Carbon market fraud is not just a carousel ride

The European police agency Europol has found evidence of huge volumes of fraud in the EU Emissions Trading Scheme (EU ETS), amounting to a loss of around 5 billion euros in national tax revenues over the past 18 months.

Europol estimates that in some countries up to 90 per cent of the whole market volume was caused by fraudulent activities.

This is further evidence that carbon trading is not a credible system for tackling climate change. With the ETS consistently failing to reduce emissions, European Commission officials and carbon market advocates have clung to evidence of increasing trading volumes in the ETS are a sign that the market was working. Europol has now revealed this to be a sham.

The ETS is particularly susceptible to carousel fraud because the market is poorly regulated. This hole could in theory be closed with EU-wide legislation, but the regulators are failing in their job. The DG Environment and the Directives that establish the EU ETS make no particular provisions on how to regulate this complex market as a market - simply assuming it works like any other. This needs to be re-examined.

It is certainly possible that VAT-carousel fraud loopholes could be closed with better regulation, but we've seen with the ETS that when one hole is plugged others open. In the third phase of the ETS, all six greenhouse gases will enter the system - whereas now it covers almost exclusively CO2. Such gases were treated as equivalent within the UN's Clean Development Mechanism, and this has been a major source of fraudulent "reduction claims", with companies some companies ramping up production to cream off credits that can then be sold back into the ETS.

The other further, major loophole is the spread of "linking" between ETS systems. The EU is pushing hard to make permits from different markets "fungible" (exchangeable). This will lead to a race to the bottom in terms of environmental integrity, but also offers plenty of new loopholes for fraudsters. If they can't even control a carousel fraud within their own system, what hope have regulators got when faced with large volumes of permits exchanged between multiple emissions trading systems?

Ultimately, though, a system with so many loopholes will always be a fraudsters paradise. Time to tear it up and start again.

A clear graphic explaining how the carousel fraud works can be found here http://www.europol.europa.eu/images/pressreleases/carbon_credit_carousel.pdf

Climate Chronicle - climate justice news from COP 15

With the climate talks in full swing here in Copenhagen, take a look atClimate Chronicle, a newspaper in which we aim to report all the latest news from the conference and the street.

Here's my article from the last issue:

Copenhagen Plan B: “protect the rich”
Oscar Reyes
Dec 9 2009



A leaked text of the political declaration that could conclude the Copenhagen conference reveals back-room dealings that offer little to the Majority World.

So the rumours were true. For the past week, it was an open secret that the Danish government had already drafted a “political declaration” that could form the major outcome of the UN Climate Change Conference now that a full-blown international agreement is off the cards. The draft text has now been leaked, sparking outrage amongst Southern delegates and civil society organisations.

“The Copenhagen Agreement under the UN Framework Convention on Climate Change,” as the draft is titled, would introduce percentage-based emissions targets for all except the Least Developed Countries, fatally undermining the Kyoto Protocol, which draws a line between industrialised Annex 1 states and the Majority World. The text also suggests that financial and technological support measures in non-Annex 1 countries, an underlying principle of the UN Framework Convention on Climate Change (UNFCCC), should now be made conditional to their ability to meet complex emissions monitoring requirements.

The UNFCCC quickly attempted to limit the damage, putting out a statement from Executive Secretary Yvo de Boer that declared that the draft was a “decision paper put forward by Danish Prime Minister,” while maintaining that it was not a “formal text” of the UN negotiating process.

But the leaked text met with an angry response from many Southern delegates. Lumumba Di-Aping, the Sudanese chairperson of the G77 plus China grouping of 132 developing countries, said that the Danish Prime Minister Lars Lokke Rasmussen had failed in his role as a neutral host and had instead “chosen to protect the rich countries.” The emergence of the draft text was also met by an impromptu protest from members of the Pan African Climate Justice Alliance, who marched through the Bella Centre chanting “Two degrees is suicide, One Africa, one degree.”

Democratic deficit
Concern stems not simply from the contents of the draft text, but also the secretive and biased way in which it came about. The COP Presidency, which is held by host country Denmark, is mandated to craft compromises based on painstakingly negotiated drafts. In this case, the Presidency stands accused not only of overstepping the mark, but of hopping, stepping and then jumping over it, pre-empting UN decisions with proposals lifted in part from text discussed at the Major Economies Forum, an initiative closely tied to the G20 grouping and chaired by US President Barack Obama.

As Meena Raman, Honorary Secretary of Friends of the Earth Malaysia, explains, “The leaked draft Copenhagen Agreement violates the democratic principles of the UN and threatens the Copenhagen negotiations. By discussing their text in secret back-room meetings with a few select countries, the Danes are doing the opposite of what the world expects the host country to do. The Danish government must stop colluding with other rich nations. Instead it must take as a starting point the positions of developing countries - which are the least responsible for climate change, but who are most affected by it.”

Raman Mehta from Action Aid India decried a “betrayal of trust” on the part of the Danish government.

More “hot air” on reductions
The draft text is weak and vague in its overall ambitions. In reiterating the goal of holding global warming to no more than 2 degrees Celsius above pre-industrial levels, the text sets a global reduction target of 50 per cent by 2050, of which 80 per cent should come from the industrialised world. These figures look distinctly unimpressive when tracked back to existing per capita emissions, however, with one estimate suggesting that they would allow Northern industrialised countries to continue outpolluting the Majority World by a factor of 3:5.

The short-term proposals are ostensibly more ambitious, with a suggestion that global emissions should peak by 2020. But the same passage of the text misleadingly claims that this peak has already been reached in “developed countries collectively.” This is based on the latest UNFCCC figures, which show that Annex 1 countries are now on track to meet their Kyoto Protocol commitments, but a closer look reveals that this is achieved on the basis of “hot air” emissions resulting from economic collapse in the former Soviet bloc in the early 1990s. Emissions elsewhere in the developed world have continued to rise. The projections for 2020 are further massaged by counting a large volume of “emissions savings” from carbon offsets made in the global South as part of Annex 1 emissions figures.

Strings attached
Whereas the Bali Action Plan emphasises that developing country actions will be “supported and enabled” by technology, financing and capacity building, the draft suggests that these measures would be “subject to robust measurement, reporting and verification.” This inversion implies that the support measures could be withheld unless monitoring is externally approved. Instead of placing an obligation on industrialised countries to repay and restitute their climate debt, this makes any support measures conditional to a series of complex technical asssessments.
Just as significant is what the text does not include. There are no numbers on long-term financing, and there is no suggestion that these will be forthcoming in Copenhagen. The only figure offered is a projection of $10 billion per year of “fast start finance”, a scaled-down version of a plan first presented by UK Prime Minister Gordon Brown in late November. But Lumamba Di-Aping was dismissive: “Ten billion dollars will not buy developing countries’ citizens enough coffins,” he said.

A growing market
The flip side of this lack of financial commitments is a commitment to scale up carbon markets as part of any agreement. The cap and trade proposals currently passing through the US would allow up to 1.5 billion tonnes of carbon offsets per year to displace the need for domestic emissions reductions, a demand that is over seven times larger than the existing supply of offsets through the UN's Clean Devopment Mechanism (CDM) and Joint Implementation scheme.

Although the language on carbon markets remains vague, talk of “an effective and orderly transition from project based to more comprehensive approaches” signals a framework that would introduce a broad range of new offsets, from “sectoral crediting” through to measures aimed at Reducing Emissions from Deforestation and Degradation (REDD).

“With developed countries offering so little by way of public finance, developing countries are being sent a message that support for offsetting mechanisms is their only real choice to access funds” says Payal Parkeh, a climate scientist with International Rivers.

A coalition of the unwilling
What the “Copenhagen Agreement” leak signals, above all, is a lack of ambition on the part of industrialised countries to make emissions reductions at home or meet their financial and other obligations to the South. “Despite the hype, the talk of ´Hopenhagen´, the supposed political will to ´get it done´, this set of negotiations might be no different than anything that has come before” concludes Rhiya Trivedi, a member of the Canadian Youth Delegation to Copenhagen. “It could be just another round of the North-South divide and power struggle.” Business as usual, in other words.

www.carbontradewatch.org

Story of Cap and Trade: answering the critics

There's quite a web buzz around the Story of Cap and Trade, including a host of misplaced criticisms.

Here are answers to some of them.

* The problem isn´t cap and trade itself. It is a good system ruined by corporate lobby interests - but they'd ruin whatever policy you try, so best stick with this one.

