Voluntary Cooperation (ITMOs) the Unknown Monster

An important item under negotiation at COP24 is the concept of voluntary cooperation in mitigation. Screen Shot 2018-12-12 at 3.08.55 AMThis item is of huge importance as developing countries need funding and financing to engage in low-carbon development and adaptation but they don’t have mandatory mitigation targets. Developed countries are the ones with the economic resources but they also need ways to meet their mitigation targets. This is where the cooperation comes in: a developed country finances a project in a developing country and gets credit for some of the mitigation toward meeting their Nationally Determined Contributions (NDCs).   These are called Internationally Transferred Mitigation Outcomes or ITMOs. But what are the rules around when and how these transfers can occur and how they are accounted for? Transparency, accurate accounting and avoiding fraud are essential to creating a system of integrity. (See my previous blog on blockchain for part of the potential solution.)

Article 6.2 of the Paris Agreement is intended to provide some direction but it does so by leaving discretion to the Parties by saying that the framework should be consistent with guidance adopted by the COP. It does however specify that the framework needs to provide guidance to ensure that double counting is avoided. Michael Mehling of MIT released a report recently as part of the Harvard Project on Climate AgreementsGoverning Cooperative Approaches under the Paris Agreement. A concern identified by Michael Mehling is that this system could create a perverse incentive for developing countries to have low NDCs so that they can sell their ITMOs. Screen Shot 2018-12-12 at 3.09.35 AMBecause NDCs are by definition nationally determined this cannot be addressed directly. However, the report stresses that the parties should be careful not to over-regulate with restrictions as it may limit participation and increase transaction costs. Mehling stated that lacking ambition in NDCs cannot be compensated for with restrictions on the cooperative approach. “Whatever its final shape, the governance framework for Article 6.2 should avoid being too weak or too restrictive, as either outcome would diminish the very benefits that prompted introduction of compliance flexibility in the first place.” (Mehling from Summary Doc.)

The advantage to voluntary cooperation through ITMOs is that it effectively creates a market mechanism, it provides ways to achieve mitigation at a lower cost and should facilitate an overall increase in ambition. However, Juan Pedro Sira, a negotiator on this issue at COP24, said that when the concept was developed in Paris they didn’t know the kind of monster they were creating.

The key is that simple rules are created that are transparent and robust in terms of environmental integrity by addressing ambition, agility, and transparency.   This will help create predictability benefitting developing countries that want to create projects ready for this process and private investors that want to invest. The sense is that this issue is very complicated but extremely important to the success of increasing ambition sufficient to avoid our pending disaster.

Using Blockchain to Avoid Double Counting While Empowering Everyone to be Part of the Solution

Today’s side event at COP24 for Blockchain Technology for Enhanced Climate Action emphasized the importance of distributed ledger technology (DLT) to accelerate mitigation solutions for climate change and empower non-country parties to work together. The event featured the Climate Chain Coalition Screen Shot 2018-12-11 at 1.12.56 AMfounded just one year ago but already bringing together 140 organizations with a mission to mobilize climate finance and enhance monitoring, reporting and verification of climate goals.

Blockchain technology is a form of Distributed Ledger Technology (DLT). (For a good explanation of this technology see this World Bank Group 2017 report.)Screen Shot 2018-12-11 at 1.22.55 AM It functions as a decentralized database that can securely store data and digital assets, like environmental credits or certificates. Transparency is increased because the data recorded on the blockchain is a permanent ledger that cannot be modified. Trust between parties is increased because the data is not stored in a centralized location but rather through peer-to-peer transactions. Transaction costs are reduced enabling much smaller transactions that are accessible to more individuals.

A new report issued this week by the Climate Ledger Initiative (a collaboration of several think tanks aiming to accelerate climate action) Navigating Blockchain and Climate Action identified three main areas where blockchain has the most potential to accelerate climate action: 1) next generation registries and tracking systems; 2) digitizing measuring, reporting and verification; and 3) creating decentralized access to clean energy and finance.

The UNFCC has identified blockchain technology as a disruptive technology that has the potential to solve the solution to the main challenge of “how do you attribute the climate contribution while avoiding double counting.” Under the Paris Agreement (PA), a country steps up by submitting their commitment to mitigation measures as their Nationally Determined Contributions (NDCs). Theoretically, the development and continued revision of these NDCs will govern the Parties and their climate commitments under the Paris Agreement. But the Paris Agreement also encourages developed countries to finance projects in developing countries. Screen Shot 2018-12-10 at 5.41.57 PMWho gets the credit toward the NDC – the country financing the project or the country implementing the project? How do we ensure that one country (or entity) doesn’t take credit at one stage of a project and another take credit at a different stage? The security and transparency of blockchain may be the solution. (However, keep a healthy dose of skepticism, said CEO of Goldstandard, Marion Verles, because many times technology solutions are being proposed that don’t actually solve the real world problem.)

