The Sao Paulo Proposal for an Agreement on Future International Climate Policy

1. C B A S I The Sao Paulo Proposal for an Agreement on Future International Climate Policy BASIC Presentation to ECP Colloquium 22-23 March 2007, Brussels Erik Haites, Margaree Consultants Niklas Höhne, Ecofys Farhana Yamin, Institute of Development Studies

2. S B A I C BASIC Project • Building and Supporting Institutional Capacities in Climate Change • Initially a 2.5 year project to: • Support implementation of UNFCCC/KP by Brazil, India China and South Africa • Assist developing countries with post 2012 climate negotiations • Link national & international components of climate policy • Main funding: European Commission • Extra funding from UK DEFRA, Australia plus co-financing/in-kind support from IDS & WRI, China, IDDRI • www.basicproject.net

3. S B A I C Building And Strengthening Institutional Capacities in Climate Change • Network of over 20 research & policy institutions, mostly from BASIC countries, working with international experts on wide range of issues: • Task 1: Mitigation, SD & energy, modelling (China Team) • Task 2: Vulnerability & adaptation (India Team) • Task 3: Carbon markets & national institutional issues (S.Africa Team) • Task 4: Future international climate policy & negotiations (Brazil Team) • Task 5: Establishing a DC focused experts network (Full Team) • Project activities comprise a mix of policy analysis, briefings, workshops, conferences, mentoring and training

4. S B A I C

5. S B I C A Environment Directorate General of the European Commission MARGAREE Consultants Inc.

6. S B A I C Sao Paulo Proposal • Not a consensus BASIC document & not the views of BASIC governments • Part of on-going work under BASIC Task 4 (Brazil team) which focuses on: designing international climate change policy and enhancing negotiations skills • Sao Paulo workshop in August 2006: first discussion of this “package” – more detailed work on-going • Papers and presentations from Sao Paulo & other BASIC workshops: http://www.basic-project.net/

7. S B A I C Goal for the Proposal • Create a comprehensive, stable, long-term, universal regime to address climate change • Respect principles of equity and common but differentiated responsibilities and respective capabilities • Establish stable, long-term regime for technological and structural change • Flexibility to cope with changing circumstances

8. S B A I C Legal Form of the Agreement • Propose amendment of Kyoto Protocol and COP/MOP decisions • Advantage – retains existing institutional structures • Disadvantages – Non-Parties are observers during the negotiations and need to ratify the Protocol to be part of the new agreement • New Protocol to the Convention also possible. Opposite advantages and disadvantages. Also raises numerous transition issues • Mix of Convention and Kyoto Protocol actions also possible but more complex

9. S B A I C Summary of Core Proposal Elements Medium and Long Term Goals • Annex I/B Parties Quantified Commitments • Carbon Markets • Commitments for Non-Annex I Parties • Mandatory Limits on CERs and graduation provisions Adaptation • Technology • Universality & Stability

10. S B A I C Medium & Long Term Goals Goals help assess progress toward UNFCCC’ ultimate objective in five year reviews Possible goals • a maximum temperature increase of 2oC by 2100 • a maximum atmospheric concentration of CO2 such as 450 or 550 ppmv by 2050 • Greenhouse gas emissions by Annex I Parties at least 15 per cent below their combined 1990 emissions in 2020 • maximum loss of natural ecosystems of X% by [date ] • Others? Parties’ commitments are not directly linked to these goals

11. S B A I C Annex I/B Parties Quantified Commitments • 2008-2012: Kyoto commitments and compliance features retained • 2013-2018: Annex I/B Parties politically negotiate absolute annual emission limits, including LULUCF • Then each Party may express these absolute levels as legal commitments as a combination of: • An absolute emissions limit (tCO2e/year); • Emissions intensity limit (tCO2e/unit GDP); • New and additional funding (USD per year) to a maximum of 10% of its commitment (based on international carbon price) • Combination is intended to have same stringency Example: Emission (2010): 100Mt Negotiated emissions (2015): 70 Mt Absolute: 45 Mt Intensity: equivalent of 30 Mt Financial: equivalent of 5Mt = 5mln$

