draft

n. 37 September 2015

International Climate Policy ICCG bi-monthly Magazine

n. 37 September 2015

International Climate Policy is a bi-monthly Magazine aimed at providing a clear analysis of the worldwide evolution of both international and domestic climate and energy policies as well as the carbon market.

The magazine is organized in four sections focused on i) international negotiations and national policies, ii) European and international energy policy, iii) flexible mechanisms and developing countries, and finally, iv) evaluation of the carbon price in the European and global markets. The information and data presented in each section are not only an update of recent events but also an extrapolation of the quantitative implications of recent events, based on a detailed analysis of academic papers and recently published reports. Every two months for each section we will briefly introduce and analyze the most important policies (proposed or applied) and actions. Each article will include boxes, figures and graphs in order to provide in-depth examinations and data exemplifications; all papers and reports used for the analysis will be cited in the final reference section.

Featuring 6

International negotiations and national policies

7

New agenda, goals, and financing for sustainable development Pinco Pallino

9

Getting ready for COP21: a focus on the submitted INDCs Pinco Pallino

10

Energy policy

11

What could be the role of a solar revolution?

Pinco Pallino

13

How far is CCS from being a climate solution?

Pinco Pallino

15

Lexible mechanisms and developing countries

16

How the Paris agreement can fix UNFCCC offsetting mechanisms Pinco Pallino

22

Small island states leave Bonn talks with significant advancement on loss and damage Pinco Pallino

24

The carbon market

25

A snapshot on carbon markets August – September, 2015 Pinco Pallino

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References

International Climate Policy Direttore: Pinco Pallino Editor: Pinco Pallino Secretary: Pinco Pallino Graphic Project: Pinco Pallino Copyright: Tutto il materiale scritto dalla redazione è disponibile sotto la licenza Creative Commons Attribuzione-Non commerciale.

Condividi allo stesso modo 3.0. Signiica che può essere riprodotto a patto di citare International Climate Policy, di non usarlo per ini commerciali e di condividerlo con la stessa licenza. Per questioni di diritti non possiamo applicare questa licenza agli articoli che compriamo dai giornali stranieri.

Info: info@iccg.org ISSN 2279-7270

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International negotiations and national policies

New agenda, goals, and financing for sustainable development Isabella Alloisio ore than 150 world leaders from the 193 United Nations (UN) member states convened at the UN Sustainable Development Summit in New York last week (September 25 to 27) to formally adopt a new Sustainable Development Agenda (1) focused on people, the planet, prosperity, peace, and partnership. Transforming our world: the 2030 Agenda for Sustainable Development outlines 17 goals (Box 1) with 169 targets towards achieving 3 outcomes over the next 15 years: ending extreme poverty, fighting injustice and inequality, and fixing climate change. The agenda is intended to bring together the international community and national governments to promote shared prosperity and well-being, and member states are expected to use this universal set of goals, targets, and indicators to frame their own agendas and policies.

The new Sustainable Development Goals (SDGs) will become applicable in January 2016, with a deadline of 2030, as they will replace the 8 Millennium Development Goals (MDGs), adopted in 2000 and set to expire at

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the end of 2015. The agenda and new SDGs have been drafted by an open working group representing 70 UN member counties, established at the 2012 Rio+20 Summit, which called for post-2015 goals. Member states negotiated the final wording and agreed on the goals, targets, preamble, and declaration in August 2015.

Indicators to measure goals will be finalized in March 2016.

Although some commitments for financial and partnership assistance were announced at the Summit, the source of funding to fully implement and achieve the new goals is still unclear. A conference on financing the

SDGs, held in Addis Ababa in July, failed to provide an answer, despite political leaders and government representatives promising their “strong political commitment” to make sustainable development not only a top theme on the global agenda, but also a financially viable goal.

According to UN estimates, global investment requirements amount to $5 to $7 trillion annually in the infrastructure sectors alone (2).

