U.S.-China climate deal called "breakthrough" but no long-term cuts yet

By Valerie Volcovici

       
WASHINGTON (Reuters) - China and the United States took a major step in the fight against climate change over the weekend, but what was termed a "breakthrough" might not do much in the longer term to lock in legally binding carbon emission cuts from the world's two biggest emitters of greenhouse gases.

Still, environmental groups and some U.S. and global policymakers said the agreement could give fresh momentum to the United Nations' arduous process of finalizing a global treaty to replace the Kyoto Protocol on climate change by 2015.

In their first talks, U.S. President Barack Obama and Chinese Premier Xi Jinping agreed to phase out production and consumption of the gases known as hydrofluorocarbons (HFCs), working under the U.N's 1987 Montreal Protocol.

Used mostly in air conditioners and refrigerators, ozone-harming HFCs make up roughly 2 percent of greenhouse gas emissions, but are rising at a rate of up to 9 percent annually.

The White House said a global phase-down could reduce the carbon dioxide equivalent of 90 billion tons by 2050, roughly two years worth of global greenhouse gas emissions.

"We see that as just the first step of a long and robust international climate agenda in the second term," Heather Zichal, deputy assistant to the president for energy and climate change said on Tuesday.

Analysts worry that the U.N. climate talks continue to be hampered by deep divisions between developed and developing countries over the responsibility for carbon emissions.

One official close to the negotiations said the agreement was a political breakthrough, but the road ahead to a global deal on climate change would still be long.

The official said the weekend agreement, which followed earlier talks between Secretary of State John Kerry and Xie Zenhua, a vice chairman in China's top economic development body, can inject a dose of optimism into the U.N. climate talks. But the deal represents a powerful example of what can be done when two major powers work together, the official added.

TALE OF TWO TREATIES
Experts have said addressing HFCs under the separate Montreal Protocol, regarded as a successful international treaty, can lead to major emissions reductions while negotiators hammer out parameters of a workable new climate treaty by 2015.

"This is the biggest, fastest, most effective climate mitigation that could happen in the near term," said Mark Roberts, international policy advisor of the Environmental Investigation Agency, a group involved in climate issues.

Unlike carbon dioxide, the most prevalent and longest-lasting greenhouse gas produced across many sectors of a country's economy, HFCs are short-lived and confined to just a handful of sectors, making them easier to tackle.

The Montreal Protocol also creates different timetables for rich and poor countries to phase out production of the gases and gives poor countries financial support to use alternatives. It has already phased out the use of 100 hazardous chemicals.

The United States, Mexico and Canada first proposed the phase-out of HFCs under the Montreal Protocol in 2009. At that point China, India and Brazil opposed the plan, arguing that HFCs should be addressed in U.N. climate negotiations.

Durwood Zaelke, founder of the Institute for Governance and Sustainable Development, said the constraints of U.N. climate talks have created the need for diplomatic moves outside of that process, such as the new U.S.-China agreement.

"This is the beginning of a movement to enlist more climate mitigation from parallel venues," he said, adding that such deals take some pressure away from U.N. climate talks and open the way for other solutions.

Zaelke pointed to negotiations within the International Maritime Organization and the International Civil Aviation Organization as examples of venues where shipping and aviation emissions can be addressed untethered from U.N. climate talks.

The HFC agreement is "rebuilding an urgent sense of optimism" in the multilateral process that can pave the way for agreements on other short-lived greenhouse gases, such as black carbon, the soot emitted from cook stoves and diesel engines, Zaelke said.

More of these kinds of agreements could be on the horizon, those familiar with climate negotiations have said.

A U.S.-China climate change working group formed in April is expected to come forward with a number of new proposals at the next U.S.-China Strategic and Economic Dialogue from July 8-12.
Diplomats will also gather in Bangkok on June 24 for a week of Montreal Protocol meetings and could start negotiations on an HFC phase-down at that point.

Taking Stock of Climate Change Efforts: As European Carbon Market Falters, CA Expands Cap and Trade to Canada

Unlike many environmental problems, which can be addressed at a local or regional scale, climate change is inherently global in nature: greenhouse gas (“GHG”) emissions from any source join with historic and contemporary GHG emissions from other sources globally to contribute to the total store of GHGs in the atmosphere.  The global nature of the issue is a key reason why, from the onset of climate change efforts, policymakers and environmentalists have attempted to address GHG emissions at an international scale.