There's an element of truth in this: the power of corporate lobbying is a huge problem, both in the US (where such a system is currently being debated) and in the EU. But cap and trade as a policy escalates this problem. First, the free allowances are a subsidy for dirty industry. In the EU this happens in two ways (i) because companies bank the free permits as assets, and pass on the “opportunity cost” to consumers – in the case of the EU power sector, estimated to be between 23 and 71 billion euros between 2008 and 2012; (ii) because a number of companies have a surplus of permits which they sell – in the case of ArcelorMittal (the largest steel maker in EU scheme) this has netted an estimated 2 billion euros since start of the scheme for making no reductions (they've used the competitiveness argument to secure an overallocation of around 25 per cent). These kinds of subsidies are not awarded by other climate measures such as subsidy shifts from fossil fuels or taxes.

Second, carbon markets are far more complex and interlinked than regulations based on emissions limits. This means there are more loopholes for the lobbyists to exploit. The “trade” part of cap and trade encourages capital to go after the cheapeast abatements, and the cheapest tend to be those that have been achieved by over-allocation (and offset purchases) rather than any actual reductions.

Third, the ability to trade allowances amplifies the effects of lobby influence. If you have a regulation on factory emissions, and one factory (or even sector) is allowed to pollute too much, you have a problem with that factory (or industrial sector). Under cap and trade, the problem is amplified since this surplus can be sold on to allow other sectors to carry on business-as-usual as well. The same argument could be made as regards banking of permits – namely, that carbon trading is a system that locks in “hot air.”

*Trading doesn't affect the cap, and setting a cap is itself progress. So cap and trade is progress, right?

Actually, trading does affect the cap. Trading is supposed to be about finding the cheapest places to make "reductions." Here in Europe, where we've had cap and trade since 2005, the reductions that are cheapest are the result of over-allocation and offset purchases. Look at the EU's own data on transfers of pollution permits and you'll see that played out.

Lobbying made these holes; cap and trade amplifies their effects. Allocations are routinely applied according to "competitiveness" criteria, which result in massive over-allocations in most industrial sectors (especially cement and steel) which then provide a cheap source of purchasable permits for others (mostly the power sector). But what is purchased are reductions in name only. The interactions of this actual trading system (as opposed to the fiction of a market without distortion) work to spread loopholes in the regulation of certain sectors across all sectors covered by the scheme. This undermines the "cap."

Trading also pushes capital after the cheapest cuts first. But what is cheapest in the short term is not environmentally effective or socially just in the long term. In the real world, stopping coal power is not the same as planting trees or destroying refrigerant gases - yet creating a commodity called "carbon" requires that they be treated in this way. It requires that you create single commensurable emissions reduction units out of incommensurable things.

A further argument is sometimes made that, even after all this, that "the cap is the cap" and so remains fundamentally unaltered. This argument only works if emissions reductions are assumed to be all the same, wherever they take place. That's true in a scientific sense - greenhouse gases mix uniformly in the atmosphere - but is not much help in assessing how industry or power production develops and changes. Cap and trade theoretically encourages all the cheap reductions to be made up front, assuming a gently declining emissions pathway.

But what are these cheap changes actually? They often involve simple retrofits that prolong the life of dirty factories, or workarounds like co-firing coal power stations with biomass. (In practice, the cheap changes are also often a result of the holes from over-high caps and offsets). Such extensions, in turn, delay the kind of infrastructure investments that are needed to really shift to a cleaner economy. So the gently declining emission path way turns out to be a poor reflection of a complex world in which technical changes often require rapid breaks or changes of tack. If you arrange things "cheapest" first, even assuming no holes or cheating, you can end up stuck with patched up technology or marginally-more-but-still-very-inefficient factories that you still need to replace. So what is short-term cheap (according to cost benefit modelling) can end up costing you more. In social science terminology, this is a problem of "lock in" or "path dependency."

* Not all carbon offsets are the same - the film just picks the worst cases and extrapolates from those

The Clean Development Mechanism (CDM) is by far the largest offset scheme globally, and some of the “worst” projects featured in the many critical case studies of it are the most numerous types. As of September 2009, three-quarters of the offset credits issued were manufactured by large firms making minor technical adjustments at a few industrial installations to eliminate HFCs (refrigerant gases) and N2O (a by-product of synthetic fibre production). This picture is unlikely to change dramatically by the time the Kyoto Protocol’s first commitment period expires. By the end of 2012, HFC and N2O credits are still expected to account for the largest share of the CDM (28.5 per cent and 14.4 per cent respectively), followed by hydro-electricity projects (10.8 per cent). By comparison, solar power is expected to account for just 0.03 per cent of CDM credits by 2012.

As Michael Wara of Stanford University puts it, “the CDM market is not a subsidy implemented by means of a market mechanism by which CO2 reductions that would have taken place in the developed world take place in the developing world. Rather, most CDM funds are paying for the substitution of CO2 reductions in the developed world for emissions reductions in the developing world of industrial gases and methane.”

More fundamentally, though, offsets are not in and of themselves reductions. An offset is a compensation mechanism – a way to move the obligation to reduce from one location to another, usually from the global North to the South. This raises serious global equity issues. Any kind of crediting from deforestation (REDD in the UN jargon) would massively exacerbate this.

There's far more to say about offsetting than this – see chapter 4 of our recent book.

Moreover, proposals aimed at linking cap and trade markets – a generally stated intention - would help to circumvent even “fairly stringent measures for policing offsets.” Proposals for a global carbon market mean what is called, in part of the Copenhagen negotiating text, “full fungibility” - the ability to exchange different emisisons reduction units without limit.

If schemes with different rules are allowed to share permits without constraint, carbon traders will tend to reach for the lowest common denominator. So, for example, if the US were to set a limit on certain types of agriculture permit because of measurement difficulties but Australia allowed them, US companies could look to purchase Australian carbon. The net effect would be to displace domestic reductions in the EU.

This is also a problem that the US scheme poses for the rest of the world. It is pretty universally acknowledged, I think, that the US scheme would – like virtually all cap and trade schemes before it – be over-allocated at the outset.

Overallocation means far more permits in circulation than the actual level of pollution (ie. the caps are not “capping” anything). Full fungibility exacerbates this problem, since it allows the surplus of permits in one location to be sold on and undermine the “cap” in another location. In other words, it is a recipe for the circulation of “hot air.”

* The film indulges in populist scaremongering about markets - and, as a whole, it is too simplistic.

Carbon markets now are miniscule compared to Wall Street projections of $2 trillion or more by 2020, so it is true that some of the evidence isn't yet in. But we need to look at what financial products are being created, learn from analagous experiences, and make plausible future projections. On the first of these points, it is clear that a whole line up of new carbon derivatives are being created – on the risks of these, see Larry Lohmann´s writing.

Steve Suppan of IATP also makes an important point about the potential impact on food commodities: “index funds controlled about a third of all corn futures contracts from 2006–2008", but now, carbon derivatives are expected to be "bundled into commodity index funds. Depending on how traders formulate the mix of commodities in the fund formula, it is likely that carbon emissions could become the dominant 'commodity' in some fund formulas, displacing oil. ... Wall Street forecasts at least a $2 trillion market in carbon derivatives within five years. The current estimated value of all agricultural and non-agricultural commodity derivatives traded under Commodity Futures Trading Commission authority is $4–5 trillion. ... Agricultural commodity prices, and to a lesser extent global food security, could be vulnerable to a swing in carbon derivatives prices, as carbon dominant index funds roll over to take profits."

These are complex and technical arguments, and to accuse an introductory film of being simplistic seems rather mean-spirited.

* The argument that cap and trade is a "distraction" has no proof to back it up

Again, it may be possible to take issue with how this complex point is simplified – but there certainly is evidence.

First, emissions trading is a distraction because it can undermine other regulations.

When the EU was discussing a renewable energy target, the UK argued that this should be weaker because a strong target would undermine carbon prices, as this leaked document shows.

The intersection between the Integrated Pollution Prevention and Control (IPPC) Directive, the main EU legislation to control air pollution, and the EU ETS is another case of this. The IPPC sets energy efficiency requirements and gas concentration limits on a range of installations, some of which were also covered by the EU ETS. To make the two systems compatible, the terms of the IPPC were relaxed - as the European Environment Agency reported: “[O]perators of large sources might be obliged to reduce their emissions (in order to comply with the IPPC Directive) when it could be more economically efficient to increase emissions further and buy additional allowances instead.” The result of this conflict was that the IPPC Directive was amended to exclude “CO2 emission limits for installations which are covered by the EU ETS.”

An analagous problem exists with offsets: to generate offsets, there's a need to show “additionality” (that a project wouldn't have happened anyway). If a country tightens environmental regulations, it cuts off this additionality. Governments tend not to see this as in the economic interests of companies based in their territory (and in the case of China, where there's a hefty tax on HFC project credits, such regulations would also put a dent in the state coffers).

