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The Corporate Greenhouse
Climate Change Policy in a Globalizing World
By Yda Schreuder
Zed Books LtdCopyright © 2009 Yda Schreuder
All rights reserved.
Climate-change policy in a globalizing world
The Corporate Greenhouse explores the most pressing issue confronting the world community in our time. As the scientific basis of climate change appears to be no longer in doubt, discussions about climate-change policy and the Kyoto Protocol have re-emerged in public debate. The Intergovernmental Panel on Climate Change Fourth Assessment Report, issued in February 2007, states that 'most of the observed increase in globally averaged temperatures since the mid-20th century is very likely due to the observed increase in anthropogenic greenhouse gas concentrations'. Based on current model simulations, projections are that continued greenhouse-gas emissions at or above current rates would cause substantial warming of the atmosphere and induce many changes in the global climate system during the twenty-first century that would very likely be larger than those observed during the twentieth century. There is much evidence in the report to support the thesis not only that climate change will occur if no action is taken but also that it really is human activity that is inducing the change. The Report embodies substantial new research and addresses gaps that existed in our knowledge hitherto. Also, it has practically eliminated earlier uncertainty. With this assessment and with the realization that so far under the Kyoto Protocol, greenhouse-gas emissions worldwide have increased rather than diminished, the effectiveness of the Protocol and the commitment on the part of the industrialized countries to combat human-induced climate change are called into question.
Measures against global warming had been dominating the international arena of climate-change negotiations under the auspices of the UNFCCC since the Earth Summit in Rio de Janeiro in 1992, and nation-states had agreed to confront dangerous anthropogenic interference with the earth's climate system and to achieve stabilization of GHG concentrations in the atmosphere low enough so that climate change could be prevented. The actions were aimed primarily at industrialized countries with the intention of stabilizing their emissions of greenhouse gases at 1990 levels by the year 2000 and below 1990 levels in years following. Participating parties agreed that they would recognize 'common but differentiated responsibilities', with greater responsibility for reducing GHG emissions in the near term assumed by developed industrialized countries, which were listed and identified in Annex I of the UNFCCC (hereafter referred to as Annex I countries).
Since 1992 – when the UNFCCC was first introduced – a significant number of international climate-change meetings have been held through the annual Conferences of the Parties (COPs), resulting in the adoption of the Kyoto Protocol in 1997. The Protocol committed Annex I countries to binding GHG emissions reductions of 5.2 per cent relative to 1990 emissions by the period 2008–12. Technically, they are listed as Annex B in the Kyoto Protocol, but since they roughly coincide with the Annex I group under the UNFCCC, we will refer to both as Annex I. Each country had its emissions-reduction target; ranging from an 8 per cent reduction to a 10 per cent increase. (GHG emissions reductions are measured in tonnes (metric tons) and all the protocol documents refer to the European measure, not to the US 'short' ton. In the remainder of the text we will refer to the international (metric) tonne unless otherwise noted.) The United States, the world's largest producer of anthropogenic greenhouse-gas emissions, agreed to a 7 per cent reduction relative to 1990 levels. The European Union agreed to an 8 per cent reduction while countries in central and eastern Europe agreed to a 6–8 per cent reduction, and Russia and the Ukraine each agreed not to exceed 1990 levels of emissions. Developing countries, also known as non-Annex I countries, were not required to sign on to the Protocol to meet binding emissions-reduction targets.
The Protocol languished in Washington and Brussels for some time until 2001 when, shortly after President Bush took office, the US administration decided to withdraw from the agreement as the Senate would not ratify the Protocol. During the final years of the Clinton administration the Senate repeatedly called for the full participation of the main developing countries (like India and China) in the Protocol's emissions-cutting requirements, but no negotiations to that effect were ever undertaken. In declining to support the Kyoto Protocol, President Bush referred to three concerns or conditions that any future agreement should address. First, the main developing countries would need to adhere to binding emissions-reduction targets and become full participants in any climate-change agreement, as the Senate had earlier resolved. Second, the uncertainty about the relationship between GHG emissions and climate change or global warming had to be established more firmly by the scientific community. And, third, Americans would prefer voluntary rather than regulatory action to be taken. Meanwhile, the European Union went ahead with the ratification process, which passed, and in October 2001 the EU Commission and the European Parliament presented a proposal for establishing an emissions trading scheme. The EU Emissions Trading Scheme took effect on 1 January 2005.