12. S B A I C Automatic Extension • Post 2018, commitments are automatically extended each year e.g. 2019 commitments set in 2013 • If compliance in past year (e.g. 2012) easier or less costly: • Absolute: Reduced by 1% • Intensity: Reduced by 5% • Financial: Increased by GDP growth • Otherwise • Absolute: Unchanged • Intensity: Reduced by 3% • Financial: Increased by inflation • Annual commitments always known for next 5 years with a range of 0 to 5% reduction for the following 5 years • Compliance is assessed every 5 years, carry over possible • Total carry over has increased • Price of AAUs has increased not more than inflation

13. S B A I C Economic Hardship • An Annex I/B Party whose real GDP has declined by more than 1% during a year may request that its target be equal to its emissions for that year • An Annex I/B Party may request a change in the form or level of its commitment. Needs approval of ¾ of Parties present and voting at next COP/MOP.

14. S B A I C Carbon Markets • Clean Development Mechanism continues with minor changes • current CDM levy could provide €325million up to 2012 • 2% levy on Joint Implementation and to International Emissions Trading transfers out of the issuing registry for Technology Fund • Failure to ratify by 30 Sept 2012 stops issuance and transfer of all units 31 Dec 2012 to encourage entry into force on 1 Jan 2013

15. S B A I C Summary of Core Proposal Elements Medium and Long Term Goals • Annex I/B Parties Quantified Commitments • Carbon Markets • Commitments for Non-Annex I Parties • Mandatory Limits on CERs and graduation provisions Adaptation • Technology • Universality & Stability

16. S B A I C Commitments for Non-Annex I Parties • Principles of equity and common but differentiated responsibilities and respective capacities mean Non-Annex I Parties adopt Annex I/B commitments later • Annex I/B type commitments not appropriate: limited capacity, rapid economic, social and demographic changes • For developing countries CC is part of many other problems • Options for Non-Annex I Parties: • Host CDM projects • Quantify emission reductions due to sustainable development policies (SD-PAMs) • Adopt sectoral (excluding LULUCF) or national “no lose” commitment • No lose sectoral or national commitments • After exhausting a CER limit, NAIP expected to graduate to AIP types commitments

17. S B A I C Non–Annex I Parties SD-PAMs • Create a new annex listing Non-Annex I Parties that agree to quantify and report the emission reductions achieved by their SD actions • Methodologies developed by e.g. Consultative Group of Experts; results reported in national communications • Actions earn political recognition but do not generate tradable credits (programmatic CDM and “no lose” commitments can be used for that) • Participating Parties can use simplified procedures to access Adaptation and Technology Funding Mechanisms • By lowering per capita emissions, SD actions defer the date at which a Party reaches its limit on cumulative transfers & defers graduation • Secretariat produces compilation & synthesis report on SD-PAMs with quantified reductions where possible

18. S B A I C Non–Annex I Parties “No Lose” Commitments • A Non-Annex I Party may propose a sectoral (except LULUCF) or national “no lose” commitment • Proposal reviewed by CDM Executive Board which makes a recommendation to COP/MOP • Commitment must be more stringent that emissions that would otherwise occur • Methodology for calculating emissions achieved must be suitable (address possible leakage, double-counting) • Must be accepted by ¾ of Parties present and voting • Party earns Voluntary Emission reductions (VERs, equivalent to CERs) for difference between commitment and actual emissions certified by an accredited DOE • Commitment must be maintained until Party becomes an Annex I/B Party

19. S B A I C Graduation and Limits on Transfers of CERs • A collective limit on transfers of CERs and VERs by Non-Annex I Parties since 2005 is set & shared among NAIPs • Once the cumulative transfers by a non-Annex I Party reach its current limit, it is expected to adopt an Annex I/B emissions commitment • Share of each Non-Annex I Party based on its: • Population • Responsibility – emissions per capita since 1990 • Capability – current GDP per capita • Mitigation potential – current emissions per capita • A Party can reach its limit with no transfers due to increases in per capita emissions, GDP