The Addis Ababa Action Agenda (3) represents the plan to finance the post-2015 development agenda and end poverty by 2030. It includes a list of over 100 “concrete policies and actions” in 7 areas: public resources;

New SDGs 1

End poverty in all its forms everywhere

2

End hunger, achieve food security & improved nutrition, & promote sustainable agriculture

3

Ensure healthy lives & promote wellbeing for all at all ages

4

Ensure inclusive & equitable quality education & promote lifelong learning opportunities for all

5

Achieve gender equality & empower all women & girls

6

Ensure availability & sustainable management of water & sanitation for all

7

Ensure access to affordable, reliable, sustainable & modern energy for all

8

Promote sustained, inclusive & sustainable economic growth, full & productive employment, &

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Build resilient infrastructure, promote inclusive & sustainable industrialization, & foster

decent work innovation 10 Reduce inequality within & among countries 11

Make cities & human settlements inclusive, safe, resilient & sustainable

12 Ensure sustainable consumption & production patterns 13 Take urgent action to combat climate change & its impacts 14 Conserve & sustainably use the oceans, seas & marine resources for sustainable development 15 Protect, restore & promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification & halt & reverse l& degradation, & halt biodiversity loss 16 Promote peaceful & inclusive societies for sustainable development, provide access to justice for all & build effective, accountable & inclusive institutions at all levels 17

Strengthen the means of implementation & revitalize the global partnership for sustainable development

(Table 1)

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private business and finance; development cooperation; international trade; systemic issues; debt sustainability; and science, technology, innovation and capacity-building.

The Action Agenda also identifies 7 cross-cutting areas where “considerable synergies” can help fill gaps remaining from the MDG process and support the achievement of post2015 SDGs. These include delivering social protection and essential public services to all; scaling up efforts to end hunger and malnutrition; establishing a new forum to bridge the infrastructure gap; promoting inclusive and sustainable industrialization; generating productive employment and decent work for all; promoting micro, small and medium-sized enterprises; protecting ecosystems; and promoting peaceful and inclusive societies.

UN Secretary-General Ban Ki-moon has endorsed the Addis Ababa Action Agenda as “a major step on the path towards sustainable development and ending extreme poverty in all its forms” (4) and has said it will help turn “needs into investment op-

portunities” (5). It is generally seen as a significant step in shifting global development finance from the current aid-centered “charity paradigm” to a new global framework that would include other sources of finance, such as private sector funds, while keeping public finance as the fundamental basis for achieving sustainable development targets.

Critics argue that the document lacks concrete solutions, and the idea of scaling up existing resources and tackling structural problems is insufficient.

Addis outcomes set an optimistic mood for the UN Sustainable Development Summit and adoption of the SDGs, which can potentially add momentum to the UNFCCC COP21 in Paris this December. However, as the objectives at the core of the post-2015 development agenda, “to end poverty and hunger” while “promoting inclusive economic growth, protecting the environment and promoting social inclusion”, are as ambiguous as they are essential to a sustainable future, their implementation will be a great endeavor.

1. United Nations. Transforming our world: the 2030 Agenda for Sustainable Development. UN Sustainable Developmen Knowledge Platform. [Online] 2015. https://sustainabledevelopment.un.org/ post2015/transformingourworld.

2. United Nations Department of Economic and Social Affairs. Final push for milestone event to finance development. United Nations Department of Economic and Social Affairs - News. [Online] July 2015. http:// www.un.org/en/development/desa/ news/financing/final-push-for-ffd3.html.

3. —. The Addis Ababa Action Agenda of the Third International Conference on Financing for Development. Third International Conference on Financing for Development. [Online] July 2015. http://www. un.org/esa/ffd/ffd3/wp-content/uploads/sites/2/2015/07/Addis-Ababa-Action-Agenda-Draft-Outcome-Document-7July-2015.pdf.

4. United Nations. Ban welcomes UN Assembly’s endorsement of action plan on post-2015 development financing.

UN News Centre. [Online] July 2015. http://www.un.org/apps/news/story. asp?NewsID=51506#.Vf_269_tlBf.

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Getting ready for COP21: a focus on the submitted INDCs Francesco Colelli he long-awaited Paris Conference on Climate Change is approaching. From November 30th to December 11th, delegates representing world’s countries, along with non-governmental and civil society observers, will work together towards the definition of a new, comprehensive climate deal that will guide international action from 2020. The stakes are high: countries need to find common ambitions not only about mitigation objectives, but also adaptation measures, financing to support developing countries plans, as well as technology transfers. A key pillar of the future agreement will certainly be the so called INDCs, “Intended nationally determined contributions”, that are a new type of instrument under the UNFCCC, through which both developed and developing countries declare the actions they intend to undertake to tackle climate changes at the national level.

