BALI, Indonesia, December 10, 2007 – “What comes next?”

It’s a question that has haunted the United Nations Framework Convention on Climate Change 13th Conference of Parties.

Will the Bali talks result in a new global framework for tackling climate change? Will they lead to new commitments for a third compliance period for the Kyoto Protocol? An extended Clean Development Mechanism (CDM)?

Or will they instead dissolve into acrimonious debate as the U.S. and rapidly developing countries again reject binding targets and timetables?

This second week in December will provide a lot of the answers. And also leave questions to be considered in coming months and years.

Whither Kyoto?

The imminent demise of the Kyoto Protocol has, in the past, been greatly exaggerated. The Protocol was late in coming into effect, and its supporters readily acknowledge its many flaws. Many of the Kyoto signatories are not on track with their emission reductions, and it is not clear how they will meet their targets once the first commitment period begins in 2008.

However, there is a considerable amount of money, some $30 billion in 2006, vested in maintaining the trading system set up by the Kyoto framework.

A common objection to the Kyoto Protocol is that the treaty did not include substantive commitments from developing countries. Total annual emissions from those so-called non-annex countries now surpass those of the annex one countries.

Some object that a tradable permit system is the wrong approach to tackle the climate problem. Critics on this point argue that rigid caps could lead to inefficiently high compliance costs. They argue instead for a system of harmonized carbon taxes.

Kyoto attracts criticisms also for allowing Boreal forests as sinks, seemingly dubious in light of recent research findings on albedo effects of high-latitude forests. Another target of some scorn: the Kyoto Protocol’s allocation of “hot air” credits to economies such as Russia’s and Ukraine’s that underwent dramatic economic contractions in the time between their baseline year and Kyoto’s ratification.

Kyoto critics fear that the path dependency imposed by the Kyoto framework will exclude better solutions. Consider these points made in a recent article (pdf) in Nature:

Kyoto has failed in several ways, not just in its lack of success in slowing global warming, but also because it has stifled discussion of alternative policy approaches that could both combat climate change and adapt to its unavoidable consequences. As Kyoto became a litmus test of political correctness, those who were concerned about climate change, but skeptical of the top-down approach adopted by the protocol, were sternly admonished that “Kyoto is the only game in town”. We are anxious that the same mistake is not repeated in the current round of negotiations. Already, in the post-Kyoto discussions, we are witnessing that well-documented human response to failure, especially where political or emotional capital is involved, which is to insist on more of what is not working …

The Kyoto Protocol of course has its proponents also.

They argue that no treaty negotiated via consensus in the international political arena will ever be perfect. They point out that the dire nature of the climate crisis does not permit the luxury of letting the perfect be the enemy of the good. They also suggest that the Kyoto Protocol and the markets it has created are a learning process, and that the Protocol can continue to be refined as shortcomings come to light. Policy solutions favored by Kyoto’s critics are often seen as being politically infeasible.

It appears unlikely that the December 2007 Bali talks will lead to an outright scrapping of the Kyoto framework in the absence of a serious alternative which few at this point expect.

Dealing with ‘Dangerous’

The UNFCCC commits signatories to work to prevent “dangerous” climate change, but the term “dangerous” is not defined.

Many countries have different interpretations of the term. The European interpretation of dangerous climate change as more than 2 degrees C above pre-industrial average temperatures is probably the most widely accepted.

The United States, on the other hand, has been adamantly opposed to defining what atmospheric concentration of temperature change would be “dangerous”. This argument surfaced in the last G8 summit of world economic leaders, and it is being discussed also in Bali.

There is also a growing disconnect between the rhetoric of avoiding dangerous climate change as defined by the Europeans and the level of action being proposed. The most recent Intergovernmental Panel on Climate Change report pointed out that to produce an average outcome of 2 degrees warming (and thus having a 50% probability of not avoiding more than 2 degrees warming), atmospheric concentrations of carbon dioxide and other greenhouse gases would have to be stabilized at around 450 parts per million CO2 equivalent.

Reaching that sort of target would require global emissions reduction of more than 60 percent by 2050. There have been some proposals to make reductions of this scale in developed countries, but no realistic framework for producing emissions reductions of the magnitude for the world as a whole.

