An update on the Copenhagen Outlook to the Alliance Members:

December 16, 2009
TO: Alliance Members
FROM: Kevin FayDave Stirpe Alex Perry
SUBJECT: Copenhagen Outlook
_________________________________________________________________
With a steady increase in the number of world leaders who have confirmed their attendance at COP 15 in Copenhagen this week and with the shift in President Obama’s attendance from Wednesday December 9 to Friday December 18, the prospects that some kind of “operational political agreement” (the Administration’s label for what kind of agreement they are looking to conclude during the COP) will emerge from the negotiations are steadily increasing.

The major issues remain:
--the extent of developed country commitments
--the inclusion of specific developing country commitments
--the development of financial mechanisms to provide capacity building, mitigation and aptation funding for developing countries
--the identification of a long-term objective
--the completion of a regime for realistic compliance requirements for monitoring, reporting and verification that applies to all parties

As we reported previously, although meaningful progress was made over the last few months on many of the second tier issues relating to market operations, offsets, and technology transfer, it remains very unclear whether the process in Copenhagen can come to ground in order to effectively address the five points above. With an overlay of chaotic conditions within the Bella Center (the COP headquarters), the freakish sideshow taking place outside with the types of protests and interest groups that have become the status quo for any significant international leaders meeting, the fact that the significant majority of NGO and IGO participants will be excluded from the meeting center for the last two days of high level meetings, topped off with thousands of media representatives hanging on every word and the arrival of at least 120 heads of state, the pressure on the lead negotiators and national participants is enormous.

The character of a new climate agreement seems to be moving away from the model established by the Kyoto Protocol. Kyoto represented a single “centralized” model containing common but differentiated targets shared by all developed country parties in the short to medium term, relying on a common currency of allowances and certified emission reductions. What is expected to emerge from Copenhagen is starting to look like it will revolve around an agreement of a long-term objective and a system of pledge and review combined with hopefully meaningful and uniform compliance requirements in terms of monitoring, reporting and verification for developed and developing countries.

The long-term objective proposals include an agreement to limit global temperature rise to 2 degrees Celsius by 2100 or a 50% reduction in global greenhouse gas emissions by 2050. Developing nations such as China, India, Brazil, and South Africa continue to oppose a long-term objective of a 50% reduction in global greenhouse gas emissions by 2050 and a group of developing countries is also trying to push for a limit of 1.5 degrees Celsius.

The path to reach this long-term objective would first be achieved by national commitments of the major emitters, including all developed countries and the major developing country economies. These pledges, set by the parties themselves rather than the central treaty, would be supported by a system of review to ensure countries are complying with their own pledges; otherwise known as monitoring, reporting, and verification (MRV).

From the market mechanism standpoint, the analogy has been suggested that the system is moving away from a common currency (the Kyoto Protocol AAU/CER structure) towards a system that will have these national commitments with some type of exchange rate. It remains to be seen how this approach might impact the functioning of the global carbon market(s).

The view has been that the political agreement would include appendices of these national commitments as part of the agreement. This compendium would be reinforced by a reasonable regime of MRV. During President Obama’s recent trip to Beijing, the US and China concluded an assistance package that will include US help to the Chinese in measuring and reporting their emissions. One potential sticking point, however, is that the US is not willing to create differentiated responsibilities in MRV, but China and other developing countries have steadfastly opposed such compliance requirements for themselves. The US government says it will refuse to submit itself to more stringent reporting and verification protocols than any other party.

Over the course of the discussions here in Copenhagen so far, the developing countries have continued to balk at the notion of actually attaching their commitments to the political agreement. The US says it needs more than just warm expressions of interest from developing countries, and while much progress had been made with major announcements from countries such as China, India, and Brazil, it has now taken on a slightly different dynamic in the context of the overall negotiations.