Going beyond the historical dichotomy between Annex I and Non-Annex I countries, the Paris deal asks for the participation of all countries,

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which are called to communicate their INDCs well in advance the twoweek negotiation start. Since March, a number of countries have already submitted their contributions to the UNFCCC Secretariat (Table 1).

In particular, as of September 28th, 63 submissions have been received, representing 90 countries (including the 28 EU members), and covering around 70 percent of global GHG emissions (6). Despite serving the same purposes, the documen-

ts show many substantial differences. From one side, most advanced economies, including US and EU, proposed economy-wide emissions reduction targets from a base year.

On the other side, it is not uncommon to find intensity targets among developing nations, as in the case of China, Singapore, and Tunisia, which chose a reduction of GHG emissions per unit GDP, or more frequently, a percentage deviation from a Business as Usual (BaU) scenario. As

Intended nationally determined contributions of selected countries Country

GHG emissions reduction target

Reference year

Period for implementation

Algeria

7-22%

BAU

2021-2030

Australia

7-22%

BAU

2021-2030

Brasil

7-22%

BAU

2021-2030

Canada

7-22%

BAU

2021-2030

China

7-22%

BAU

2021-2030

Colombia

7-22%

BAU

2021-2030

Ethiopia

7-22%

BAU

2021-2030

EU

7-22%

BAU

2021-2030

Japan

7-22%

BAU

2021-2030

Jordan

7-22%

BAU

2021-2030

Kenya

7-22%

BAU

2021-2030

Mexico

7-22%

BAU

2021-2030

Morocco

7-22%

BAU

2021-2030

New Zealand

7-22%

BAU

2021-2030

Perù

7-22%

BAU

2021-2030

Russia

7-22%

BAU

2021-2030

Italy

7-22%

AU

2021-2030

Korea

7-22%

AU

2021-2030

Vaticano

7-22%

AU

2021-2030

(Table 2)

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Comparison of us, eu, china and russia’s targets (7) (Table 2)

Comparison among INDCs targets

Country US

EU

Russia

China (Emissions to peak by 2030)

GHG emissions change (%) wrt 1990

-16 a -14

-40

-30 a -25

+265 a +291

wrt 2005

-16 a -14

-40

-30 a -25

+265 a +291

Changes in GHG/GDP ratio (kgCO2eq/US$) wrt 1990 (%/year)

-16 a -14

-40

-30 a -25

+265 a +291

wrt 2005 (%/year)

-16 a -14

-40

-30 a -25

+265 a +291

for developing countries, usually a lower “unconditional” bound and an upper “conditional” bound are proposed, the latter to be implemented only with financial and technological support from the international community. Moreover, developing countries’ contributions usually put more emphasis on adaptation measures than developed counterparts, which conversely continue to focus mainly on mitigation actions.

Looking at the emission targets pledged by four of the major emitters, namely EU, US, China, and Russia, it can be seen that, if absolute levels of emissions are compared, the EU will support a higher effort than the other countries. On the contrary, when changes in the GHG/GDP ratio are taken into account, China and Russia will reduce the most (Table 2). In a similar manner, by November 1st, the UNFCCC has to accomplish

the ambitious task of synthesizing the aggregate effect of all the INDCs submitted, in order to assess the effectiveness of the proposed actions towards the objective of limiting the global temperature increase to 2°C. As anticipated (7)by PBL, however, this objective will not be achieved without future additional mitigation efforts (8). Last but not least, a fair analysis of the INDCs should also provide an assessment of each country’s relative contribution in achieving the 2°C threshold. Besides efficiency concerns, this would help clarify how the burden of the climate action is distributed, especially among the major emitting countries.

Additional contributions along with improved negotiating efforts are therefore needed to lay a solid foundation for an equitable, effective, and forward-looking Paris deal.

6. UNFCCC. INDCs as communicated by Parties. UNFCCC.int. [Online] [Cited: 21 September 2015.] http:// www4.unfccc.int/submissions/indc/ Submission%20Pages/submissions.aspx.