As Al Gore poignantly put it, “The outer edge of the politically possible falls short of the inner edge of the necessary.”

Reduced emissions from deforestation

One of the major topics for discussion in Bali has involved possible inclusion of credits for avoided deforestation (known as REDD – reduced emissions from deforestation and degradation) in the international carbon market after 2012.

Deforestation accounts for around 20 percent of global greenhouse gas emissions, and preventing additional deforestation is seen as one of the most cost-effective ways to reduce future emissions. However, rewarding countries for not chopping down their forests is problematic in practice.

The largest barrier is the need to determine effective baselines. Essentially, the CDM executive board or some other organization would have to estimate how much deforestation will happen in the absence of any policy, and than reward countries whose deforestation rates turn out to be lower than estimated. However, how do you set a baseline for a country like Congo which currently has low deforestation rates as a result of internal conflict, but could have high deforestation rates in the future? And how do you avoid having countries lobby for unrealistic baselines to maximize their future carbon credit generation?

In addition to baseline setting, some observers are concerned that RED credits would flood the existing carbon markets, displacing investments in things like wind and solar that may be more verifiably additional.

With the conference taking place in Indonesia and its government strongly supportive of the development of a RED scheme, there appeared to be at least some prospect for progress on the deforestation issue.

Beyond a global framework: the silver buckshot approach

The United States lead representative has insisted the country is not ready in Bali to agree to binding international targets and timetables. Even post-2008, when the next U.S. administration may be more favorably disposed toward the issue, the U.S. at this point could not meet first round of Kyoto commitment targets. It is likely that the U.S. instead may adopt a national policy that includes some linkages with both the European and CDM carbon markets.

Developing countries also were not considered likely to agree in Bali to binding targets and timetables. Individual countries may set their own goals, but any sort of carbon cap for countries like China, India, or Brazil in effect were dead on arrival in Bali.

The resulting fragmentation of climate policy into individual countries or groups of like countries has observers weighing different strategies.

Instead of the “silver bullet” approach of getting the whole world behind a single uniform policy, each country instead would develop its own systems for reducing emissions. The Europeans, and perhaps Japan, Canada, and Australia, would likely stick to the Kyoto framework. The U.S. would adopt its own system, perhaps along the lines of the cap and trade system under consideration in the U.S. Senate. China and India would embark on national or sector specific emissions intensity targets, attempting to become more efficient without placing a hard cap on their emissions.

Such a “silver buckshot” approach would not be very effective at ensuring that the world meets a specific emissions target, but it might provide a laboratory for policy experimentation and offer a way to better involve developing countries.

What can we expect?

Entering the decisive second week of the Bali talks, it’s not so difficult to anticipate what will not happen:

  • The Kyoto framework is unlikely to be scrapped, at least by current annex one signatories.
  • The developing countries will not agree to any sort of binding targets or timetables for emission reductions.
  • The United States will not agree to join the Kyoto process or adopt any binding targets or timetables.

What may happen is far less certain, but it’s not unrealistic to anticipate that:

  • It is possible that Kyoto signatories might agree to extend the Protocol to a second commitment period, perhaps 2012 to 2016. More probable is that the European countries would announce a continuation of the European Emissions Trading System to help provide certainty to the carbon market.
  • A broad framework may be negotiated for including RED into the carbon market for the post-2012 period, though most of the substantive decisions will be postponed till later meetings.
  • Perhaps an agreement will be reached to increase funding to adaptation and technology transfer to non-annex one countries.

The general feeling at the conference so far is that the majority of substantive issues will be delayed till COP 15 in 2009. It seems unlikely that anything particularly ambitious will emerge from the negotiations in Bali, but it is not completely out of the question. With the high level delegates arriving on Wednesday, December 12, the negotiations enter their final phase.

Also see:

Climate Policy Analysis: Taxes and Tradable Permits (Pt. 1)

Climate Policy Analysis: The Many Aspects of Tradable Permits Design (Pt. 2)

Zeke Hausfather

Zeke is an energy systems analyst and environmental economist with a strong interest in conservation and efficiency. He was previously the chief scientist at C3, an energy management and efficiency company,...