It appears that there may be some agreement on financing. The US announced it is willing to put up its share of a $10 billion fund for developing country adaptation and capacity building. This signal was reinforced by Sen. John Kerry’s (D-MA) introduction of the International Climate Change Investment Act of 2009, which will form part of the Senate’s climate package and contains a framework for the federal government to assess and distribute climate financing. Kerry has said that he would like $3 billion included in next year’s appropriations for developing nations to fight climate change. Furthermore, the House-passed American Clean Energy and Security Act would offer something in the region of $1.4 billion (in 2012) and $2.6 billion (in 2019). Other developed nations have also contributed to the thinking that some kind of financing deal is possible; a joint British and French proposal to provide $22 billion in financing over the next three years from the developed world was endorsed by the Commonwealth Heads of State, which includes a large number of the same developing nations that have been pushing for hard commitments from the developed world on finance.

Currently, according to our discussions with leaders of the US delegation, the financing amounts are not settled but negotiations appear to revolve around commitments beyond the three year plan being discussed. The negotiators need to balance that against domestic concerns that too large a commitment over too long a time frame creates an additional political cost burden for passage of the final climate legislation in the U.S.

The Kyoto Protocol is unlikely to be formally set aside at Copenhagen, developing nations are unwilling to abandon the only legally binding climate treaty without the conclusion of a second. In fact, the African nations halted all discussions on the substantive issues to protest the lack of any progress on new Kyoto Protocol commitments. There has been a uniform view among developed countries that a single regime needs to emerge from these talks. The US view seems to be that this is likely to be a two- or three-step process to get there.

As has been typical for some time in these international climate negotiations, far too much work on a wide range of second tier issues also remains. It is expected that the political agreement will include appendices on technology, adaptation and reduction of deforestation (REDD). But even the completion of these texts was uncertain and potentially being kicked upstairs for the Ministers to decide.

The Ministerial level meeting will have only so much capacity to deal with these issues while attempting to sort out the top five we have listed above. Much will be folded in to work anticipated to be done in the coming year to turn the political agreement into a legally binding agreement.

There is also a controversial proposal to assess fees on aviation and maritime bunker fuels as a means of providing additional financing for developing country adaptation. The US has typically opposed any proposal that would seem to appear to create a global taxing authority. But the Danish Chair of the COP, Environment Minister Connie Hedegaard, has reportedly been lobbying heavily in favor because of the lack of other options for sources of funding.

It is hoped that the Copenhagen “operational political agreement” can be translated into a legally-binding one by mid- to late-2010, perhaps concluding at the next conference of parties in Mexico City, currently scheduled for November 8-19, 2010. Regardless of how the 2010 calendar evolves, COP 15’s overall contribution to the conclusion of such a deal will certainly be important, even if the original intentions of the Bali Agreement in 2007 have not become the reality that was envisioned at the time.

We will continue to report on meeting progress and results as they develop.

Dave Stirpe
Executive Director
Alliance for Responsible Atmospheric Policy
2111 Wilson Blvd., 8th Floor
Arlington, VA 22201

Update from United Nations Development Programme

Click Here to read an article from the UNDP titled: The Facility for Additional Income UNDP Inputs on Cabon Markets as a Potential Financing Source

Climate Change News: Provided by HARC and Tom Cortina, Managing Director.

Climate Change
International Negotiations
New post-2012 treaty being negotiated at COP 15 in December in Copenhagen
Wide gap between US (1990 levels in 2020) and EU (20-40% below 1990 levels in 2020)
Commitments from large developing countries like China and India key issue
Funding for developing countries key issue
Likely to be some type of political agreement or framework, to be followed by negotiation of details of full fledged treaty next year

Senate Climate Bill (S. 1733)
Clean Energy Jobs and American Power Act (Kerry-Boxer, S. 1733)
Creates an economy-wide cap-and-trade program covering 85% of US greenhouse gas (GHG) emissions
Intended to reduce GHG emissions by 20% below 2005 levels in 2020, and 83% in 2050
Reported out of the Environment and Public Works Committee without amendments by an 11-1 vote, with Republican members boycotting the mark-up due to an incomplete EPA analysis