7. Carraro, C. and Davide, M. La difficile strada che passa per Parigi. Equilibri. 2015, Vol. 2.

8. PBL. PBL Climate Pledge INDC tool.

PBL Netherlands Environmental Assessment Agency. [Online] [Cited: September 21, 2015.] http://infographics.pbl.nl/ indc/.

9. REN21. Renewables 2015 Global Status Report. [Online] 14 September 2015. http://www.ren21.net/status-of-renewables/global-status-report/.

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Energy policy

What could be the role of a solar revolution?

Aurora D’Aprile y early 2015, the total world capacity of photo voltaic (PV) projects totaled 175 gigawatts (GW), up from almost 39GW in 2010 and 8GW in 2000. Last year’s growth concerned particularly large-scale utility systems: projects of 4 megawatts (MW) and larger increased by an estimated 65 percent, and 70 solar PV plants larger than 50MW were operating in at least 14 countries. Key figures form the REN21 Report (9) (Box 2) show that such developments have been led by the continuous declining trend in solar module costs as well as a progressive improvement in panel efficiency. Higher competition and growing markets are favoring cost even in the downstream industry, comprising most of the so called ‘soft costs’, as balance of system (BOS) components, system and project development and installations. Furthermore, domestic and international investors’ new approaches are lowering the financing costs, which especially in the case of large utility scale projects could significantly reduce the overall Levelized Cost of Electricity (LCOE). It is therefore unsurprising that a growing number of large scale projects worldwide have been secured by tendering processes

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characterized by extremely low bids, with the top six reporting an actual cost of generation around 60 US dollars per MWh (9). Further reductions will likely characterize the market, as the International Energy Agency (IEA) (10) expects module costs to fall to 0.3 USD per watt by 2035, and average LCOE of large-scale PV plants to be below 100 USD/MWh by 2025, and then gradually reach 60 USD/MWh. These figures are fueling high expectations as the IEA foresees that, to limit the global mean temperature increase to 2°C in 2050, a deployment of 1,700GW of PV by 2030 could be put in place assuming high policy support worldwide (10).

Furthermore, a Deutsche Bank study (11) recently found that unsubsidized solar PV-generated electricity has already reached grid parity in 30 out of the 60 countries examined up from 15 in 2013 - concluding that such conditions could be extended to 80 percent of the world by as early as 2017.

Such developments are and will continue to create new opportunities for solar systems to displace traditional fossil fuel generated power, and most notably for the often pledged transition away from some region’s

continued reliance on coal-fired electricity generation (coal has been responsible for more than 40% of global energy-related CO2 emissions growth since 2000 (10). As an Oxfam International report (12) shows, G7 countries’ coal based generation is still the main contributor to the energy mix, with its share even increasing in Germany, Italy, Japan and the UK since 2009 (Fig 1). As for the two ‘dirtiest’ countries, Germany saw a 2.2GW net addition of coal capacity between 2011 and 2015, while in Japan almost 20GW of generation are locked in until 2030, and a quarter until 2040. This trend was driven by a conjunction of many factors: a depressed European carbon market, as well as free allowances (EUAs); Germany’s and Japan’s need to compensate for a sudden nuclear phase out; and cheap carbon prices driven by the US massive fall in demand which affected merit order considerations, displacing gas generation.

Many are the challenges that PV solar generation might face in competing with coal generation. In fact, when between 2009 and 2014 coal fired generation soared in G7 economies, solar PV was already providing electricity below the average retail,

Numbers of the pv revolution (9) • • • • • •

In 2014 PV modules cost was 80% lower than in 2000. Half of this reduction happened over the last three years.

Lowest wholesale prices now range between 50 and 70 cents/watt.

Efficiency under laboratory tests touched 25% for silicon modules and 18.6% for CdTE technology.

Between 2009 and 2014, LCOE for silicon PV fell by 53%.

Some bids reported actual cost of generation of utility scale plants below $60/MWh. The world’s largest plants have a 550 MW capacity, comparable to normal natural gaspowered power stations.

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Coal consumption in the G7 (9)

and in some cases even wholesale, prices. In order to meet the commitments recently taken in the G7 summit held in June (12), members’ action should address many fronts.