In the debate on the expansion of Heathrow airport in the UK, meanwhile, one of the most common defences from the government was that it didn't matter if emissions increased from the airport because “ETS would cover it.”

The second form of distraction has to do with “locking in” pollution (related to what social scientists call path dependency). In chasing after the cheapest short-term cuts, cap and trade tends to encourage quick fixes to patch up outmoded power stations and factories – delaying more fundamental changes. Our book, cited above, goes into more detail on this – as does a recent Friends of the Earth UK report.

The Story of Cap and Trade

If you haven't seen this already, check out the great new video by Annie Leonard (I should admit a little bias, though - Carbon Trade Watch were among the advisers.) Several members of the Durban Group for Climate Justice and Climate Justice Now! were also involved.

New book on carbon trading

I've been a bit neglectful of this blog - but one of the best (of many) reasons is that I've been finishing a book. Co-authored with my colleague Tamra Gilbetson, it is now available for free download. Right, here's the blurb:

CARBON TRADING – HOW IT WORKS AND WHY IT FAILS
by Tamra Gilbertson and Oscar Reyes

"Anyone who still thinks that creating a carbon casino can solve our climate crisis owes it to themselves to read this book. The most convincing and concise challenge to the green profiteers yet." - Naomi Klein, author, the Shock Doctrine

"This book is an invaluable contribution to understanding the pitfalls of relying on the carbon markets to save the world's poor and the planet." - Meena Raman, Third World Network

“The transition to a post-oil model is inevitable but instead of starting this process, it is delayed by barriers and traps such as the carbon market. This book teaches us how this barrier works and what there is behind this new trap of green capitalism. It is obligatory reading for all who fight for a post-oil civilisation.” - Ivonne Yanez, Oilwatch South America

Carbon trading lies at the centre of global climate policy and is projected to become one of the world’s largest commodities markets, yet it has a disastrous track record since its adoption as part of the Kyoto Protocol. Carbon Trading: how it works and why it fails outlines the limitations of an approach to tackling climate change which redefines the problem to fit the assumptions of neoliberal economics. It demonstrates that the EU Emissions Trading Scheme (EU ETS), the world’s largest carbon market, has consistently failed to ´cap´ emissions, while the UN’s Clean Development Mechanism (CDM) routinely favours environmentally ineffective and socially unjust projects. This is illustrated with case studies of CDM projects in Brazil, Indonesia, India and Thailand.

UN climate talks in Copenhagen are discussing ways to expand the trading experiment, but the evidence suggests it should be abandoned. From subsidy shifting to regulation, there is a plethora of ways forward without carbon trading – but there are no short cuts around situated local knowledge and political organising if climate change is to be addressed in a just and fair manner.

* Chapter 1 »

introduces carbon trading, how it works and some of the actors involved.

*Chapter 2 »

explores the origins and key actors involved in building the architecture of emissions trading.

*Chapter 3 »

examines the performance of the EU ETS and finds that it has generously rewarded polluting companies while failing to reduce emissions. Many of the scheme’s flaws, from the over-allocation of permits to pollute onwards, are found to be fundamental to the cap and trade approach more generally.

*Chapter 4 »

outlines the performance of the CDM and looks at four case studies of CDM projects in Thailand, India, Indonesia and Brazil; it argues that offsets projects, even those that promote renewable energy, will not be a solution to climate change.

*Chapter 5 »

outlines what could work and ways forward for political organising around questions of climate change.

Copenhagen Climate Negotiations - latest EU, G20, African Union positions

The EU this week released its latest negotiating positions for the Copenhagen climate talks - including on the controversial aspects of climate finance. For a clear report, take a look at the EU Observer. To get into the geeky detail, take a look at the Communication 'Stepping up international climate finance: A European blueprint for the Copenhagen deal'"(an EU Communication is a non-binding statement of intent from the EU Commission, the Brussels-based bureaucracy charged with initiating discussions that are subsequently taken up by the EU Parliament and Council of Ministers).

One of the key aspects is that public financial commitments are further squeezed (or retreated from as an idea). Instead, the EU claims that financing for tackling climate change should be built around carbon market revenues and private finance (aka investment opportunities for EU-based corporations).

A second key aspect (as I've mentioned earlier in this blog) is the proposed "sectoral crediting mechanism." Although the EU talks this up as an improvement upon the discredited Clean Development Mechanism, it is suspiciously silent on the fact that the shift from "project based" to "sectoral" crediting means that the last, inadequate lines of environmental impact assessment would be circumvented. This is mainly in the interest of "unblocking" the CDM bottleneck - the complaint from financial institutions that they can't grow this market quickly enough.

Further info can be found in this background "staff working document, this Q+A and press release

While the EU has set out figures in the region of €2-15 billion for climate financing, the African Union is suggesting a figure of $200 billion by 2020.

The US, meanwhile, has yet to come up with a proposal at all.

Finally, a series of position papers for the forthcoming G20 summit in Pittsburgh reveal are distinctly worrying (and predictable) in their emphasis on private sector market openings and various means to expand global carbon markets

Tar-sands protest in UK

(an anti-tar sands protester, "sludged up" and expressing his revulsion outside BP's London office)

I've taken an involuntary summer/book writing blogging hiatus... but in the meantime, it is worth checking out the Indigenous Environment Network's launch of an anti-tar sands campaign in the UK. Yesterday's protest at BP and Sell was just the start...

Nuclear energy is not a clean alternative

Here´s one more graphic from the UNEP/Grid-Arendal, which is topical given the push to promote nuclear energy as a "clean" source (in the face of much evidence to the contrary).

Geeky carbon trading related fact: Lithuania had the largest surplus of carbon credits in the first phase of the EU´s Emissions Trading Scheme, exporting 33% of its credits to other countries in the EU. The underlying reason for its surplus was the planned closure of Ignalina, a nuclear power plant with a similar design to Chernobyl, which is taking place by phases. Lithuania claimed that the replacement power generation capacity will come from dirty coal plants instead. As a result it gained a large surplus of credits, which have been sold on and treated as “emissions reductions” elsewhere - including the UK (which was the largest purchaser of credits in the first phase of the EU Emissions Trading Scheme). They are, of course, nothing of the sort.

Animal farts and burps and climate change

Source: UNEP/GRID-Arendal

Apparently the above diagram was commissioned for a UN study on carbon neutrality. The UNEP/GRID-Arendal project is a mine of weird and wonderful climate change graphics.

Jonathan Pershing on the outcome of the Bonn climate talks

Jonathan Pershing is the US Deputy Special Envoy for Climate Change, and was the lead US negotiator at the Bonn climate talks. Here´s what he had to say, and a few comments to decode its significance:

Bilaterals
Asked about the bilateral meeting held between the US and China during the talks, he said that the US is “working for a conclusion not just here but in other forms – perhaps most notably the MEF [Major Economies Forum]”. The emphasis in these bilaterals is on a “foundation of shared understanding”. Pershing left Bonn to join Todd Stern´s delegation in Beijing for “an engaged conversation” that was “very fruitful” (Stern is Special Envoy for Climate Change, the US lead negotiator).

The timing of these bilaterals was not arbitrary - it served to keep key Chinese negotiators in Beijing, which can help to isolate them from the rest of the G77 (developing countries) grouping. It might also serve to set up a media blame game in which the US looks to China for greater commitments, despite the fact that US per capita emissions remain three times higher than those of China and are historically on a wholly different scale.

A new agreement?
“The US is of the view that we need a new agreement... we need to frame what comes next.” The US has proposed an “implementing agreement of the Convention, to which we are a party.... we are of the view that all Parties must take action, including the US, but that doesn´t excuse countries like China or Korea.” [The United Nations Framework Convention on Climate Change was signed in Rio in 1992, and is the legal basis for the Copenhagen talks later this year]. The US submission is “framed as a complete agreement... which frames a vision of how we might move forward.” He also noted that “we are not a party to the Kyoto Protocol.. so our intention is using the Convention structure going forward”

The key political point here relates to fears that the legal form of a new agreement could undermine the Kyoto Protocol. The latter has many negative aspects to it - most notably, it is the basis for carbon offsetting under the Clean Development Mechanism (CDM). But the intention is not to scrap this, but rather something called "differentiation" - dividing up the grouping of developing nations. Such a move also absolves the US of its failure to ratify Kyoto.

Pershing also emphasised a “long term strategy” in which developed countries set a quantitative limit in relation to a baseline year while for developing countries “the actions are binding but not the outcomes.” He also stated that the US plan requires that developing countries “state when they would take on these kinds of commitments” to a quantitative reduction in relation to a baseline year.