20. S B A I C Graduation & Limits on Transfers of CERs • Ensures Annex I/B Parties undertake significant commitments before Non-Annex I do so • Allows NIAP to participate in carbon market and use Adaptation and Technology Funds before adopting commitments • Creates incentive for NAIP to adopt SD policies that reduce per capita emissions • Equitable distribution of CDM benefits in the long run • Recognizes changing circumstances of individual NAIP • Gives each NAIP Party some control over when it “graduates” to Annex I/B

21. S B A I C Graduation & Limits on Transfers of CERs • Countries likely to have a limit of zero based on recent data include: Cyprus, Israel, Singapore and wealthier OPEC countries • Countries likely to reach their limits soon based on CDM projects in the pipeline include South Korea (2 years) and Chile (12 years) • Other DCs, e.g. India/China, can use CDM/VERs for another 20-100 years

22. S B A I C Summary of Core Proposal Elements Medium and Long Term Goals • Annex I/B Parties Quantified Commitments • Carbon Markets • Commitments for Non-Annex I Parties • Mandatory Limits on CERs and graduation provisions Adaptation • Technology • Universality & Stability

23. S B A I C Adaptation Proposals • SP proposes strengthening adaptation by focusing on institutional aspects, policy coherence and secure, increased levels of predictable funding • A new Adaptation Committee of Experts (ACE) to provide coherence/guidance • A pilot phase of “adaptation activities implemented cooperatively” from 2008 • A “pilot phase” shifts emphasis from • Inaction/workshops and • Funding stand alone projects towards • learning-based policy approach that promotes implementation of programmatic action

24. S B A I C Adaptation Proposals • All Parties revise design parameters and standards for infrastructure and equipment to address climate change, energy efficiency and water efficiency • Develop an insurance or risk management mechanism to address the impacts of extreme weather events by 2010 • Develop vulnerability & adaptation tools & methods to target vulnerable human populations and natural ecosystems • Focus financial support by the Adaptation Fund on assisting the most vulnerable human populations and natural ecosystems • Increased funding goes to AF from share of the proceeds from CDM, JI and ET & from Annex I/B financial commitments

25. S B A I C Technology Provisions • Proposal distinguishes between existing & new technologies • Most existing technologies are proprietary so transfer will occur on commercial terms • For existing technologies work with qualified institutions to improve access to information on available technologies • Any Party can complain to the Facilitative Branch that another Party is restricting technology transfer

26. S B A I C Technology Research and Development • New Technology Funding Mechanism resourced by JI/ET levy, & funds from Annex I/B Parties’ financial commitments • Funding provided to Non-Annex I Parties to: • Participate in international research projects to develop technologies to reduce emissions of to adapt to climate change • Buy down the cost of mitigation or adaptation technologies to enhance their diffusion • Technology Funding Mechanism to recommend to COP/MOP how best to use any intellectual property rights acquired

27. S B A I C Universality and Stability • Memoranda of Understanding (MOUs) to extend to sectors: • aviation and marine • global industries e.g. aluminium • Memoranda of Understanding(MOUs) also extend coverage to Non-Parties: • Proposal allows national or sub-national governments of non-Parties to agree a MOU which could ensure they are making comparable efforts & do not benefit from staying out (as the Montreal Protocol does) • USA could approve MOU easier than treaty ratification • Trade restrictions could be imposed on countries that are not Parties and do not have an MOU by ¾ vote of the COP/MOP

