emissions trading scheme commitment through to 2020, and because of language in the Cancun accord restating a strong commitment to the offset mechanism.

This flexible mechanism allows countries to fulfil their greenhouse gas emission obligations by investing in projects that reduce emissions in developing countries. To date, CDM projects have seen a remarkable $23bn in transfers from developed to developing nations. With the inclusion of carbon capture and storage for the first time, the CDM programme can scale up considerably in the years ahead.

“My understanding is, until the parties to the Kyoto protocol stand up and say ‘we no longer want the CDM’, it will survive,” says Abyd Karmali, global head of carbon markets for Bank of America Merrill Lynch.

Observers say a host of reforms will streamline and improve the offset mechanism, including a new appeals process, potential use of standardised baselines, and the possibility for countries that have hosted fewer than 10 projects to receive financial assistance in developing project documentation.

“These are all elements that will de-risk projects for project participants, which reduces transaction costs and is beneficial to delivering cost-effective emissions reductions,” Karmali says. “There were a whole series of reforms to the CDM that have long been advocated by market participants and that’s a very important outcome of Cancun.”

There was also good news for Latin American and African countries – which emit very little CO2 and thus cannot attract CDM investment. In the long term, these countries stand to benefit from a green climate fund, which will be managed by the World Bank for the first three years (but whose exact funding source remains unresolved).

Likewise, progress on technology-sharing remains muddled. Long stalled by private ownership interests, a new climate technology centre and network of experts will conceivably break the log-jam on what is supposed to be a programme facilitating green technology deployment in developing countries.

But for business much of the attention will be outside the international UN framework. “It will be much more important to monitor what happens nationally or even regionally in the various emissions trading schemes now under development,” says Folker Franz, a senior adviser at BusinessEurope’s environmental affairs unit. However, those markets still remain hostage to Kyoto’s continued uncertainty, relegating Cancun’s real accomplishment to a resumption of the status quo.

“Cancun will keep businesses from de-investing,” Franz says. “It will not be enough to trigger new low-carbon research and investment.”

Forests win

The Cancun agreement includes action to protect the world’s forests, important because deforestation accounts for nearly one-fifth of all global carbon dioxide emissions. Progress came in the form of a three-phase process for tropical countries to reduce deforestation and receive compensation from developed countries in an agreement that includes protections for forest peoples and biodiversity.

Known as reduced emissions from deforestation and degradation (Redd), the programme was hailed as one of the conference’s major successes, though accounting issues remain a significant barrier to full adoption in the UN system any time soon.

“After three years of hard negotiations we have a basis for combating deforestation integrated in an agreement on climate which marks an important step,” says Rosalind Reeve of Global Witness, an organisation focused on resource exploitation.

Forestry could become a more common way for companies to cut the impact of their carbon emissions, but only if sufficiently bold mandatory caps in a binding scheme such as Kyoto restore languishing carbon trading markets.

The European Union bars the use of Redd credits and observers say inclusion in the third phase of its trading scheme from 2013 is only likely if the EU moves up to a 30% emissions cap.

That leaves participants in the newly passed California emissions trading scheme as the only real potential buyers at the moment – given the implosion of the Japanese carbon market proposal, of which a critical element had been a bilateral forest carbon offset programme.

This low demand does not include voluntary rainforest carbon investment of which there are now projects covering hundreds of thousands of acres globally, according to David Antonioli, chief executive of the Voluntary Carbon Standard, which develops quality standards for emissions markets. Of these, Antonioli says a handful of big, iconic forestry projects are nearly ready to issue credits for sale to polluters – in lieu of forthcoming carbon limits.

Yet the voluntary market remains minuscule. It shrank 47% in 2009 to $387m, compared with the European Union’s €100bn emissions trading scheme. Only five years ago, analysts were projecting that voluntary offsets would amount to several billions a year by now.

In the absence of strong private sector support, Redd advocates are looking to global funding from governments, foundations and conservation groups. Total pledges by rich donor nations had risen to $4bn by May 2010, a good start but well below the $100bn green climate fund promised after Copenhagen.

And yet fundraising possibilities were boosted considerably because of progress made on governments establishing forest definitions and project baselines within overall national programmes – so that if you are protecting forests in the south it doesn’t make sense to burn in the north because the baseline is the whole nation.

“That was important because capital is not going to flow to the country level activities but to projects that occur at the sub-national level – where risk can be managed appropriately,” Karmali says. “That was a must-have for private capital.”

Momentum

The dynamic of the negotiations is that the parties want to agree to rules before they agree on targets under Kyoto, because otherwise rules could be manipulated to make reaching targets easier, explains Regine Günther, director of energy and climate at WWF Germany.

“Now we are beginning to have common monitoring guidelines. We didn’t have that before,” Günther says. “This [monitoring, review and verification] is the basis for all action. If you don’t have proper figures, you can forget climate protection because everybody is inventing their data.”

Cancun has given strong momentum to negotiating targets later this year in South Africa, an effort that needs the political will of the US and China, in particular. Then a global cap-an-trade system with built-in flexible mechanisms may just become a reality.

Cancun: what was achieved

A conceivable stepping stone to a legally binding deal later in 2011, the Cancun agreement can be seen as a four-way package on climate aid, ways to curb deforestation, help poor countries adapt to the impacts of climate change and a mechanism to share clean technologies.

• The agreement acknowledges the need to keep temperature rises to 2C and brings non-binding emissions cuts pledges made under the voluntary Copenhagen accord into the UN process. This translates to a goal of reducing greenhouse gas emissions from rich countries by 25-40% from 1990 levels within the next 10 years. Current pledges amount to about 16%; the United States has pledged a 17% reduction by 2020.
• It includes an agreement to set up a green fund as part of efforts to deliver $30bn of new contributions to poor countries for the period of 2010-12 and, longer term, $100bn a year by 2020.
• Delegates agreed that carbon dioxide capture and storage in geological formations will be included as an eligible project activity under the Kyoto protocol’s clean development mechanism
• Action to protect the world’s forests in tropical countries bolsters pilot programme accounting standards and includes protections for forest peoples and biodiversity.
• Chinese commitments to transparent emissions reporting contributed progress made towards a global system to monitor, report and verify reduction pledges.

Cancun made little headway in resolving splits over the Kyoto protocol, long-term curbs on greenhouse gases or ways to bolster fragmented carbon markets.

• Delegates from 194 countries agreed to seek deep cuts in greenhouse gas emissions, but they put off the essential question of how much all nations will cut emissions to the 2011 talks in Durban, South Africa.
• Japan and Russia, now bound by the protocol, announced they would not enter a second commitment period.
• Delegates agreed there should be no gap between the first and second commitment periods of the Kyoto protocol, set to expire at the end of 2012.
• Little progress was made on how major emitters such as the US and China should be included in a future deal.