Some “additional resources” are anticipated by the US especially for the “less developed” countries, and technology is a “central part” of this discussion.

Historical Responsibility
On historical responsibility, he drew attention to remarks by Stern at the last meeting in Bonn, summarising in these terms: “we recognise as a matter of fact that the US has historical responsibility for the largest share of emissions going back” and recognising also that the US has a “significant capacity” to take action.

Redefining "finance" within a private investment framework
The “vast majority” of the money for tackling climate change is private finance, Pershing said. The aim is to “leverage the various tools at our disposal to shift these investments” so we need a “marginal shift” to do this. He explained that the money concerned is not the whole cost of projects but, for example, the difference between regular coal power and CCS, or between “low till and no till agriculture.”

On public finance, he noted that public finance is generally emphasised in the UN context and said that “we´d like to change that debate”. In this regard, he highlighted offsets as a means to “provide substantial streams of money” if they are “scaled appropriately.”

Instead of paying the US climate debt, the proposal here is to reframe the issue in order to open new markets for the private sector.

Divide and rule: the politics of climate negotiations

Want to know how global treaties get stitched up? You could do far worse than read this new briefing by Oilwatch International. It outlines the following tactics to force a treat in the interest of the developed countries at the expense of a just climate deal:

• Controlling the discourse. Shape the narrative and expectations of negotiators and the public about what constitutes success and failure – including misleading the media.

• Ambush and push. Seeking a sudden deal before developing countries have time to assess the implications.
  

• Mischaracterizing policy as science. This is a way to depoliticise the claims of the powerful – for example, by arguing that IPCC reports make recommendations about the north/south balance of action to tackle climate change.

• Obscuring the details. Setting goals and expectations in different statistical terms, making the implications difficult to evaluate and compare

• Building a Trojan Horse. The inclusion of developed country officials or consultants in developing country delegations, who then mischaracterise their positions.

• Carving out special deals. Splitting up developing countries by offering special deals to sub-groups – for example, in relation to market access in trade negotiations, or in relation to aid provisions.

• Establishing new groupings of countries. Breaking the ties between developing country groupings by championing new groupings – normally, by developed countries defining that sub-grouping in relation to “favourable treatment” offered in the form of a special deal

• Setting up the blame game. Characterising larger developing countries as “reluctant” while championing the unambitious efforts of developed country governments.

• Divide and rule narratives. For example, seeking to juxtapose a “right to survival” narrative of some developing countries with a “right to development” narrative of others – shifting attention from developed country obligations.

• Forum shopping. Larger developed countries and country groupings – such as the European Union – coordinate actions across a number of different forums – eg. in negotiations outside the climate arena, where officials who do not know the issues are encouraged to ratify positions that circumvent negotiating stances in the climate talks.

• Establishing other forums. New forums are also created to circumvent the UNFCCC process – the Major Economies Forum being a notable example. This is also part of agenda-setting and media messaging for the formal negotiations

• Inappropriate chairing and biased texts. Circumventing the proper channels to advance biased negotiating texts, which are ordered to reflect industrialised country interests – for example, by using developed country proposals as the basic structure, while lumping developing country submissions together in a single block.

• Green rooms. “In the context of the WTO, small group settings – or “green rooms – have been used to cut deals between small groups of powerful countries, with participation (often largely symbolic) by “representatives” of other countries. Green rooms have provided a means for isolating “problematic” countries, advancing negotiations with relatively inexperienced ministers, or excluding key negotiators (on the basis of insufficient seniority). ”

• Green men. Another WTO trick, through which Chairs appoint individuals to “facilitate” consensus on specific issues the development of consensus on specific issues.... forcing the agenda to a biased conclusion.

• Moving up the ladder. Ministerial-level meetings and Summits are sometimes used to marginalizes and overturn the positions of developing country negotiators who “know too much” and are therefore seen as obstacles by developed countries to achieving their interests.

• Use of non-governmental organizations. NGOs cane be useful, but can also be used to do the dirty work of gathering intelligence and lobbying of the developed country governments who fund them

Climate Camel

As if the world of UN climate talks weren´t surreal enough, Avaaz brought camels to Bonn. Their presence was meant to highlight how climate change exacerbates the threat of desertification. Given the under-representation of those at the frontline of desertification in these talks, it just looked a bit crass.

2009 International Climate Calendar: Diversions in the Road to Copenhagen

The Pew Center has produced a useful overview of the major events in the negotiations for a global climate treaty between now and Copenhagen. It is worth comparing with this earlier effort:



Although it was not the point of the Pew Center´s exercise, this clearly shows how the formal UN climate talks going sit within a larger structure of inter-governmental meetings driven by the major industrialised countries - with the Major Economies Forum, initiated by George Bush and revived by Barack Obama, taking an increasingly crucial role. This, in turn, overlaps with the G8.

One of the notable facts about the "one bracket and comma at a time" snore-fest that is the Bonn climate negotiations is how the US lead negotiator Todd Stern skipped the session to go to China instead, with senior negotiators from there held back too. This is a fairly transparent divide and rule game, which aims to isolate China from the rest of the G77, the grouping of developing nations - thereby decreasing their influence. It also plays to a domestic audience, where the US government is setting up to blame China for failures in the climate talks, despite the massive historical and present gap between the two countries when it comes to their contribution to climate change.

Alden Meyer of the Union of Concerned Scientists had this to say about the record: "The G8 summit before Kyoto was when President Clinton redoubled US efforts on Kyoto which led ultimately to Al Gore coming to Kyoto to help negotiate a final deal." And we all know how that worked out.

Punch and Judy on the Climate: Bonn negotiations

Oh yes you did! Oh no you didn´t!

The regular Punch and Judy show that is the UN climate talks is currently underway in Bonn. As ever, everyone is talking up the need for emissions reductions made by someone else – with the industrialised nations seeking out every opportunity to avoid their historical responsibility for tackling a problem that they were overwhelmingly responsible for causing in the first place.

This debate is currently being played out in a working group on the Kyoto Protocol, the existing global climate treaty. The aim is to reach new targets for emissions reductions by industrialised countries (called “annex 1” countries in the jargon) but few commitments are on the table. Broadly speaking, there is a split between developing countries, which want the industrialised nations to commit to deep cuts in carbon emissions domestically, and developed countries which want to discuss the issue within a broader framework for “offsets”.

These discussions are currently in some trouble – with developed countries leading moves to “kill” the Kyoto Protocol. The US and others hope that this will revert the discussion to one in which the developed/developing world divide will be weakened, forcing the latter to take on further commitments. These are likely to take the form of voluntary “nationally appropriate mitigation plans” (NAMAs) and a variety of “sectoral” approaches. The language comes from the Bali Action Plan, but the developed countries are pushing an interpretation that stresses market-based approaches – for example, allowing NAMAs to generate carbon credits that can be sold back to developed countries as a means for them to avoid meeting their commitments at home.

Another key trend is the move towards more secretive and selective negotiations. As noted in a previous post, there are numerous meetings to shape a global climate agreement that are happening outside the UN framework. These are being accompanied by move towards a WTO-style Green Room process. This means that powerful countries will hand pick negotiators for particular aspects of the treaty, with a view to locking in their favoured outcome. With Ministers and Heads of State, rather than professional climate negotiators, sitting around the table – a bad (and somewhat absurd) deal would be a likely result.

That´s not the way to do it!

Carbon Trading: From Washington to Bonn

With a new President in the White House there's a fresh approach to climate change and energy policy in the US. But the Energy bill currently going through Congress is based on the widely-criticised "Cap & Trade" system and has been weakened further by a massive corporate lobbying campaign. How does this feed into the UN talks in Bonn in June which prepare the way for the critical meeting in Copenhagen in December? I recently spoke to the 300-350 climate radio show about this very topic. Listen online

Stepping around the UN: how and where is a global climate agreement being made?

All sorts of misplaced hopes are currently being pinned on a global climate agreement, due to be reached at the UN climate conference in December. As things stand, the negotiating texts are fairly dire as regards action to tackle climate change, since they are framed around expanding market mechanisms and displacing action onto Southern countries. A key part of this has to do with how the debate is framed around "least cost" action rather than what is environmentally effective or socially just.

So while the talks currently underway in Bonn set out negotiating texts, working these over in excruciating detail, the framework they adopt is set out elsewhere. What follows here is a quick sketch of some of the key initiatives shaping the global treaty that exist outside of the formal UN process.