First of all, all countries should set stricter domestic regulation to constrain coal-fired power generation, imposing both an immediate halt to the construction of new coal plants and phase-out of highly inefficient ‘sub-critical’ coal plants (constituting 35% of total plants in EU (12)).

At the same time, in order to reap the advantage of declining costs of large-scale PV installations and foster each country’s full solar potential deployment, the priority will likely be to improve the stability and the design of market-based policy mechanisms such as premium payments, currently gaining momentum in UK, France, Germany, and Italy. These will compensate for the reductions in policy support from falling Feedin-Tariff payments.

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10. IEA. Technology Roadmap Solar-photovoltaic Energy. [Online] 2015. [Riportato: 16 September 2015.] https://www.iea. org/publications/freepublications/publication/technology-roadmap-solar-photovoltaic-energy---2014-edition.html.

11. Deutsche Bank. Markets Research on Solar Photovoltaic. [Online] 2015. [Riportato: 15 September 2015.] https://www. db.com/cr/en/docs/solar_report_full_ length.pdf.

12. Oxfam International. Let Them Eat Coal. [Online] 2015. [Riportato: 14 September 2015.] https://www.oxfam.org/en/research/let-them-eat-coal.

13. J. Gale, J.C. Abanades, S. Bachu and C. Jenkins (edited). Special Issue commemorating the 10th year anniversary of the publication of the Intergovernmental Panel on Climate Change Special Report on CO2 Capture and Storage. International Journal of Greenhouse Gas Control. 2015, Vol. 40.

14. Clark, Pilita. Carbon capture: miracle machine or white elephant? Financial Times. [Online] 9 September 2015. http:// www.ft.com/intl/cms/s/0/88c187b45619-11e5-a28b-50226830d644.

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Flexible mechanisms and developing countries

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How the Paris agreement can fix UNFCCC offsetting mechanisms Katie Johnson The new climate deal expected to be signed at COP21 in December is likely to change much of the global strategy to tackle climate change established by the Kyoto Protocol of 1992. Two reports recently issued by the Stockholm Environment Institute (SEI) and by Carbon Market Watch analyze the flaws in the flexibility mechanisms created under the UNFCCC and propose ways to overcome current inconsistencies in the upcoming climate agreement.

The study conducted by SEI evaluates the environmental integrity of Joint Implementation (JI) in the first commitment period of the Kyoto Protocol (2008-2012). Analyses by SEI found that most of the ERUs offsets issued under JI mechanisms came from non-additional or over-credited projects and activities (Fig 3).

According to the study, the environmental integrity of JI offsets is often very low and their use may have enabled global GHG emissions to be about 600 million tons of CO2e higher than they would have been if countries had met their emissions domestically (17). SEI study identified other problems of JI mechanism, such as the lack of international

oversight and the sometimes poor performance of Accredited Independent Entities (AIEs) in validating and verifying the compliance of the projects with JI requirements.

Although the JI criteria are currently under review, the problems analyzed in the study “would require far greater reforms than are now on the table”, the authors said (17). A new climate agreement should ensure environmental integrity in any international transfer of emission units, but this goal is challenged by limitations due to the unclear ambition of INDCs, the lack of quantifiable, multi-year emission reduction targets, the absence of internationally agreed accounting rules and the information asymmetry between project developers and auditors or regulators.

The second report, issued by Carbon Market Watch, focuses on social and environmental accountability criteria and safeguards of UNFCCC instruments, including the Clean Development Mechanism (CDM), Reducing Emissions from Deforestation and Forest Degradation (REDD+), Nationally Appropriate Mitigation Ac-

tions (NAMAs), the Green Climate Fund (GCF) and the Adaptation Fund (AF). Carbon Market Watch found that the mandate to respect human rights in all climate-change related actions, expressed in the 2010 Cancun agreements, has been “hardly operationalized and enforced” so far, while a fragmentation of criteria and standards across mechanisms has led to “heterogeneous approaches to the promotion of sustainable development, the consultation of local communities and access to redress mechanism” (18). For instance, in the CDM case, there is no international sustainability assessment process to guarantee that projects benefitting of CERs issuance for reducing emissions are also contributing to the sustainable development of the host country. The definition of the sustainability criteria is left at the discretion of each government and the lack of mandatory monitoring requirements does not provide incentives for project participants to fulfil promised sustainable development benefits, the study says.

