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Climate Change

Debt woes threaten global climate talks

PUBLISHED : Monday, 07 November, 2011, 12:00am
UPDATED : Monday, 07 November, 2011, 12:00am

Global talks starting later this month to iron out a new regime to succeed the Kyoto Protocol greenhouse gas emission reduction agreement will unlikely yield a binding consensus.

This is because sovereign debt problems in the most developed economies have made it politically challenging for their governments to make generous commitments on reduction, unless the most advanced developing nations also agree to compulsory and verifiable reductions, analysts say.

So far the developing countries have resisted such obligations, arguing that the vast majority of global climate change in recent decades was caused by developed nations, which are responsible for most of the accumulative emissions so far.

'We do not think that the 17th Conference of Parties [COP17] in Durban will end up with any major settlement of the matter,' said Philippe Delhaise, founder of Carbon Management Consulting Group, which advises on the application for and trading of carbon reduction credits. 'The shape of any post-2012 agreement is still under discussion and is still facing serious obstacles.'

Global political leaders will meet in the South African city between November 28 and December 9 to discuss a way forward after the Kyoto Protocol expires at the end of next year. They failed to reach a binding agreement to succeed the Kyoto Protocol in 2009 and last year, although broad consensus was reached on the establishment of funds to help the poorest nations mitigate and adapt to the effects of climate change.

'Expectations are quite low [for the Durban talks],' said Ben Caldecott, head of European policy at Climate Change Capital, an investment manager and adviser in the carbon reduction industry. 'The key is whether there will be an extension of the Kyoto Protocol.'

The global agreement was signed by more than 150 countries in 1997, which binds 38 industrialised countries to cutting emissions of greenhouse gases by an average 5.2 per cent below 1990 levels during the five years to next year. Disagreement between the United States and Europe over implementation details saw the US withdraw from the accord in 2001.

But ratification by Russia meant sufficient support was garnered for the protocol to become international law in 2005. The protocol provides arguably the most economically efficient way for the world to cut emissions. Its extension would provide certainty on returns to companies investing in clean energy and emissions-reduction projects.

Under the protocol's Clean Development Mechanism (CDM), corporate polluters in developed nations are allowed to offset their emissions that exceed their given quotas by buying credits from other emitters that are more efficient in reducing emissions.

As it is more cost-effective to cut emissions in developing countries where 'low-hanging fruits' are plenty, instead of investing in technological upgrades, many developed countries fulfil their carbon-reduction obligations by buying credits from developers of emissions-reduction projects in developing countries.

In effect, that is a market-based 'win-win' solution where developing countries receive 'subsidies' from developed countries to fund emissions-reduction projects they could otherwise not afford, while developed countries make 'savings' on their emissions-reduction investment. Since the first signing of the protocol, China and India, the two biggest emerging economies, have experienced rapid economic growth. And they have increasingly taken over pollution-prone manufacturing that used to be done in developed countries.

This means China and India rank among the biggest emitters of greenhouse gases, although their per capita figures remain much lower than those of developed countries.

For example, China's carbon dioxide emissions doubled to 7 billion tonnes between 1997 and 2008, while that of America's has steadied at 5.5 billion tonnes during the period, according to the United Nations. Although China emits the most amount of greenhouse gases in the world, its per capita figure is only 29 per cent of that of the US.

China's position is that it should be given more time before it is required to cut its absolute amount of greenhouse gas emissions, so that it will have a fair chance of rapidly increasing its per capita income, as did the developed economies.

In last year's Cancun global talks, Beijing pledged to cut its carbon emissions per unit of economic output by 40 to 45 per cent by 2020 from 2005 levels, and double the share of non-fossil fuels in energy use to 15 per cent in the decade to 2020.

Some observers in the West criticised China for avoiding cutting its absolute amount of emissions and subjecting its reduction efforts to stricter reporting and verification requirements. Others said Beijing's undertaking had already taken a major step compared with its previous stance of resisting any type of numerical target or international reporting. China currently accounts for about 24 per cent of global carbon emissions, compared with 20 per cent for the US, 11 per cent for Europe, and 4 per cent for Japan.

According to the World Resources Institute, a global think tank, between 1850 and 2000, the US was responsible for about 30 per cent of the cumulative carbon emissions, the European Union 27 per cent, China 8 per cent, and India 2 per cent.

'The divide over historical responsibility is omnipresent in the negotiations,' said Hong Kong-based independent climate change consultant Noemie Klein. 'There are many possible outcomes in Durban and we can only hope that over the 12-day long negotiations, governments will manage to integrate their climate change and political agendas.'

However, Europe, the world leader in efforts to cut emissions and fight climate change, has been plagued by its sovereign debt crisis in the past two years.

Caldecott said fiscal austerity measures would surely force European governments to reduce subsidies to renewable energy consumption efforts, and limit how much further they can commit on post-Kyoto emissions reduction targets.

'Given the financial crisis in Europe [and high sovereign debt in the US], the West doesn't have the money to finance the transformation of developing countries into more sustainable low-carbon economies,' Caldecott said.

'The large emerging economies need to start rising up to the challenge and grasp the opportunity.'

In the US - which has yet to ratify the protocol - soaring fiscal deficits and persistent high unemployment also made it politically difficult for Washington to make major commitments to emissions-reduction targets. Despite low expectations of a global deal arising from the Durban talks, Caldecott said some countries were proceeding with domestic, regional, or national emissions reduction schemes and carbon credits trading platforms.

California, Australia, South Korea and China have been actively preparing for plans to cap emissions and trade emissions rights. Some are also exploring bilateral credit trading schemes. Another possible way to achieve progress on emissions reduction agreements is the sectoral approach. International carbon credits trading can be implemented among companies in the most pollution-prone sectors, Delhaise said.

$5.7b

The amount, in US dollars, that G8 members pledged to the Climate Investment Funds to date. The US has pledged US$2 billion