Climate change is the seminal issue of our generation and requires all hands on deck. As Massamba Thioye of the UNFCCC said today, “We need to mobilize ALL stakeholders, suppliers, financiers, consumers, citizens, policy makers so that they make the right investment.” The challenge being faced is how do we all work on the solution and create market incentives. Ms. Verles identified the importance of DLT technology in the supply chain to help corporations get the critical data they need to make decisions on the impact that a good has on the planet (carbon impact, water impact, etc).

See GLOCHA - the Global Citizen Empowerment System

See GLOCHA – the Global Citizen Empowerment System for Full Poster

This information can move to the end consumer. If you knew, and could compare, the carbon impact of items you were purchasing, would you pay a little more to make a cleaner purchase? The bottom line is that blockchain has the potential to add a value stream to products that represents the intentional choices of individuals, companies, and countries to work toward a cleaner, safer planet.

(Note bitcoin uses blockchain technology in a very energy intensive manner that is not healthy for our planet – see fellow VLS student Ben Canellys blog here.)


Canadian Carbon Pricing System Moving Forward

As the world gears up for COP24, the Canadian government reaffirmed its intention, on October 23, 2018, to implement a federal carbon pricing system across Canada in 2019.

DcDre-xU0AAUhvwAs set out in its Nationally Determined Contribution (“NDC”) submitted to the UNFCCC under the Paris Agreement, Canada committed to reduce GHG emissions by 30% below 2005 levels by 2030. To that end, Canada proposed adopting various measures to transition to a low-carbon economy, including a federal carbon pricing system. In 2016, the government published the Pan-Canadian Framework on Clean Growth and Climate Change ,(“Pan-Canadian Framework“) which outlined a benchmark for pricing carbon pollution requiring all ten (10) Canadian provinces and three (3) Canadian territories to have a carbon pricing system in place by 2018, in their respecting jurisdiction (the “Benchmark“). Provinces and territories had the option to either implement i) an explicit price-based system (i.e. a carbon tax like in British Columbia or a carbon levy and performance-based emissions system like in Alberta) or ii) a cap-and-trade system like in Quebec.

Pursuant to the Pan-Canadian Framework, the federal government was to introduce an explicit price-based carbon pricing system in order to cover jurisdictions that will not have met the Benchmark requirements within that two year period.

In that regard, earlier this year, the Greenhouse Gas Pollution Pricing Act (the “Act”) (the Federal Backstop), received Royal Assent on June 21, 2018. The Act outlines two compulsory mechanisms which will be applicable to jurisdictions that did not meet the Benchmark:

  1. a charge on fossil fuels that are consumed within a province (generally to be paid by fuel producers and distributors) which will start applying in April 2019; and
  2. an output-based pricing system, to be applicable to emission-intensive industrial facilities (i.e. facilities emitting 50,000 tonnes of carbon dioxide equivalent/year or more, etc.), to be applicable as of January 2019.

The majority of Canadian jurisdictions have either developed their own carbon pricing systems or elected to adopt the federal system:

The holdouts—Manitoba, Ontario, Saskatchewan and New Brunswick—having either failed to adopt measures that meet the federal Benchmark stringency requirements or declined to propose their own carbon-pollution pricing systems. They will be obligatorily subject to the federal carbon pricing system.

The main requirement of the federal system is to attribute a $20/tonne cost on emissions as of April 2019, which will rise by $10 each year, reaching $50/tonne in 2022. The federal government has committed to return direct proceeds collected under the federal carbon pricing backstop system to provinces.  This may happen via one of three methods: 1) providing individuals and families “Climate Action Incentive payments;” 2) providing support to schools, hospitals, small and medium-sized businesses, colleges and universities, municipalities, not-for-profit organizations, and Indigenous communities; and 3) supporting reductions in GHG emissions in such provinces.

Chart_Pricing carbon in CanadaIt remains to be seen whether or not the Canadian carbon pricing plan will help Canada meet its NDC commitments and contribute to the overall long-term goal of the Paris Agreement of holding the increase in the global average temperature to well below 2 degree Celsius above pre-industrial levels and of pursuing efforts to limit that increase to below 1.5 degrees.


China’s Effort to Limit GHGs

china-five-year-plan-infographicChina produces more carbon dioxide than any other country in the world: 10.357 million metric tons per year. To limit their impact on climate change, China includes environmental protection in their Five Year Plan (FYP). The FYP is the country’s blueprint that outlines the policy framework, priorities, economic, and social development goals for the 2016-2020 period.