Failure of Kyoto Protocol Leaves Void in International Climate Change Efforts
The primary effort to address climate change at an international scale is the Kyoto Protocol, adopted in 1997 in connection with the United Nations Framework Convention on Climate Change.  Unfortunately, through the first “commitment period” (which ended in 2012), the Kyoto Protocol has not achieved expectations, as the two largest GHG emitting countries—China and the United States—never signed the Protocol.  The sense that the Kyoto Protocol will ultimately fail as a climate program was compounded by the inability of negotiators at the 2009 Copenhagen Summit to agree on a framework for climate change mitigation for the period following the end of the first commitment period in 2012.  Since Copenhagen, climate policymakers have looked for a regional model to lead the way to a new international climate framework.

European Trading System in Disarray
With the Kyoto Protocol faltering, hopes have been pinned on the European Union’s climate change program—the Emissions Trading Scheme (“ETS”).  These hopes are rapidly fading.  In the past few months, the ETS has experience significant growing pains, with the price of carbon allowances having dropped from about € 25 per ton in 2008 to below € 3 per ton in April.  Although reductions in GHG emissions in the EU are still on pace to meet the target of the Europe 2020 Strategy (20% lower than 1990 emissions), most analysts believe that carbon prices at this level are too low to spur investment.  The severe drop in carbon allowance prices has led many, including The Economist, to question whether the ETS has any future.

California Expanding its Cap and Trade Program to Canadian Province of Quebec
In the midst of Europe’s difficulties, California has moved forward to link its cap and trade system with that of the Canadian Province of Quebec.
On April 19, 2013, the California Air Resources Board (“CARB”) approved a plan to formally link with Quebec beginning on January 1, 2014.  Linkage will create a relatively seamless cap and trade market, with compliance instruments—carbon allowances and offset credits—being interchangeable in the two systems.  California and Quebec will also hold joint auctions of carbon allowances.
The linkage of the California and Quebec cap and trade systems is a modest first step towards a robust North American cap and trade system.  Although Quebec is Canada’s largest province by size and has a population of about eight million people (second only to Ontario among provinces), its economy is not nearly as large as that of California: Quebec has a GDP of about $300 billion compared to California’s GDP of about $1.9 trillion.  About 80 entities (referred to as “establishments” in Quebec’s program) are subject to Quebec’s cap and trade regulations.  In comparison, California’s cap and trade program covers about 350 entities representing 600 facilities.  Also, Quebec’s allowable GHG emissions are substantially lower than those of California: Quebec’s cap starts at about 23.2 million tons of GHG emissions (CO₂e) in 2013 and ends at about 54.7 million tons in 2020, while California’s cap starts at about 162 million tons of GHG emissions (CO₂e) in 2013 and ends at about 334 million tons in 2020.  (Note that the increase reflects the addition of transportation fuels and natural gas in 2015; over time, the cap will go down — become more stringent —for all covered sectors.)

Testing the New Model
CARB recognizes that a key aspect of linkage with Quebec is that it may establish a new template for climate change efforts globally.  As stated by CARB in its response to comments: “[T]he experience gained now in demonstrating that two separate governments, in two separate countries, with two separate economies, can effectively partner to put a price on carbon and reduce greenhouse gas emissions is invaluable to accelerating national and international efforts to address climate change.”
However, California’s cap and trade program is less than a year old and already several lawsuits have been filed challenging various aspects of the program.  So the jury is still out as to whether California’s program will succeed.  Moreover, the addition of Quebec will make the cap and trade program more complicated (and mistake prone) without offering a meaningful test run that could be expected of a larger, more complex regional program.
Nonetheless, given the problems with the Kyoto Protocol and the ETS, the need for a successful model is certainly there, and California and Quebec may be the start of such a model.  In the interim, California and Quebec will undoubtedly have to iron out a number of issues (ranging from the integrity of offsets to the logistics of operating a linked market in two languages).
In the event that the California-Quebec market sets the tone for a revamped European system or a new Kyoto, monitoring the developments of the North American effort will be a key task for businesses and governments (not only within California and Quebec, but in other states and provinces as well), as they may be incorporated into the system at some point in the future.