Global

* G8. The Group of Eight remains a key body for setting the global climate agenda in a business-friendly manner, even though it may eventually be eclipsed by the G20. A first tier of corporate lobby influence includes the participation of the World Business Council on Sustainable Development (WBCSD) and World Economic Forum (WEF). The World Bank and various Regional Development Banks also play a vital role. Second tier initiatives include Globe (currently chaired by Steven Byers MP, the former UK Trade and Industry Minister); and the Club of Madrid and UN Foundation (the former is a group of ex-Presidents, the latter a private organisation), which have advanced various principles at the G8 which have then found their way into the formal climate negotiations. The G8´s work to shape a global climate agreement started in earnest during the G8 summit in Gleneagles, Scotland, when Tony Blair launched the Gleneagles Dialogue.

* Major economies forum. Started by Bush and revived by Obama, this club of industrialised nations is now holding monthly meetings of representatives from: Australia, Brazil, Canada, China, the European Union, France, Germany, India, Indonesia, Italy, Japan, Korea, Mexico, Russia, South Africa, the United Kingdom, and the United States. Denmark (as chair of COP 15) and the UN also participate. A heads of state meeting of this grouping will convene at the G8 in Italy in July.

* World Business Summit on Climate Change: for a quick report, see here. This was hosted by the WBCSD, Copenhagen Climate Council, 3C, World Economic Forum (WEF), the Climate Group and the UN Global Compact.

* World Economic Forum hosts its own Climate Change Initiative, as well as carrying forward proposals at regional meetings. A "World Economic Forum Business Expert Task Force on Low-Carbon Economic Prosperity" which partners the WEF with the UK government will deliver recommendations in autumn 2009.

* Global business groupings: WBCSD and the International Chamber of Commerce (ICC) are the key bodies. The WBCSD, in particular, has been instrumental in pushing "sectoral carbon markets", which would expand the use of carbon offsets - as well as undermining attempts to waive intellectual property rules so that low-carbon technologies can be developed more quickly.

* Climate specific business grouping.

Project Catalyst is crucial here. With support from the consultancy McKinsey, its working groups include "a total of about 150 climate negotiators, senior government officials, representatives of multilateral institutions, business executives, and leading experts from over 30 countries." The UK government is heavily represented amongst these.

The Climate Group is also influential, with a task force on the climate agreement led by Tony Blair. As Henrey Derwent, CEO of the International Emissions Trading Association, IETA (and formerly the head of climate policy for DEFRA, in which role he played a crucial role in G8 negotiations in 2005) puts it: “PricewaterhousCoopers and the Climate Group have done a lot of work on scaling up the CDM [Clean Development Mechanism].” Their recommendations can be found here.

3C is an initiative of CEOs of major companies, hosted by Swedish energy giant Vattenfall.

IETA is an associating that promotes a global carbon market, as well as suggesting business-friendly rules for how those markets are governed.

Regional, national and sectoral

* Below this lies a far broader network of sectoral, regional and national lobbying - far too exhaustive to list here.

* USCAP is key in the push for carbon markets in the USA. It lines up alongside more powerful industry bodies that oppose or seek to water down all climate legislation. A good breakdown can be found here.

* The EU climate and energy package, passed in December 2008, was lobbied hard by numerous industry sectors. Avril Doyle MEP, the centre-right Irish MP who was rapporteur on carbon trading for the EU Parliament, suggests that German coal power and chemicals producers were loudest lobby voices.

* There are also a plethora of inter-governmental and inter-regional meetings to shape the agenda - including EU-US, US-China and EU-China bilateral meetings. US and EU carbon markets are not dependent on a global agreement, while the EU is pushing plans to link these together across the OECD (industrialised nations) by 2015.

* Most industry sectors are preparing their own plans on the climate agreement too. The head of the International Air Transport Association (a private industry body), for example, effectively pre-announced the International Civic Aviation Organisation (UN body) plan on climate at the World Business Summit - suggesting that the latter is captured by corporate interests.

Specific companies

A lot of the usual suspects are involved, but amongst the most active - either on their own or, more typically, through broader associations, are: BP, Shell and Vattenfall. PricewaterhouseCoopers and McKinsey are also very active as advisers.

Business as usual on the climate

(An edited version of this article was published by The Guardian on 28 May)

When Sir Crispin Tickell had the temerity to suggest that "the business community needs to re-examine the fundamentals of economics" at the recent World Business Summit on Climate Change in Copenhagen, his discordant tone was drowned out by a chorus of over 800 delegates singing the praises of unfettered markets as a means to tackle climate change.

The commitment to carrying on with business as usual took an almost surreal form at times. Indra Nooyi, CEO of PepsiCo, proudly proclaimed "The fact that I flew here for 1 1/2 hours to sit on a panel them I´m flying straight back to the US is an example of our commitment to environmental sustainability."

More worryingly, plans for low-carbon technology give the expansion of high-carbon coal power pride of place. The promotional rhetoric is of Carbon Capture and Storage (CCS), yet those from the power sector are blunt about its shortcomings. "One of the plants we are building is CCS ready, although to be quite frank no one really knows what that is at the moment" claimed Steve Lennon, Managing Director of South Africa´s Eskom. James Rogers, CEO of US-based Duke Energy, added that CCS is at best 15 years off and is likely to prove unfeasibly expensive if it even works at all.

The underlying problem is that business adjusts the problem of climate change to neoliberal economics, which judges value according to financial cost rather than environmental sustainability or social justice. This manifests itself in a promise to massively expand carbon markets. The idea is that governments give out a limited number of permits to pollute; the scarcity of these permits should encourage their price to rise; and the resulting additional cost to industry and power producers should encourage them to pollute less.

Jos Delbeke, Deputy Director-General for the Environment at the European Commission, was in Copenhagen claiming that this is how the EU Emissions Trading Scheme (ETS) is now working. Yet his department´s own data for 2008 shows more international "offset" credits circulating than the level of claimed reductions, while lobbying pressure has resulted in a twin-track system from which every business wins.

On one side, heavy industry like the steel sector has more credits than would be needed to reduce its emissions, so it sells them. Delbeke shared a panel on carbon markets with a representative of ArcelorMittal, which alone gained an estimated subsidy of over €1 billion between 2005 and 2008 by this means.

On the other side, power companies pay less for pollution permits than the cost they pass on to consumers, generating windfall profits that could reach up to around €70 billion by 2012. The circulation of these permits does nothing to help new investment in renewables, as Zhengrong Shi, CEO of Chinese firm Suntech Power, admitted in a second session on carbon markets: "All European investment in renewables, in our sector [solar] is based on a feed-in tariff not the Emissions Trading Scheme or Clean Development Mechanism."

Carbon markets might be used to help polluting sectors avoid other obligations that are placed on them, however. As Giovanni Bisignani, Head of the International Air Transport Association (IATA), put it, "If some governments still want to implement taxes [on aviation emissions], we should get carbon credits to compensate every penny of these taxes."

Other measures to avoid business obligations displace the problem of tackling climate change onto the global South. The Summit´s final Copenhagen Call talks of a crucial role for forest protection in developing countries, with the co-organisers´ Business Case for a Strong Global Deal suggesting that such measures should represent around half of the action needed to limit climate change by 2020.

These figures are taken directly from Project Catalyst, an initiative bringing together "climate negotiators, senior government officials... and business executives", whose presentation (marked confidential) more straightforwardly emphasises the "the size of the prize for business" and, in particular, the opportunities for "companies in forest management, pulp and paper, or construction" to access a "€20-30bn value chain" in developing countries.

Strikingly similar assumptions have found their way into negotiating texts on Reducing Emissions from Deforestation and Degradation (REDD), which will be discussed when UN climate negotiations resume in Bonn next week. Yet the whole idea that deforestation can be stopped by simply putting a price on forests is flawed, with forest communities and Indigenous Peoples warning that it will encourage further land grabs by large companies. They point to evidence that the real drivers of deforestation are the major construction, mining, logging and plantation developments whose owners stand to be rewarded by REDD funds.

These are the voices that the world should be listening to as it seeks to tackle climate change - for, as things stand, even the self-proclaimed "progressives" of big business seem to be putting profit margins above environmental need. Without a more fundamental re-examination, to paraphrase one panellist, they look more like the back end of a horse that is galloping in the wrong direction.

World Business Summit on Climate Change... quote, unquote

I have a whole notebook from the summit, which will feed a report at some point. In the meantime, here´s a selection of the "finest" quotes from day 1 of the summit...

5. “Tom Burke of [E3G, also of Rio Tinto, also of the UK Foreign Office.” - Tom Burke, overselling himself somewhat whilst proving that conflict of interest is alive and well. His registration badge said Rio Tinto.

4. “We are perhaps the only company using windfarms to generate the electricity powering our oil platforms.” - Fu Chengyu, Chief Executive Officer, China National Offshore Oil Corporation provides some Greenwash, Chinese-style.