Senate Climate Bill (S. 1733)
HFC Provisions
Almost identical to House bill
Hydrofluorocarbons (HFCs) are covered separately from other GHGs by amending Title VI of the CAA (ODS regulations)
Class II substances would be split into two groups, with group I containing the HCFCs and group II containing the HFCs
Overall production of HFCs is phased down beginning in 2012 and ending in 2032

Senate Climate Bill (S. 1733)
HFC Reduction Schedule
2012 - 90% of baseline 2023 - 54%
2013 - 87.5% 2024 - 50%
2014 - 85% 2025 - 46%
2015 - 82.5% 2026 - 42%
2016 - 80% 2027 - 38%
2017 - 77.5% 2028 - 34%
2018 - 75% 2029 - 30%
2019 - 71% 2030 - 25%
2020 - 67% 2031 - 21%
2021 - 63% 2032 - 17%
2022 - 59% after 2032 - 15%

Senate Climate Bill (S. 1733)
HFC Provisions - Allowances
Allowances are required to produce/import HFCs, or import products containing HFCs
The minimum auction price and non-auction sales price for allowances are set in the early years of the program as follows:
$1.00 per MT in 2012, $1.20 in 2013, $1.40 in 2014
Minimum auction price rises to $1.60 in 2015, $1.80 in 2016, $2.00 in 2017, and then increases with inflation for the rest of the program

Senate Climate Bill (S. 1733)
HFC Provisions - Allowance Cost
At $1.00 per metric ton (2012):
HFC-227ea = $1.46 per pound (GWP = 3,220)
HFC-125 = $1.59 per pound (GWP = 3,500)
HFC-236fa = $4.46 per pound (GWP = 9,810)
HFC-23 = $6.73 per pound (GWP = 14,800)
At $2.00 per metric ton (2017):
HFC-227ea = $2.93 per pound
HFC-125 = $3.18 per pound
HFC-236fa = $8.92 per pound
HFC-23 = $13.45 per pound

Senate Climate Bill (S. 1733)
HFC Provisions - Labeling/Assistance
Essential use, labeling, nonessential product, safe alternatives, and other provisions of Title VI would be extended to HFCs
Products containing or made with HFCs would be required to be labeled with the phrase “contributing to global warming”
Provides possible funding to manufacturers of products containing HFCs, including fire protection systems, to facilitate the transition to low-carbon alternatives

Senate Climate Bill (S. 1733)
HFC Provisions - Essential Use
Essential use provisions would allow EPA to withhold allowances from under the cap and allocate them specifically to produce HFCs for medical devices, aviation and space flight safety, fire suppression, and national security
Essential use provisions would also allow EPA to approve additional HFC production above the cap for developing countries, national security, and fire suppression

Senate Climate Bill (S. 1733)
HFC Provisions - Destruction
Offset credits are provided at a 20% discount for destruction of CFCs after 2011 in the US
EPA can add other class I or class II ODS
EPA can add ODS destruction to list of offset projects that receive credit in main program
CFC destruction projects that occur between 2009 and 2012 and are recognized under a State or comparable program could receive credit under the early offset provisions

Senate Climate Bill (S. 1733)
Prospects for Passage
Expected to be taken up again in Spring 2010
Senators Kerry (D-MA), Graham (R-SC) and Lieberman (I-CT) are currently working on the framework of a compromise that could get bipartisan support and the 60 votes needed to pass the Senate
Must still be reconciled with House bill
If not done by mid-2010, could be difficult to pass in an election year

HEEP Update
Final report of 2002-2007 data was released in May
2008 data collection is underway
18 of 21 companies have reported to date
Expect to have 2008 collection completed and report on the data at March meeting

Climate Action Reserve
Climate Action Reserve is a non-profit national GHG offset registry - associated with California Climate Action Registry
Develop project standards and register and track voluntary offset credits
Have decided to move forward with protocol development for ODS destruction, halons not included due to questions of indirect GWP
Draft ODS project protocols now available for public comment - due December 18
Public workshop on December 7 in DC