28. S B A I C Summary Elements that may appeal to Non-Annex I Parties • Likelihood of a stable, long-term, universal regime • Equity: Annex I Parties continue to take the lead in combating climate change • Equity: Emissions limitation commitments by Non-Annex I Parties depend on stringency of Annex I commitments • Equity: Enhanced geographical benefits for LDCs/SIDs • Additional options for participation by Non-Annex I Parties • Enhanced approach to adaptation • Financial support for technology research and development Elements that may appeal to Annex I/B Parties • Future commitments by Non-Annex I Parties • Flexibility in the form of their emissions limitation commitments • Expanded scope for carbon markets • Predictable emissions limitation commitments for the next decade • Relief for economic hardship • Flexible participation through an MOU • Likelihood of a stable, long-term, universal regime

29. S B A I C Legal Form of the Agreement • Propose amendment of Kyoto Protocol and COP/MOP decisions • Advantage – retains existing institutional structures • Disadvantages – Non-Parties are observers during the negotiations and need to ratify the Protocol to be part of the new agreement • New Protocol to the Convention also possible. Opposite advantages and disadvantages. Also raises numerous transition issues • Mix of Convention and Kyoto Protocol actions also possible but more complex

30. S B A I C Legal Form of the Agreement • Propose amendment of Kyoto Protocol and COP/MOP decisions • Advantage – retains existing institutional structures • Disadvantages – Non-Parties are observers during the negotiations and need to ratify the Protocol to be part of the new agreement • New Protocol to the Convention also possible. Opposite advantages and disadvantages. Also raises numerous transition issues • Mix of Convention and Kyoto Protocol actions also possible but more complex

31. S B A I C Proposal Consistent with stabilization? Source: Ecofys, Evoc tool 2006

32. S B A I C Consistent with stabilization? Reference Default Case 1 Case 2 Source: Ecofys, Evoc tool 2006

33. S B A I C Further work on Sao Paulo Proposal • March – June 200: further modelling work on environmental, economic & equity aspects of Proposal • Testing reactions through side event at workshops/COPs etc. • 2007-2008 - further analytic work & national assessment of options by policymakers/stakeholders in BASIC countries thru national workshops with SNAPP 2012 Project (WWF International with support from BASIC)

34. Backup slides

35. EVOC tool Input • Base year emission data per country (1990-2004): Hierarchy of emissions sources • Inventory submissions to the UNFCCC • IEA • USEPA • EDGAR • All Kyoto gases, sectors as detailed as in the source, excluding LULUCF • Emissions in 2010 based on Kyoto targets (except USA) • Energy, population, GDP data: IEA • Future reference development (emissions, population, GDP): RIVM IMAGE implementation of the IPCC SRES scenarios Growth rates of the 17 regions applied to individual countries by gas and sector Output • Emissions or emission allowances under various proposals for future international climate policy after 2012 - before trading Details of the modelling see Höhne, Phylipsen, Moltmann (2006): Factors underpinning future action, UK Department for Environment Food and Rural Affairs (DEFRA), by Ecofys, available at www.fiacc.net

36. Limits to CERs Responsibility (R): Cumulative GHG/cap Capability (C): GDP/cap Potential (P): GHG/cap

37. Limits to CERs

38. Default case • Default case • Annex I reduces 1%/y • Limit between world and Annex I average: • R: 5 t/cap • C: 13 000 US$/cap • P: 11 t/cap • Result • Continuing increase in global emissions until 2050 • Stabilization at roughly 550 ppmvCO2650 ppmvCO2eq.4°C (2.5-5.5) Reference Default case

39. Limits to CERs as share of the global total R: 5 t/cap C: 13 000 US$/cap P: 11 t/cap A1B scenario

40. Case 2 • Case 2 • Annex I reduces 2%/y • Roughly global average: • R: 3 t/cap • C: 9 000 US$/cap • P: 6 t/cap • Result • Stabilization in global emissions • Option open in 2020 to stabilize at roughly450 ppmvCO2550 ppmvCO2eq.3°C (1.5-4.5) Reference Case 2

41. Limits to CERs as share of the global total R: 3 t/cap C: 9 000 US$/cap P: 6 t/cap A1B scenario

42. Limits to CERs as share of the global total R: 2 t/cap C: 7 000 US$/cap P: 5 t/cap A1B scenario