3. “Like other industry we should pay only once. If some governments still want to implement taxes [on aviation emissions], we should get carbon credits to compensate every penny of these taxes. ... we can make aviation the first global industry to achieve carbon neutral growth and I hope it will be a model for others to follow.” - Giovanni Bisignani, Head of the International Air Transport Association (IATA), presents the true reason for his industry´s promise of “carbon neutral growth” by 2050.

2. “Sustainable next generation biofuels could increase our carbon footprint by 80 per cent. We are already flying test flights with biofuels of the next generation and we will be able to certify those by 2011. For the first time aviation could have a sustainable alternative to fossil fuels.” - Giovanni Bisignani of IATA, again.

1. “The fact that I flew here for 1 1/2 hours to sit on a panel them I´m flying straight back to the US is an example of our commitment to environmental sustainability." -Indra Nooyi, Chairman [sic] and CEO of PepsiCo.

Copenhagen, 24 May

Welcome to the Bella Center

The Bella Center is in the Copenhagen equivalent of London´s Docklands, and will be site of the main UN climate conference in December. Vestas have erected a wind turbine in the car park in the front, which will be dismantled again when the UN climate conference is over. The car park is full of police vans.

I arrived by metro, walking around a building site to get there. Hardly any of the delegates to the World Business Summit on Climate Change take this route though - it is all taxis and limos.

On first arrival, the staff at registration are from the World Economic Forum and from the World Business Council on Sustainable Development - two of the six co-sponsors of the summit. I was refused a copy of the participants´ list but acquired one by other means... it is a list of men from North America and the EU, headed up by a range of dignitaries including the Queen of Denmark, UN Secretary General Ban Ki-Moon and Al Gore. Most participants are CEOs or senior executives, with a significant proportion of government officials too.

My first “networking” experience involved being approached by a Californian with a Willy Loman personality trying to sell me hydrothermal vents as “the greatest new source of energy since nuclear”. For the most part, though, the CEO club is too inward looking to bother me so I can slip by unnoticed for most of the three days of the Summit.

Copenhagen, 24 May

==

Update: Taking a page of the participants list at random, the ratio of men to women was 4:1. Four of the 43 participants named on the page were from outside of the "annex 1" industrialised countries. (I counted four other pages, where this ranged from 4 to 6 - mostly from Korea, China, South Africa and the Middle East).

The official press pack states that "The World Business Summit on Climate Change gathers more than 800 participants from 47 countries including 500 business leaders, 137 government representatives and 43 NGOs" as well as 261 journalists.

Climate Greenwash: Vattenfall win

On arriving in Copenhagen, I went straight to the Climate Greenwash Awards ceremony. Swedish energy company Vattenfall won, with 39 per cent of the votes. The company was nominated for “its mastery of spin on climate change, portraying itself as a climate champion while lobbying to continue business as usual, using coal, nuclear power, and pseudo-solutions such as agrofuels and carbon capture and storage (CCS).”

A special award also went to the Danish government, for its role in helping establish the World Business Summit on Climate Change, which starts today.

Someone had the bright idea to serve "greenwash" as a drink - good concept, but it tasted like mouthwash with alcohol added to it.

Boat Train

I had a 6am start from Lüneburg to connect with the Hamburg to Copenhagen train. It is literally a boat-train, as you can see from the above picture.

Carrots for Copenhagen

Zapatista coffee, vegan pay-as-you-like food and a 56-page brochure of workshops... welcome to Buko 32 - a congress of international solidarity movements - being held in Lüneburg, Germany.

The event also marked the start of "The Road to Copenhagen" tour, which will see Carbon Trade Watch traverse Europe in advance of the December climate summit to expose the failings of carbon trading, and highlight alternatives that advance climate justice - or klimagerechtigkeit, as it is called here. I´ll be blogging that on this site.

I was at Buko to give a presentation on Carbon trading from Kyoto to Copenhagen, which can be found here.

The most memorable moment, though, involved Morgan Ody, formerly of Via Campesina and now "happily unemployed but still following the peasant way", inciting the audience to start community gardens and bring the resulting vegetables to protests at Copenhagen in December.

An army of German autonomists brandishing home grown carrots? Bring it on ...

UN Climate Negotiations: analysis of latest positions

The US has played its hand, finally, if rather tentatively in the negotiations leading to a new UN climate treaty to be signed in Copenhagen this December. You can find them, with a range of other submissions, on the UNFCCC website. In fact, the US position remains thin on detail - other than to reiterate Obama´s previous statement that the US will reduce emissions to 1990 levels by 2020. To put this in some context, the Clinton administration had agreed to a 7% reduction on 1990 levels by 2012 - before renaging on its promise. The cost extracted for this "generous" concession to binding targets at the time was a system of carbon offsetting, put on the table by Al Gore (the chief negotiator at Kyoto) that still plagues the talks today.

The EU and sectoral carbon markets
There is some admission that these offsets are not working. The European Commission, in particular, now claims that it wants to see "substantial reform" of the Clean Development Mechanism, the controversial system that allows credits from a serious of dubious corporate projects in the global South to be treated as equivalent to "reductions" in industrialised countries.

The EU acknowledges the failings of this system, but its actual proposals for reform currently take the worst aspects of the scheme and exacerbate them. In particular, it advances a proposal for sectoral carbon markets, which is presented as a move away from controversial offset projects. Yet these proposals for ´sectoral crediting´ are being made within the framework of the Clean Development Mechanism, and have the potential to massively increase its scope. At the same time, they would lower the already inadequate checks on environmental sustainability and social justice, bypassing the current requirement to assess each project individually. This has been the dream of dodgy offset developers the world over.

The EU is proposing that CDM offset credits can be generated by any practice that alters ´business-as-usual trends´ in particular sectors - but this is not the same as a reduction. In most sectors, for example, the trend since 1990 (the usual baseline) has involved enormous increases, while the recent growth trends are slower. Depending on the baseline that is chosen, a baseline target could allow for continued increases over and above those that are currently being witnessed.

Another problem is that the existing data is often extremely poor - which means that assessments of business-as-usual are in the hands of the companies active in those sectors themselves. There is a clear incentive here for companies to talk up current emissions levels, in order to then maximise the number of carbon credits they would receive as a result. The over-allocation in the first phase of the EU Emissions Trading Scheme is a clear precedent for just such a practice.

The EU is proposing a separate "sectoral trading" scheme alongside this sectoral crediting - which is as confusing a mess as that sounds. One of the major failings of carbon trading has been this mix-and-match approach, where a finite "cap" is set with one hand, only for that to be lifted with the other hand by "offsets" that increase undermine it.

Since these credits can be sold on an international market, there is a very serious change they would further undermine the integrity of the EU ETS as well.

More new carbon market proposals
There are a serious of other proposals on the table too. These include a whole paper from Korea advocating a National Appropriate Mitigation Actions (NAMA) "crediting mechanism," ie. carbon market credits in relation to emissions benchmarks, which would be set in non-binding national action plans. Norway has a proposal on NAMA carbon credits that ostensibly looks quite similar.

The South Africa delegation, which appears to have swallowed an acronym dictionary, suggests that "NAMAs may comprise individual mitigation actions, sets of actions or programmes. Developing countries may choose from a variety of forms of action, including SD PAMS, REDD, programmatic CDM, no lose sectoral crediting baselines and others"

These are mostly market-mechanisms, although Sustainable Development Policies And Measures (SD PAMS) and REDD can be market-based or regulatory.

By contrast to all the above, Brazil seems to suggest that NAMAs should not generate offset credits.

Watering down EU ambition
Another new and re-iterated aspect of the EU´s proposals relates to its emissions reduction target of 20 per cent to be achieved irrespective of the agreement - although most of this could, if the EU wanted, be met with reductions from abroad - and 30 per cent in the context of an international agreement.

In a joint submission with Australia, Belarus, Canada, Norway, Switzerland and Ukraine, it is reported that the EU defines the 30 per cent as "including Land Use, Land Use Change and Forestry." These emissions are notoriously difficult to verify, for which reason they are currently excluded from the EU´s Emissions Trading Scheme. They also don´t count towards the 20 per cent target.

Including LULUCF "reductions" would help the EU to meet its "more ambitous" target without making that task more ambitious, as a result of which they are included. To give a sense of scale of the difference that might make, the current figures on LULUCF from the European Environment Agency are as follows (countries can choose whether or not to count these towards their current Kyoto Protocol reduction target): "Overall, activities under Articles 3.3 and 3.4, thirteen EU‐15 Member States are projected to remove 57.5 Mt CO2 per year of the commitment period. This is equivalent to 17% of the EU‐15 reduction commitment of 341 Mt CO2 per year of the commitment period, or 1.3 of the 8% reduction target."