After having considered the pro-

Joint implementation vs. Clean development mechanism (Box 2) Along with the Clean Development Mechanism (CDM), the Joint Implementation (JI) is an offsetting mechanism created under the Kyoto Protocol to provide flexibility in the way countries can achieve their emission reductions goals. Under the JI system, a country with binding targets under the Kyoto Protocol (Annex B) can earn “carbon credits”, or offsets (named ERUs), by financing an emission reduction project in another Annex B country. The CDM system works similar to JI, with two main differences: offsets issued under CDM are named CERs, and CDM projects are hosted by developing countries with no legally binding commitments, listed as non-Annex 1 in the United Nations Framework Convention on Climate Change (UNFCCC).

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Environmental integrity of the six largest ji project types Project types

Registres project

% of ERUs

Additionals

Over-crediting

(17)

Inventory incosistencies

Overall environmental integrity

Spontaneus ingitions of coals waste piles

78

26,1%

Not Know

Not plausible

Significant

Low

Associated petrolum gas utilization

78

26,1%

Not Know

Significant

Low

Significant

Spontaneus ingitions of coals waste piles

78

26,1%

Low

Not Know

Low

Low

Associated petrolum gas utilization

78

26,1%

Significant

Low

Not Know

Low

Spontaneus ingitions of coals waste piles

78

26,1%

Low

Significant

Low

Not Know

Associated petrolum gas utilization

78

26,1%

Low

Significant

Not Know

Low

blems affecting CDM (that is currently undermined by a long-standing fall in CERs price) and the other UNFCCC tools, the study put forth some recommendations to improve the social and environmental accountability of the global climate framework, such as establishing an institutional safeguards system under the UNFCCC (applicable to all UNFCCC mechanisms and funds), creating an independent grievance mechanism and a UNFCCC ombudsman office.

15. Bloomberg. FutureGen’s Demise Shows Carbon Capture for Coal Faces Woes.

[Online] 5 February 2015. http://www. bloomberg.com/news/articles/2015-0205/futuregen-s-demise-shows-carboncapture-for-coal-faces-long-road.

16. Citi GPS. ENERGY DARWINISM II. Why a Low Carbon Future Doesn’t Have to Cost the Earth. [Online] August 2015. https://ir.citi.com/E8%2B83ZXr1vd%2Fq yim0DizLrUxw2FvuAQ2jOlmkGzr4ffw4 YJCK8s0q2W58AkV%2FypGoKD74zHfji8 %3D. 17. Kollmuss, A. and Schneider, L. Has Joint Implementation reduced GHG emissions?

Lessons learned for the design of carbon market mechanisms (brief). Stockholm Environment Institute (SEI). [Online] September 2015. http://www.sei-international. org/publications?pid=2802.

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17

The carbon market

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A snapshot of carbon markets August – September, 2015 Marinella Davide Despite European institutions shifting into vacation mode in August, and the consequent calm with regards to policy signals, the EUA December contract experienced a bullish momentum, which boosted the carbon price to the highest level in two and a half years. Weaker coal prices, which indicated that speculative buying might have occurred, along with strong auctions, pushed European carbon prices above €8. However, a weaker picture was behind the move, with a bearish sentiment starting towards the end of the month as auctioning volumes started to return to ‘normal’ levels. September brought quite high volatility as political activities restarted, even though signals from technical indicators and wideclean dark spread were the main drivers on the EU market, so much that the adoption of the Market Stability Reserve proposal by the EU council did not influenece the prices.

EUA and CER prices: august - september, 2015 EUA

Price MIN

Price MAX

Average

2015

7.79

7.87

7.99

2016

8.33

8.41

8.53

2017

8.13

8.21

8.33

2018

7.79

7.87

7.99

CER

Price MIN

Price MAX

Average

2015

0.47

0.44

0.43

2016

0.52

0.50

0.49

2017

0.50

0.48

0.47

2018

0.47

0.44

0.43

(Table 2)

Front-year EUA and CER prices (weekly closure)

Source: own elaborations from pointcarbon data available at www.pointcarbon.com

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