The Kyoto Protocol Implications for the Bank and our Clients

1. The Kyoto ProtocolImplications for the Bank and our Clients • Bob Watson Overview • Ken Newcombe Flexibility Mechanisms and the PCF • Ajay Mathur Adaptation • Alan Miller GEF (capacity building, technology transfer and adaptation)

2. The Kyoto Protocol - Agreement in Bonn • All governments, except the US, have approved a number of core elements • the US did not participate in the negotiations of the Kyoto Protocol, but they did not attempt to disrupt them • the US stated that the Kyoto Protocol was flawed policy because it was neither fair nor effective, i.e., it was not in the best interests of the US and it would be ineffective without the participation of the large developing countries • Major concessions were made by all Parties • The agreement has been hailed by almost everybody, including the environmental NGOs as a success • Legal language has still to be agreed on several key issues

3. The Kyoto ProtocolCore Elements of the Agreement in Bonn • The core elements included: • The flexibility mechanisms – carbon trading under Articles 6, 12 and 17 • Land-use, land-use change and forestry activities under Articles 3.3, 3.4 and 12 • Funding for developing countries • capacity building • adaptation • technology transfer • Compliance

4. The Kyoto ProtocolCore Elements of the Agreement in Bonn • Flexibility mechanisms (Articles 6, 12 and 17) • the flexibility mechanisms can be used to augment “significant” domestic actions to reduce emissions – this change in language will result in a larger market • reforestation and afforestation activities allowed under Article 12 - debate about which LULUCF activities will be allowed in subsequent commitment periods • nuclear is discouraged/ineligible • only CDM is charged with a fee for adaptation – means a relatively small adaptation fund • streamlined procedures for small projects • fungibility among three flexibility mechanisms

5. The Kyoto ProtocolCore Elements of the Agreement in Bonn • Land-use, land-use change and forestry • all LULUCF activities are eligible in Annex I countries, i.e., forest, cropland and rangeland management • each country has a certain pre-determined maximum allocation of credits for domestic forest management activities in the first commitment period • only afforestation and reforestation allowed under the CDM for the first commitment period • utilization of LULUCF activities under the CDM are capped at 1% of base 1990 emissions

6. UNFCCC and the Kyoto ProtocolCore Elements of the Agreement in Bonn • Funding for developing countries • Special climate change fund – Convention Funds • adaptation, technology transfer, emissions reductions, economic diversification funds • Least developed country fund – Convention Funds • national adaptation programs • Kyoto Protocol adaptation fund – Kyoto Protocol Funds • 2% of CDM proceeds • All three funds to be managed by the GEF - firewalls between regular GEF funds and these funds, and between Convention and Kyoto Protocol funds • EU, Canada, Norway, New Zealand, etc have committed US $410 M annually by 2005 (inc. GEF climate contribution)

7. The Kyoto ProtocolCore Elements of the Agreement in Bonn • Compliance • non-compliance will not result in a financial penalty, but will result in a penalty of 1.3 applied in the subsequent commitment period

8. The Kyoto ProtocolCore Elements of the Agreement in Bonn • Implications of non-US participation • ratification is viable without US, i.e., 55 countries and 55% of industrialized country emissions • small carbon market in developing countries in the near- term, with low prices (i.e., the CDM), given the Russian surplus of carbon credits and the sinks allocation • possible parallel activities by the US • US Administration has yet to finalize its strategy • Congress may act to to either legislate emissions reductions or promote voluntary actions by industry • significant industry activities to reduce emissions

9. Near-term challenge: Percentage change in emissions from 1990 to 2010

10. The Long-term ChallengeCarbon emissions and stabilization scenarios

11. The Challenge of Stabilization of Atmospheric Concentrations of Carbon Dioxide • If governments decide to stabilize the atmospheric concentration of carbon dioxide at 550ppm (about twice the pre-industrial level), global emissions would have to peak by about 2025 and fall below current levels by 2040 to 2070. • This would mean that all regionswould have to deviate from most “business-as-usual”scenarios within a few decades

12. Differentiated Obligations • It has argued by some that the Kyoto Protocol is neither fair nor effective because developing countries are not obligated to reduce their emissions • Fairness - This is an equity issue - the Parties to the Kyoto Protocol will have to decide what is fair and equitable, recognizing that: • about 80% of the total anthropogenic emissions of greenhouse gases have been emitted from industrialized countries; • per capita emissions in industrialized countries far exceed those from developing countries; • developing countries do not have the financial, technological and institutional capability of industrialized countries to address the issue; and • increased use of energy is essential for poverty alleviation • Effectiveness- Long-term stabilization of the atmospheric concentration of greenhouse gases cannot be achieved without global reductions, hence the issue is whom should do what in the short-term recognizing the long-term challenge