That needs decoding. Articles 3.3 and 3.4 relate to aforestation and reforestation (tree planting). 341 Mt is how much CO2 per year the EU is commited to reduce. This means that LULUCF changes accounts for a net decrease of around 1.3 per cent of the EU´s overall emissions, but this is almost one-fifth of the action needed to make a reduction.

In other news: binding reductions for China?
The emergence of a US negotiating position of sorts has been reported with a flurry of excitement about how it has, in turn, pushed China closer to a position from whichit could strike a deal. In fact, the Guardian report names an unofficial source, who floats a potential commitment to "intensity targets." These are not emissions reductions, but relate to the proportion of emissions per unit of GDP. If the economy grows, emissions will be carried along with it.

REDD plus
On deforestation, various countries make proposals for REDD plus. According to the Bali Action Plan of December 2007, which kicked off the current negotiation round, this means: “Policy approaches and positive incentives on issues relating to reducing emissions from deforestation and forest degradation in developing countries; and the role of conservation, sustainable management of forests and enhancement of forest carbon stocks in developing countries”.

REDD-Monitor explains some of the drawbacks here

The best of these positions is from Bolivia which argues for this to be directly funded rather than tied to the carbon market. It says:

"1. A fund based mechanism allows for equitable distribution of funds.
2. It will not allow for off-set mechanisms.
3. Is more likely to ensure environmental integrity.
4. Is able to protect the rights of indigenous peoples and local communities as there is no transfer of rights of carbon ownership to the market.
5. Ensures sovereignty and national as well as local control over REDD-plus activities. Where the REDD plus activities must be framed under the national laws and policies and to not affect the national interests.
6. Forest conservation can be funded, including adaptation activities related to forests."

Climate finance
Some of the key debates concern financing. China, amongst other things, restates that:

"The developed country Parties shall fulfill their financial commitments under the Convention in a measurable, reportable and verifiable manner; any funds pledged outside the UNFCCC shall not be regarded as the fulfillment of commitments by developed country Parties for the implementation of Article 4.3 of the Convention and the Bali Action Plan."

The implication of this is that it still does not accept that controversial World Bank Climate Investment Funds would be counted as financial commitments from developed nations. These funds have the backing of (and funding from) the EU and US, amongs others.

EU Commissioner Stavros Dimas recently let slip that climate financing for development"will have to be both brand new funds and existing development monies." He then stressed that "mostly it should be new," but the fear lingers on that a lot of this money will be a repackaging of previous commitments, topped up by revenues from carbon markets.

UK Carbon Budget: more cynicism about offsets

The UK government has set "the world´s first carbon budget" which includes a worthy, if tautological, aim to meet its domestic emissions reductions obligations domestically.

We are told that it will "Aim to meet the carbon budgets announced today through domestic action alone, and consistent with this, setting a zero limit in the non-traded sector on offsetting through international credits for the first budget period."

The Department of Energy and Climate Change (DECC) had previously commissioned an "impact assessment" of the EU Climate and Energy Package. It is written in dull economese, and with lots of questionable assumptions. But on the use of these carbon offsets it makes an interesting point:

101. Analysis of the effort required in the non-traded sector presented in Section 3.3 shows that under the projected emissions scenario modelled there is sufficient negative-cost abatement potential available to meet the anticipated shortfall. This suggests that there would be no requirement to use project credits, as sufficient abatement at lower (negative) cost is available. Therefore, under this, there would be no need to use project credits, and subsequently no additional cost of constraining their use

(emphasis mine)

In other words, the UK government is spinning "a restriction on the use of offset credits in non-traded sectors" as something pro-active, but its own study finds that "there would be no requirement to use project credits" anyway.

Why? The impact assessment talks of cost-neutral efficiency savings or those that result in net gains - and it is certainly true that many such possibilities exist (which begs the question: why are business decision makers so sclerotic that they don´t even make climate change measures that would make them money?)

There are also a couple of more basic reasons. The "first budget period" for the UK carbon budget runs to 2012. The UK is well below this target - and European Environment Agency data shows that the main reason for this is basically that energy production saw a shift from coal to gas in the early 1990s as a result of coal mines closing.

Second, it is also worth noting that offsetting is still very much a practice within sectors that are included in the EU Emisions Trading Scheme. As the National Audit Office explains,

UK installations can buy allowances from participants in other EU Member
States and may also utilise up to 91 MtCO2 of project credits over the five year period, which represents 60 per cent of the emission reduction effort required in Phase II.

Project credits are offset credits. Loosely translated, more than half of the UK´s emissions reductions obligations can be met outside the EU, and the remainder could be met elsewhere within the EU (where surplus credits are plentiful thanks to post-1990 economic restructuring in Central and Eastern Europe, and the current recession). These figures also need to be viewed in a context of a changing industrial structure, where the tendency has been towards de-industrialisation (meaning that more of the UK´s emissions are "outsourced" to the global South), and in a context where international aviation (although this is finally changing, in part) and shipping are simply excluded altogether from the figures.

So while the UK talks of a "revised target to reduce emissions to at least 34% below 1990 emissions by 2018-22," the actual figure is far lower.

(A revised, article-length version of this post can be found here)

Ad Hoc Working Group on Kyoto Protocol update, aka how to expand carbon markets and count emissions increases as reductions

I´ve discovered the latest cure for insomnia, which is freely downloadable in the form of the Chair´s summary of the "AD HOC WORKING GROUP ON FURTHER COMMITMENTS FOR ANNEX I PARTIES UNDER THE KYOTO PROTOCOL," Seventh session, Bonn, 29 March to 8 April 2009

(Incidentally, the Chair in question is Harald Dovland who until fairly recently had a consultancy on carbon markets for Poyry plc.)

Don´t fall asleep just yet, though, because it´s a real shocker! Pretty much every half-baked scheme for expanding carbon markets is under discussion - a bore for ordinary climate-concerned citizens, but a wet dream for carbon traders.

At present, there´s fairly broad agreement that the Clean Development Mechanism (CDM) isn´t working (International Rivers have produced a good summary of how and why it fails, and you´ll also find more materials at www.carbontradewatch.org). When you´re in a hole, the best advice is normally to stop digging and climb out while you can. Unfortunately, the solutions being considered by the UN amount to throwing away the shovel and rolling in a JCB... taking the very worst elements of the current system, such as the unknowable fictions of "additionality," and generalising them. The net result would be a massive expansion of carbon markets that would, in the process, redefine all manner of hypotheticals and even pollution increases as "emissions reductions."

What follows is a point by point summary, with annotations and key clauses pulled out

Sinks, nukes and Carbon Capture and Storage in the CDM?
This first section has to do with debates on what can additionally be included in CDM - possible reforms to LULUCF provisions (land use, land use change and forestry); and a debate on the inclusion of Carbon Capture and Storage (CCS) and nuclear power in the Clean Development Mechanism (CDM). This is bad enough, potentially, although the more troubling parts are what follows...

Sectoral carbon markets
Like all of what follows, these are not agreed measures, but simply what is under discussion. So it is not too late to kick up a stink about it.

However, if sectoral carbon markets come into existence, this is what is proposed:

12. A sectoral crediting mechanism is established. A non-Annex I Party may propose to the CMP a crediting target for emissions or removals within a defined sector to be achieved through national actions. Reductions in emissions by sources in the sector below the crediting target, or enhancements in removals by sinks in the sector above the crediting target, shall result in the generation of credits which may be used by Annex I Parties to meet their emission commitments under Article 3, paragraph 1.

In other words, a target for emissions within a specific sector in the South can be treated as and traded for a reduction in industrialised countries. But there is no provision in this or the subsequent paragraphs for this to actually be a reduction - it is simply decided to be so by an expert group that reports to the CMP (which is the Meeting of Parties to Kyoto Protocol).
This potentially allows for a massive expansion of carbon trading beyond the "project-based mechanisms"

How is the target set? It explains...

14. A crediting target shall be [set below the level of projected anthropogenic emissions by sources of GHGs within the sector boundary or above the sum of the projected changes in carbon stocks in the carbon pools within the sector boundary] [as a carbon intensity target below the level of the projected carbon intensity of emissions by sources of GHGs within the sector boundary].

In other words, a reduction may be defined as anything below projected emissions... in essence, generalising "additionality" to whole sectors, while at the same time removing the need for even a cursory project-by-project assessment. Alternatively, and even worse, the target could be an "intensity" target, which is actually a ratio of emissions relative to economic output (expressed as GDP). The key point with the latter is that it is not absolute, so if GDP grows then the allowable amount of emissions grows with it... meaning that increased emissions can be traded as "reductions" (!)