As Europe is 'going it alone', it is doubtful that the EU Emissions Trading Scheme will have any lasting impact on global climate change. The major reason being that the simultaneous effort to institutionalize global trade policy and economic development policy through the World Trade Organization (WTO), the World Bank and the International Monetary Fund (IMF), and the opening up of markets in developing countries and countries in transition in central and eastern Europe through privatization and liberalization, encouraged rapid economic growth and a carbon-intensive development which runs counter to any effort made through the UNFCCC to combat the build-up of GHGs in the atmosphere and avert global warming and/or climate change. Later in this chapter I elaborate on this, but first we need a more detailed discussion of the Kyoto Protocol and the particular mechanisms set up to accomplish the task of reduction of GHG concentrations in the atmosphere, and of the actual GHG emissions reductions and increases measured since 1990.
The Kyoto Protocol
The Kyoto Protocol, signed in 1997, is an amendment to the United Nations Framework Convention on Climate Change agreed to at the Earth Summit in 1992, which assigned mandatory emissions reductions of greenhouse gases to signatory nations (Box 1.1). The Protocol was concluded at the Third Conference of the Parties (COP3) under the UNFCCC in Kyoto, Japan, in 1997. Countries that ratified the Protocol commit to reduce their emissions of carbon dioxide and five other gases – methane, nitrous oxide, sulphur hexafluoride, HFCs and PFCs; collectively known as greenhouse gases – or engage in emissions trading if they increase their emissions. Since carbon dioxide (CO2) contributes more than 75 per cent of human-induced GHG emissions and since more than 95 per cent of global CO2 emissions are due to fossil-fuel burning and land-use change, most of the attention in the Kyoto Protocol is devoted to fossil-fuel-based CO2 emissions reduction. The Kyoto Protocol entered into force on 16 February 2005 after 55 Annex I countries covering at least 55 per cent of 1990 GHG emissions had ratified the treaty. The Kyoto Protocol now covers more than 160 countries globally, including developing countries that subscribe to the global emissions-reduction efforts.
The objective of the Kyoto Protocol is the stabilization of GHG concentrations in the atmosphere at a level that will prevent dangerous anthropogenic interference with the climate system. The Intergovernmental Panel on Climate Change (IPCC) has predicted a likely average global rise in temperature of 1.8 to 4.0°C between 1990 and 2100 based on trends and projections of increased GHG concentrations in the atmosphere. The Kyoto Protocol is seen as the first step towards stabilizing these concentrations in the atmosphere, while its goal is to lower overall emissions of the six GHGs calculated as an average over the five-year period of 2008–12. The parties agreed that since the largest share of historical and current global emissions of greenhouse gases originated in developed countries and since per capita emissions in developing countries were still relatively low, developing countries would not have to commit to binding emissions-reduction targets during the Protocol's commitment period (2008–12). The Protocol treaty negotiated in Kyoto, Japan, in December 1997 opened for signature on 16 March 1998 and closed on 15 March 1999. Signatory countries first had to ratify the Kyoto Protocol, and on 16 February 2005, the agreement came into force following ratification by Russia on 18 November 2004. As of December 2006, a total of 169 countries and other governmental entities had ratified the agreement, representing 61.6 per cent of emissions from Annex I countries. The notable exception is the United States; Australia – another long time hold-out – ratified the treaty in March 2008. Other countries, such as India, China and Brazil, have ratified the Protocol but are not presently required to reduce their domestic carbon emissions, although they do take advantage of CERs earned through the Clean Development Mechanism.
All committed Annex I countries have established designated national authorities to manage their GHG portfolios under the Protocol. Japan, Canada, Italy, the Netherlands, Germany, France, Spain and many more are actively promoting government carbon funds and supporting multilateral carbon funds intent on purchasing carbon credits from non-Annex I countries. These government organizations are working closely with their major utility, energy and chemicals conglomerates to acquire as many Certified Emissions Reductions as cheaply as possible. Virtually all of the non-Annex I countries have also set up their own designated national authorities to manage the Kyoto Protocol process – specifically the CDM process – whereby host governments decide which GHG reduction projects they do or do not wish to support for accreditation by the CDM Executive Board. The objectives of the two parties in the CDM process are quite different. Annex I countries want carbon credits as cheaply as possible, while non-Annex I countries want to maximize the value of carbon credits generated from their domestic GHG reduction projects.