In 2016, China released the 13th FYP which includes lofty goals to reduce carbon dioxide emissions and increase green manufacturing. Innovation is the crux of this FYP. Innovation builds on improving manufacturing and emphasizing a cleaner, green economy. A State Council executive meeting in 2015 discussed implementing an Internet Plus Circulation program. The program expands broadband connection to more rural areas so there is more efficiency in transporting items, like new agricultural products and equipment. The program will also allow rural populations to access health care. Air pollution is a key target for the FYP. Chapter 38, Section 4, ensures that the concentration of fine particulate matter is reduced by at least 25%. The current status of smog and air pollution affects public health. China is increasing regulations for coal-fired plants while requiring low-emission technologies and eliminating outdated industrial equipment and processes.

The carbon dioxide emissions reduction targets in the FYP contribute to China’s Nationally Determined Contribution (NDC) 2030 target. The 13th FYP even put a first nation-wide total energy cap on all energy sources: it is set at less than the equivalent of five billion tons of coal over the next five years. These goals are reflected in the INDC filed on June 30, 2015. Article 4 of the Paris Agreement, provides that “[e]ach Party shall prepare…nationally determined contributions…with the aim of achieving the objectives…” of reaching a global peak of GHG emissions as soon as possible. During COP24 in December, China may include details about innovation and policy from the 13th FYP into the NDC because it is on track to meet the 2020.

China is fully embracing their 2020 goals by implementing green community projects. On September 28, 2018, Green Climate Fund announced that the board will consider projects, including China’s Green Cities program,targeting Central Asia and Eastern Europe. This project is among 20 other proposals totaling $1.1 billion to be heard during the next board meeting this month. It will be interesting to see how these project proposals will factor into each countries’ NDC during COP24.

From INDC to NDC: Diversity in ambitions and fairness

APA1-2 Co-chairs: Sarah Baashan (Saudi Arabia) and Jo Tyndall (New Zealand)

APA1-2 Co-Chairs: Sarah Baashan (Saudi Arabia) and Jo Tyndall (New Zealand)

The Paris Agreement requires Parties to communicate their first NDC along with their instrument of ratification, acceptance, approval or accession to the Paris Agreement. However, this requirement is typically accomplished when a Party has communicated an INDC prior to joining the Paris Agreement, unless it decides otherwise. So far, 163 INDCs have been submitted, while the Paris Agreement has been ratified by 100 Parties out of the 197 Parties to the Convention.

Although the Parties have the choice to submit new and more ambitious NDCs with their instrument of ratification, few choose to do so. One reason for this is the lack of guidance on what an ambitious NDC should look like and what it should contain. The importance of guidelines is currently being discussed under the APA1-2 meetings, including features of NDCs, information to facilitate NDC clarity, transparency and understanding, and accounting for Parties’ NDCs. More ambitious NDCs are needed as the submitted INDCs are not consistent with the goal of having a reasonable chance of avoiding a rise in global average temperature of more than 2°C above its pre-industrial level. However, it is important to note that even if a country is on track to meet its targets it does not necessarily mean that it takes on more stringent action than a country that is not on track, as it depends on the level of ambition and fairness of the INDCs.

Before achieving the level of ambition needed, the Parties also need to sort out through the divide created by the role of CBDR-RC and national circumstances in the adoption of the guidelines, thus reaching on the issue of fairness. The developing world is asking for support from the developed countries in the form of capacity building, financing and technical assistance in order to adopt and implement ambitious NDCs. For example, 85% of the developing countries ask for financing for their INDCs.

But, how can you measure the level of ambition and fairness? In their INDC, the parties have adopted a subjective rationale approach on the basis of what they think is fair and ambitious, ranging from development status, share of global emissions, per capita emissions, improvements against past developments and current trends, past action or mitigation potential, vulnerability to climate change impacts. Also, how do we know what approach is better?

What is clear today is that the ambitions reflected in the NDCs are not sufficient. A decision is needed on how to asses fair and ambitious NDCs while taking into consideration the national circumstance of each country and the global climate goal of remaining under 2°C. While the APA1-2 is going to touch upon the implementation and guidance for the NDCs and the ambition and fairness mechanism, there are also some other global avenues through which support for NDCs ambition can be enhanced such as: broadening the field for new entrants with different professional expertise, establishing and linking partnerships between the research community and institutions, international organizations and national governments.

Guidelines on how to asses ambitious and fair NDCs will constitute a barrier for Parties wanting to invoke status quo and inaction for their climate procrastination.