The Global Carbon Market New Challenges to International Law

1. The Global Carbon Market New Challenges to International Law Dr. Christina Voigt, LL.M. Public Lecture, Thursday Sept. 25th, 2008 University of Ottawa, Canada

2. I. A New Climate in PILOr: which challenges does climate change pose to international law? From To • Co-existence Co-operation • Sovereingty ’New Sovereignty’ • Reciprocity Universality • Government Governance • Fragmentation Interrelation/Holistic Regulation

3. I. A New Climate in PIL From To • Regulation Marked-Based Incentives • (command and control) • Equal Obligations CBDR/ Preferential Treatment • Compensation/ Reparation Prevention • Prevention Precaution • Adversarial Non-Compliance • Dispute Resolution Mechanisms

4. I. A New Climate in PIL From To • Influence on States Influence on Domestic Actors • Security (military conflicts) ’Environmental Security’ • Refugees Climate Refugees • UN Declaration on UN Declaration on Human Rights Human Obligations • Economic and Social Global Sustainable Advancements of all Peoples Development • (UN Charter, Preamble)

5. II. Canadas Climate Commitment Kyoto Target: 536Mt (6% under 1990 level) 2006: 727 Mt (29.1% above Kyoto target) Source: National Inventory Report, 1990-2006 - Greenhouse Gas Sources and Sinks in Canada, May 2008

6. II. Canadas Climate Commitment Kyoto Target: 536Mt (6% under 1990 level) Canada is likely to miss its Kyoto target by 260Mteach year (2008-2012) = 1.3Gt

7. III. The Global Carbon Market • There are several potential policy options for Canada to meet its Kyoto targets starting in 2008, beginning with significant domestic action to reduce emissions levels. • It is likely, however, that an exclusive domestic focus would not be possible to maintain, given the magnitude of adjustment for Canada's economy, at this late date, that will be required to yield the required emissions reductions. Canada also has recourse to the Kyoto mechanisms to achieve compliance, which are intended to provide for lower-cost emissions reductions than achievable domestically; but these come with their own economic and environmental risks and uncertainties. • (www.ec.gc.ca)

8. III. The Global Carbon Market What is themagnitude of adjustment for Canada's economy?: 50€/t CO2 eq= ca. 80 CAD annually: 260Mt ( 260.000.000t) x 80CAD = 20.8 Mrd CAD 2008-12: 1.300Mt (1.300.000.000t) x 80CAD = 104 Mrd CAD Supplementarity: Huch much does Canada have to do at home? How much can be done abroad? 50% at home Reduction of 130Mt CO2-eq. domestically (10.4 Mrd. CAD) National measures: ‘command and control’ or ‘carrots and sticks’ 50% abroad Purchase of 130 Mt in emission rights by making use of the ’flexibility mechanisms’ of the Kyoto Protocol

9. III. The Global Carbon Market Annex 1 Parties to the Kyoto Protocol are expected to take domestic policy measures to meet their commitments. Kyoto Protocol provides three "flexibility mechanisms" to lower the overall costs for Annex 1 Parties in achieving their emission reduction targets. The three Kyoto mechanisms are: The Clean Development Mechanism (CDM) which provides for Annex 1 Parties to implement projects that reduce emissions in developing countries (Art. 12 Kyoto Protocol); creates CERs Joint Implementation (JI) which provides for Annex 1 Parties to implement an emission-reducing project or a project that enhances removals by sinks in the territory of another Annex I Party; (Art. 6); creates ERUs and Emissions trading which provides for Annex I Parties to acquire or sell assigned amount units (AAUs), or CERs, or ERUs; (Article 17).

10. Canada in the Global Carbon Market 130 mil units = CAD 5.2 Mrd C (Canada) Annex I 130 mil t CO2 10.4 Mrd CAD AUS ETS (2011) L (Lithuania) Annex I Joint Implementation Art. 6 KP Others? IET 130 mil CERs 1-1.95Mrd CAD 130 mil ERUs CAD 3.9 Mrd €25 CAD 40 ERUs CAD 30 International Emissions Trading Art. 17,10,11 KP Clean Development Mechanism Art. 12 KP EU ETS (2005) CR (Costa Rica) Non-Annex I NZ ETS (2008+) California, WCI (2012) CERs CAD 7-15

11. IV. The Global Carbon Market: A PIL Perspective • Cooperation: States have different functions and roles, the carbon market is based on broadest possible co-operation between States • Interdependence: The Carbon Market needs many participants (’critical mass’), market functions because of different abatement costs • ’New Sovereignty’: Trading with sovereign commitments under a binding multilateral treaty (Kyoto Protocol) • Convergence: Common goal, but different means, expectations, demands and requirements

12. IV. The Global Carbon Market: A PIL Perspective • Governance:broad participation, ’Bridge builder’: private/public, economic/social/environmental interests; national/international; developed/developing countries • Interrelation/ Holistic Regulation: integration of market (economic) thinking into environmental regulation on an international level (means-ends relationship) • CBDR, Preferential Treatment: common responsibility for climate system, but different emission reduction obligations (different historical responsibility, different economic means, adaptation capacity) • The ’Collective Interest’:Art. 2 UNFCCC, common concern, 2 degrees celsius

13. IV. The Global Carbon Market: A PIL Perspective • Marked-Based Incentives:States can decide for themselves if it is cheaper to reduce emissions at home or abroad, flexibility, cost-efficiency, P: Supplementarity!! • Non-Compliance Mechanisms: Compliance Committee (Facilitative Branch and Enforcement Branch), ’hard enforcement measures’ (0.3 x difference in next commitment period), non eligibility for flex mex • Influence on Domestic Actors: participation of domestic actors (companies, banks, private investors) in global carbon market, decision of international institutions, which are established under the UN system (UNFCCC, KP) can directly influence private actors

14. V. Something New Under the Sun? • International Climate Law – and the Law of the Global Carbon Market – is a new and complex field of PIL • Global development which limits (and redefines) States’ sovereign rights (right to emissions, right to freely chose development strategy) • New, innovative market mechanisms and legal instruments have been put into play on a global scale • Unprecedented experiment (legal and practical), trading with sovereign rights…. • Based on cost-effectiveness, differentiated commitments, sustainable development, technology transfer, financial assistance • How to balance equity and efficiency? • Is it the right way to go? Global market for pollution rights? What are the ’climate outcomes’? (lot of business and a lot of work for lawyers?)

15. V. Something New Under the Sun? • Recognition of primary responsibility of developed countries, but developing countries’ role becomes more and more important • New rules/ ’cutting edge’ i PIL (learning while doing….) • Attracted strong interest by states, economic actors, NGOs, IGOs, lawyers • Expanding, intense development (§ and $) • Challenge for lawyers: complex field, demands multidisciplinary cooperation (with economists, political scientists, natural scientists - and other lawyers…private international law, finance law, patent law, property law, insurance law, human rights law) • More and better coordinated (legal) research necessary

16. Thank you! christina.voigt@jus.uio.no