COP 7 at Marrakesh in November succeeded in its objective of translating
the political agreement reached by Ministers at COP6 bis in Bonn into legal
texts which will allow the implementation of the Kyoto Protocol. For many
countries the success at Marrakesh is the signal to begin their ratification
process, which many hope to complete in time for the World Summit on Sustainable
Development (Rio+10) in September 2002. As a result, the Kyoto Protocol could
enter into force , possibly some time during 2003.
While COP7 was about translating the Bonn political agreement into legal
text, no one expected it to be just a technical exercise. Negotiating
parties used the opportunity of technical and legal drafting to re-fight ideological
battles over sinks, compliance, and access to the flexibility mechanisms (International
Emissions Trading, Joint implementation and the Clean Development Mechanism)
which had apparently been settled in Bonn.
The political deal at Bonn in July was based on a readiness by the EU to
make major concessions on sinks to Japan, Russia and Canada in order to keep
the Kyoto Protocol alive following its rejection by President Bush in February
2001. The most difficult issue at Bonn was compliance, with the Umbrella Group
finally securing a postponement until after entry into force of the
Protocol of a decision on whether compliance consequences should be legally
binding.
The key elements of the Bonn political deal were:
-
On mechanisms, the supplementarity outcome did not require a specific
portion of abatement to be conducted through domestic measures. The
Umbrella Group, however, conceded the establishment of a commitment period
reserve which could exert upward pressure on the carbon price by constricting
the volume of emissions trading. -
On sinks, there was a very positive outcome from an Australian
and Umbrella Group perspective. Canada and Japan obtained generous allowances
for forest management, while Australia obtained uncapped and undiscounted
credits from revegetation. however there was a constraint imposed
on the extent to which sinks could be used in the CDM. -
On compliance, the decision on whether compliance consequences
should be legally binding was postponed until after entry into force
of the protocol. However, we accepted an enforcement branch composition
with a majority of developing countries and a penalty restoration rate of
1.3 times the excess emissions being deducted in the second commitment period. -
For developing countries, structures were established in the form
of three new funds, but specific funding targets were not agreed. OPEC countries
kept a path open to compensation for losses they might suffer as a result
of measures taken in Annex 1 countries. There was no advance on the question
of developing country participation (targets).
Some progress was made at Bonn in translating these political agreements
into legal texts. The text on developing country issues was completed.
The text on sinks was very close. The texts on mechanisms and compliance however
were highly controversial with many issues unresolved and work was not begun
on the technical issues associated with Articles 5, 7, & 8 concerning
inventories, registries and reporting, which had important implications for
the use of the mechanisms and sinks. The expectation was that these
unsettled texts would be the main focus at Marrakesh.
Against this background, how did the key negotiating groups approach Marrakesh?
EU calculations may have been that it had already made sufficient concessions
at Bonn to lock Japan and Russia into ratification. In Marrakesh
the EU sought to use the negotiation of the technical rules on mechanisms
and articles 5,7 &8 further to constrain the use of the mechanisms and
sinks. The EU also appeared to want to ensure that ultimately the consequences
of non-compliance would be legally binding, notwithstanding the Bonn decision
that this issue be postponed until after entry into force.
G77 objectives included constraining the use of the mechanisms and sinks
while maximising developing country influence on the CDM and JI boards,
and somehow locking Russia, Japan and Australia into legally binding compliance
consequences. preventing any discussion of developing country participation
was a primary objective.
Russia wanted to increase the sinks concession it had obtained at Bonn from
17 million tonnes to 33 million tonnes and to preserve the Bonn agreement
on postponement of the decision on legally binding compliance consequences.
It also wanted the mechanisms to work.
Japan, Canada and Australia worked to lock in the Bonn sinks deal, to ensure
that the mechanisms worked properly, to preserve the Bonn agreement on compliance
and to set up a process leading to developing country participation.
The United States had not made a lot more progress on its climate change
policy review given the events of September 11th and was
in a similar position to that in Bonn where it confined itself to Convention
issues.
I should note that the Australian Government was in caretaker mode throughout
the Marrakesh meeting which meant that Senator Hill did not attend and Australia
did not chair the Umbrella Group. This was done by Canada.
Overall COP 7 was a success for the Umbrella Group. It locked in the Bonn
sinks deal and in addition Russia doubled its allowance under Article
3.4 forest management. It achieved a set of rules on mechanisms
and Articles 5,7 &8 which will allow ready access by Parties to an effective,
international emissions trading system and it preserved the Bonn Agreement
to postpone until after entry into force a decision on whether compliance
consequences should be legally binding.
To a large extent this outcome is attributable to a change in the negotiating
dynamic which had prevailed at Bonn, with Japan insistent that it get the
outcomes it needed on compliance and mechanisms if it were to ratify the Protocol.
Similarly Russia was able to negotiate its sinks outcome as a prerequisite
to its ratification. The EU and other opponents of these positions, anxious
for entry into force, were obliged to concede.