15. The sector boundary for a sectoral crediting activity shall encompass all anthropogenic emissions by sources and removals by sinks of GHGs that are reasonably attributable to the defined sector.

Here sinks are treated as emissions reductions - in other words, what counts are not actual emissions but the net effect when the offsetting of tree-sinks, gas capture (and CCS, if is allowed, which is not just for coal but is also being pushed for major industries like steal).

Targets would be determined on a country-by-country basis.

Crediting on the basis of nationally appropriate mitigation actions

24. [The baseline for a NAMA registered as a CDM project activity shall be the scenario that
reasonably represents the anthropogenic emissions by sources of GHGs within the NAMA boundary, or the sum of the changes in carbon stocks in the carbon pools within the NAMA boundary, that would occur in the absence of the project activity.] [A portion of verified emission reductions that result from a NAMA may generate NAMA credits.]

Square brackets in these kinds of negotiations mark out those parts of the negotiating text that are not agreed, typically the more contentious text.

The NAMA proposal is another means of generalising the fiction of "reductions" beyond simply the project-based mechanisms. At the moment, each project has to tell a story of how emissions would have increased if the project didn´t exist, and show that carbon financing is necessary for it to happen. The problem is that no one knows the future, and all manner of implausible fictions can be elaborated ("we would have burnt coal if we didn´t burn biomass," etc.). This type of scheme generalises that same flawed Enron-accounting, and abstracts even further from the actual local context. Now, a story of how a whole sector in a whole country would otherwise develop can be taken as the basis for calculating reductions...

This proposed "NAMA crediting" seems to incorporate existing programmatic CDM (pCDM) proposals, as well as overlapping with the sectoral mechanism described above. Some of how it might work is rather obscure though.

The ways in which credits might be generated is listed as follows:

29. [Types of NAMA that can generate NAMA credits include but are not limited to:
(a) Sustainable development policies and measures, economy- or sector-wide mitigation
programmes, and mitigation activities and projects;
(b) Low-carbon development plans and programmes;
(c) Sector-based mitigation actions and standards;
(d) Actions under paragraph 1 (b) (iii) of the Bali Action Plan;
(e) Technology deployment programmes;
(f) Relevant standards, laws, regulations and targets at a national or sectoral level;
(g) Voluntary cap-and-trade schemes in non-Annex I Parties.]

For example, it is not clear at what stage carbon credits would be issued for "plans and programmes" - at the point at which they are drawn up, or at the point at which they have been implimented?

Here, as elsewhere in the document, social criteria seem weak or non-existent.

Encourage the development of standardized, multi-project baselines

33. [The CDM Executive Board] [A dedicated body constituted by the CMP and operating under its authority] [One or more dedicated bodies established by the CDM Executive Board and operating under its authority] shall define standardized baselines for specific project activity types and specific sectors or subsectors under the CDM by establishing parameters, including benchmarks, and procedures and making them available for [mandatory] [optional] use by project participants and designated operational entities (DOEs) in the determination of additionality and the application or development of baseline methodologies.

In other words, the new criteria for generating carbon credits will be even more lax, in that they would only need to be judged according to generalised and context-free "benchmarks"

Improve access to clean development mechanism project activities by specified host Parties
and
Promote co-benefits for clean development mechanism projects by facilitative means

These two sections address how to waive the rules for certain (to be specified) countries to encourage more carbon market projects there.

Various exemptions are considered. These include waiving "additionality" criteria and a fast-track process for projects.

The co-benefits section is rather confused, in particular this:

46. A DOE shall, as part of its validation of a project activity, confirm [that the designated national authority of the host Party has confirmed that its stipulated co-benefits are demonstrated by the project activity] [that the proposed project activity demonstrates one or more of the following co-benefits:
(a) Energy efficiency;
(b) Technology transfer;
(c) Environmental services such as air pollution reduction, improvement of water quality, proper treatment and reduction of waste, conservation of biodiversity, and management of hydrological resources;
(d) Poverty alleviation;
(e) Economic growth;
(f) Social benefits;
(g) Strengthening human and institutional capacity.]

This seems truly bizarre, and I can´t fully make sense of it. The way it reads, it would mean that a DOE (Designated Operational Entity, ie. consultancies like DNV and Tuv Sud) could verify that a project contributes to "economic growth" (criteria (e)) and, on the basis of this, authorise that other criteria for the project be waived. The result would be that projects leading to "economic growth" in LDCs (say, expansion by a large TNC / extractive industry) could be bought and presented as the same thing as "emissions reductions" in the North?!?!

Introduce multiplication factors to increase or decrease the certified emission reductions issued for specific project activity types

2+2 = 5

Joint Implementation

JI relates mainly to former Soviet countries, although if you look at the JI pipeline (database of current projects) in conjunction with a map you´ll see that some of the largest registered projects are located in the former West Germany.

They are considering including nuclear in JI.

Emissions Trading

This section relates to Annex 1 countries, ie. most of the rich industrialized ones.

Much of this is a reiteration of what went before, with the aim of rendering emissions trading consistent with the sectoral proposals in relation to CDM.

What it also proposes, though, is that a means be established for "Non-Annex I Parties" to directly involve themselves in cap-and-trade schemes, which opens the door (without need for further international agreement) for the linking up of these in order to create a global carbon market

60. Non-Annex I Parties may participate in emissions trading on the basis of agreed emission targets established for sectors. The emission target for a sector shall be set below the level of projected anthropogenic emissions by sources of GHGs within the sector boundary, or above the level of projected enhancements in removals by sinks of GHGs within the sector boundary, and shall be based on the most recent available data. The sector boundary shall encompass all anthropogenic emissions of GHGs that are reasonably attributable to the sector in question.

Again, sinks are treated as the same as reductions

61. A participating non-Annex I Party shall be issued with emission allowances corresponding to its sectoral target. Parties may devolve emission targets and allowances to legal entities.

"Legal entities" is the polite term for corporations. It is not yet clear what the implications of this clause might be. Any suggestions?

Introduce emissions trading on the basis of nationally appropriate mitigation actions

66. [CERs] [Credits] that are generated on the basis of a [NAMA registered as a CDM project activity] [NAMA] may be transferred and acquired under international emissions trading pursuant to Article 17.9

A CER is a CDM reduction unit. This clause is a legal provision to ensure that the whole vast swathe of new "sectoral" credits are "fungible" (ie. exchangeable with) reductions in the Annex 1 (rich, industrialised) countries.

Introduce modalities and procedures for the recognition of units from voluntary emissions trading systems in non-Annex I Parties for trading and compliance purposes under the Kyoto Protocol

69. Where a national or regional emissions trading scheme implemented on a voluntary basis by a non-Annex I Party or non-Annex I Parties meets specific eligibility requirements, emission allowances [and other units] issued under the scheme may be transferred and acquired internationally, and may be used by Annex I Parties to meet their emission commitments under Article 3, paragraph 1.

Please, somebody, send the UNFCCC a dictionary with the definitions of the words "mandatory" and "voluntary" highlighted...

Relax or eliminate carry-over (banking) restrictions on Kyoto units

All possible banking options (except no banking) are on the table, including this: "There shall be no restrictions on the carry-over of Kyoto units to a subsequent commitment period."

The problems with this are illustrated by what could already happen under the first commitment period (to 2012). Currently, through a combination of “hot air” credits (emissions reductions from Ukraine and Russia due to industrial decline and restructuring since the 1990 baseline established by the Kyoto Protocol) and the US non-ratification of Kyoto, there is likely to be a significant surplus of Assigned Amount Units (AAUs, Kyoto reduction units) by 2012. If these are carried over, it would represent a serious loophole in any post-2012 scheme – allowing historical reductions as a result of economic restructuring in the former Soviet bloc, and over-estimations based on the behaviour of George Bush, to be counted as equivalent to future domestic actions by the UK and other Annex I countries...

Other possible improvements to emissions trading and the project-based mechanisms under the Kyoto Protocol

There´s more to come! This last section contains a list of other live issues, some of them positive (restrictions on CDM, JI, etc), some negative, a number contested as to whether it is within the mandate of the AWG-KP to discuss them.

There are a few worrying ones in there too. These include a range of proposals for JI similar to what is detailed for CDM. Perhaps worst of all is this:

III. Emissions trading
A. Eliminate restrictions on the trading and use of certain Kyoto unit types under national and regional emissions trading schemes

In other words, a legal provision that would prevent discrimination on the types of units. For example, in the EU Emissions Trading Scheme, the use of CERs originating from 20MW large scale hydroelectric dams is restricted, etc. The above proposal would seek to overturn that decision.

And that´s all folks. Tune in next time... another round of UN climate negotiations takes place in June 2009 in Bonn, Germany.