From the beginning of the negotiations in Rio de Janeiro (1992) it was understood that the share of global emissions originating in developing countries would grow as these countries implemented economic development policies to meet their social and development needs. Annex I countries agreed that, as developing countries develop industrial capacity, they will help pay for and supply technologies to them for climate-change-related projects in order to encourage a more energy-efficient and low-emission development path. This clause in the Kyoto Protocol was an affirmation of Article 4 in the UNFCCC and has been applied through the CDM and through the linking of the EU Emissions Trading Scheme with the CDM. Critics of the Protocol argue that since China already is, and India and other developing countries soon will be, among those countries contributing most to global GHG emissions, they should therefore come on board with binding GHG emissions-reduction commitments for the post-Kyoto negotiations. Without carbon constraints on these countries, they argue, corporate industries in developed countries might lose their competitive position and will likely expand production in non-carbon-constraint countries like China, India, Brazil, or any other country competitively positioned for FDI or foreign trade. In that case, there would be no net reduction of GHG emissions concentrations in the atmosphere but just a shift in the geographical distribution of the source of emissions due to expanding manufacturing capacity in the developing non-Annex I countries.
The Kyoto Protocol left several issues unresolved and undecided. In November 2000, the Sixth Conference of the Parties (COP6), held in The Hague in the Netherlands, was to address remaining unresolved details of implementation of the Protocol. The key objectives of COP6 to the UNFCCC were to reach agreement on the development of an efficient and effective verification and compliance system, on what kind of instruments or mechanisms to use to arrive at the agreed-to emissions-reduction targets, and how to dissuade developing countries from following a carbon-intensive development path while helping small island nations to overcome the negative impacts of climate change. The parties agreed to find the cheapest possible solutions with the least possible political risk involved. Under the terms of the Protocol, the industrialized nations would have two options for meeting their obligations. The first would be to cut domestic GHG emissions with the choice to sequester atmospheric CO2 in forest 'sinks' through reforestation programmes and/or projects to control deforestation, as favoured by the United States, Canada and Australia. The second option was to earn credits towards the emission targets agreed to in the Protocol by using the 'flexible mechanism' clause (see Box 1.1). The flexible mechanisms would include trade in emissions with other industrialized countries and investments in emissions-reduction projects in other Annex I countries (referred to as Joint Implementation) or in non-Annex I countries (referred to as the Clean Development Mechanism). Joint Implementation, in effect, would most likely involve investment in central and eastern Europe while the Clean Development Mechanism was aimed at emissions reduction in developing countries.
The Climate Change Convention in The Hague (COP6) in 2000 was unable to reach an agreement on the first issue due to disputes between the European Union, on the one hand, and the United States, Canada, Japan and Australia, on the other. In 2001, a continuation of the previous meeting (COP6-bis) was held in Bonn, where the required decisions were adopted. After some concessions, the supporters of the flexible mechanisms of the Protocol, led by the European Union, which favoured tougher standards and measures, managed to get Japan and Russia on board by allowing greater use of 'carbon sinks'.
It had been the position of the EU that at least 50 per cent of the reduction of GHGs should be derived from cuts in domestic emissions. On the other hand, the United States had maintained that there should be no limitation to the use of the flexible mechanisms and that for those countries with large forests, carbon sinks should be counted as credits. In fact, the United States, along with Australia and Canada, claimed that they could possibly meet their commitments that way. Still other countries wanted to include nuclear power as an option to solve the GHG problem. Besides agreements on flexible mechanisms and carbon sinks, COP6-bis also addressed compliance measures which were agreed to at COP7 in Marrakesh in Morocco the following year (2002). Countries that did not meet their agreed-to emissions-reduction target would have to make up for the shortfall during the next (post-2012) commitment period at a rate of 1.3 tonnes to 1 tonne missed emissions reduction. COP7 also established the terms under which the Protocol would take effect.
The fundamental premiss behind the flexible mechanisms is that the costs of emissions reduction are substantially lower in developing countries and in countries with economies in transition in central and eastern Europe than in highly developed industrialized economies. It therefore stands to reason that expenditures on emissions reduction will have more effect in developing countries and in transition economies than in industrialized countries. By investing in these countries, committed industrialized countries can earn carbon credits to offset lack of progress in meeting domestic reduction targets. With the COP6-bis agreement to include emissions trading as one of the primary means to comply with the Kyoto agreed-to emissions-reduction targets and timetables, a cap-and-trade system was introduced and later implemented by the EU Emissions Trading Scheme in 2005 to reach the goals.
Excerpted from The Corporate Greenhouse by Yda Schreuder. Copyright © 2009 Yda Schreuder. Excerpted by permission of Zed Books Ltd.
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