I�ll now run you through the key outcomes of Marrakesh and combine them with
the Bonn outcomes so that you can see the shape of the rules that have emerged
for the implementation of Kyoto on compliance, mechanisms and sinks.
Compliance
It quite quickly emerged at Marrakesh that a key objective of the EU and
G77 was to make eligibility to use emissions trading and the other mechanisms
conditional upon acceptance of a set of legally binding compliance consequences.
Further, this conditionality could have postponed the use of the mechanisms
for a long, undefined period. This ran directly counter to the objectives
of Japan, Russia and Australia, all of which oppose legally binding consequences.
This was the outstanding political issue at the end game in Marrakesh and
in the end was resolved in favour of Russia, Japan and Australia, without
conditioning use of the mechanisms on acceptance of the compliance arrangements.
The key elements of the compliance system are:
- Non-compliance to be determined by an enforcement committee with a majority
of members from developing countries. - Consequences for exceeding emissions targets include submission of a compliance
action plan, a restoration rate of 1.3 and suspension of the right to make
transfers. Reinstatement of access to mechanisms is essentially conditional
upon submission of a compliance action plan. - The consequence for non-compliance with inventory and reporting requirements
is suspension of eligibility to use the mechanisms. Reinstatement of access
to mechanisms is subject to a clean report from a subsequent review team.
Mechanisms
As I mentioned previously, the Bonn Agreement had already dispensed with
the notion of quantitative caps on the use of mechanisms. The Agreement however
also included a commitment period reserve of 90% of initial assigned amount
or 100% of the latest inventory, whichever is lower. This has the potential
to exert upward pressure on the carbon price. The EU succeeded in locking
into place the requirement to maintain a commitment period reserve at Marrakesh.
A further attempt to constrain access to Russian credits by linking mechanisms
eligibility to the quality of sinks inventories failed.
Efforts were made by some parties to limit the bankability and transferability
of credits arising from sinks, JI and CDM. The final agreement allows for
full bankability of assigned amount units (AAUs). Credits arising from JI
(ERUs) and CDM (CERs) may each be banked up to 2.5% of a Party�s assigned
amount. Sinks credits (to be labelled RMUs) may not be banked. They may however
be �recycled�, that is, exchanged for another type of credit with the result
that the restrictions on banking should have little practical impact.
In addition, there were decisions on rules to underpin accounting of assigned
amounts and registries, and on eligibility criteria to use the mechanisms.
These criteria now relate mostly to inventory, timeliness and quality. A �prompt
start� CDM Board was elected. Overall, we believe that the rules agreed
at Marrakesh will allow ready access by Annex I Parties to an efficient international
emissions trading arrangement as well as the ability to do projects in other
Annex I countries and developing countries, although the rules for CDM and
JI are more complex than we would have wished.
Sinks
Marrakesh locked in the Bonn sinks agreement with the amendment of the Russian
Article 3.4 forest management entitlement from 17Mt to 33Mt. The main focus
of negotiations was the Russian number.
The main features of the sinks package are:
- There are no restrictions on credits generated by afforestation and reforestation
activities (Article 3.3) by Annex I countries. - Australia will have access to uncapped and undiscounted credits from revegetation
under Article 3.4. - The artificial accounting penalty associated with fast-growing, short-rotation
forest plantations (the dominant type in Australia) was addressed in our
favour. - It was recognised that Australia was eligible to access Article 3.7.
This represents a very good outcome for the Umbrella Group and Australia.
Developing Country Participation
Australia, Japan and Canada � with some initial support from the EU � pushed
hard at Marrakesh to establish a process leading to a negotiating framework
for developing countries� participation in emissions abatement. The aim was
agreement that COP8 should decide on such a process. The G77 rejected this
approach. It was clear that greater understanding is emerging among
Annex I countries that with entry into force of the Protocol, this issue will
need to be addressed.
The Path Forward
The Marrakesh outcome is widely seen as paving the way for ratification by
many Annex I countries and entry into force. Both Japan and Russia have indicated
that they plan seriously to consider ratification. While entry into force
by the time of the WSSD in September may be ambitious given the complexity
of the policy and legislative issues involved, in most developed countries
it is likely that it will take place by the end of 2003. Given the focus on
securing agreement at Marrakesh, not a lot of thought appears to have been
given by Parties to what implementation of Kyoto without the United States
would mean in practical terms.
The Kyoto Protocol may have only limited environmental impact over the first
commitment period given that the major purchaser of credits and the largest
emitter � the US � would not be a Party. The lack of US demand for credits
could push down their price, allowing the EU, Japan and others to meet their
targets through cheap Russian credits � two factors which could alter this
are:
- the extent to which Russia exercises monopoly power by holding back in
releasing surplus credits; and - possible bilateral arrangements between Russia and the EU or others which
would result in tying up Russian credits.
There is some acknowledgement beyond the Umbrella Group that without the
US the Protocol might not have much impact in the first commitment period
at least. Speculation has arisen that a situation might emerge with
Kyoto functioning in parallel with a US system with some form of connection
allowing emissions trading between the two