Climate Change After the Kyoto Protocol - Implications for the MENA Region
World attention will be focused on Copenhagen this month as the United Nations convenes its annual meeting on climate change. Negotiators are expected to decide on the substance of the next climate treaty and the process for getting to it. For Middle East and North Africa (MENA) countries, this is a critical opportunity to start preparing national strategies for the low-carbon future and to formulate their approach to providing input on the shape of these global agreements, according to a new report by Booz & Company.
Climate Change Policy, from Kyoto to Copenhagen
Copenhagen is the 15th session of the Conference of the Parties (COP) that the 192 member states of the United Nations have held since forming the UN Framework Convention on Climate Change (UNFCCC) in 1992. “Participants at Copenhagen will discuss a new architecture for climate change agreement, which will build on the original Kyoto protocol,” said Tarek El Sayed, a principal at Booz & Company.
The Kyoto Protocol was only a starting point to deal with the dangers of climate change. The commitment period—when 37 advanced-economy nations needed to begin reducing their greenhouse gas emissions—didn’t even start until 2008. The reductions cover just five years (until 2012).
Many ideas with enduring value were born of the Kyoto Protocol, chief among them the clean development mechanism (CDM). “The CDM allows nations that have signed the Kyoto Protocol but are not part of its Annex I of countries committed to specific reduction targets—mostly developing nations—to get credits in the form of certified emission reductions (CERs) for any projects that lower the level of greenhouse gas emissions,” explained Dr. Walid Fayad, a principal at Booz & Company. These credits can be sold to companies in Annex I nations, which can use them to satisfy their own emissions obligations. Their creation has spurred the development of a global carbon market, which is drawing financial institutions into the area, creating backing for low-carbon technologies.
Setting the Agenda for Copenhagen
COP15 comes at a time of heightened concern about climate change’s effects on the world’s economies and people, including risks to drinking water, food supply, and to the habitability of coastal areas. Climate change also creates some long-term security risks. Because these are global threats, the answers must be coordinated globally. There are some key problems and opportunities that will drive the discussions in Copenhagen:
Need for a more flexible treaty: "Some aspects of the Kyoto Protocol were too inflexible such as the fact it separated national governments who signed it into two categories; the 37 advanced economy nations which were asked to commit to binding limits on their net emissions and every other nation; which were encouraged to voluntarily reduce their emissions growth,” said El Sayed. Copenhagen needs to develop more rigid reduction commitments. To facilitate this, there must be more clarity as to whether a nation is economically “Advanced,” “Emerging,” “Developing,” or “Least Developed.” It needs to lay out the path by which countries attain each economic category, and establish realistic expectations for each.
Compliance challenges: Although the Kyoto Protocol included a compliance framework, it hasn’t been effective. If commitments under the new architecture are more closely aligned with nations’ ability to reduce their emissions, compliance will become less of an issue. An enforcement mechanism will need to be clarified.
Failure to address land management: Forests and land-management activities were not fully addressed in Kyoto. They must play a more central role in the next treaty. “It’s imperative that land managers and decision makers be given incentives to adopt new behaviors that realize the land’s potential for removing greenhouse gases from the atmosphere,” Fayad said.
Accelerated adoption of low-carbon technologies: Alternative energy sources and the use of energy efficient design, materials and equipment, need to be encouraged. Carbon markets and carbon finance are the primary means of mobilizing the vast amounts of private-sector capital that will be needed for this over the coming decades.
Broader scope for carbon markets and carbon finance: There needs to be a viable transition from project-based positive incentives (such as the CDM) through to multi-sector trading mechanisms (such as the European Union Emission Trading System, or EU ETS) so that nations can map out how they will use carbon markets and carbon finance to effect change.
Copenhagen and Beyond, Toward a New Global Architecture
“Recent negotiations make certain elements of the Copenhagen discussion clear—and pave the way for a full-blown treaty to be inked, possibly as soon as COP16 in Mexico,” El Sayed noted. A post-Kyoto Protocol architecture will contain four key pillars including ambitious national-level emissions targets for advanced-economy nations; a wide variety of nationally appropriate mitigation actions (NAMAs) for all other nations; substantial amounts of financial and technological support being made available for both mitigation and adaptation; and an institutional framework to support the next global agreement.
Commitments for Economies at All Levels of Development
In the next agreement, countries will likely have much more flexibility in terms of their commitment options. “Advanced-economy nations will continue to face a quantifiable limit on their national emissions and national governments will find different ways to meet their emissions reductions obligations depending on what they think will work best,” Fayad commented. For all other nations there will likely be a qualitative commitment that aims to produce a quantitative outcome, by developing policies and initiatives that will contribute to mitigation of emissions. These policies and initiatives will likely result in a reduction in emissions, or business-as-usual (BAU) baseline, but there will not be an explicit commitment to reduce emissions by that amount. The basis for this form of commitment is a national low-carbon development strategy. This will identify and spell out a series of nationally appropriate mitigation actions.
NAMAs—A Way for Countries to Formulate Their Commitments
“The use of nationally appropriate mitigation actions provides a consistent global platform while allowing flexibility for individual countries,” El Sayed explained. These can take the form of specific activities, such as the introduction of feed-in tariffs or waste and recycling regulations; projects and programs that have a direct bearing on emissions reductions and could perhaps be registered under the CDM; or broad-scale initiatives such as the implementation of an energy efficiency crediting program or the introduction of a sector specific emissions trading system.
An important aspect of NAMAs is their funding sources. Each country, as it develops its low carbon development strategy, will identify the incremental costs associated with implementing each NAMA and divide its NAMAs into three groups:
Self-funded NAMAs: which require only minor assistance from international sources
Co-funded NAMAs: which will be implemented with international assistance
Carbon market NAMAs: which are eligible for support in the form of credits for emission reductions achieved and are likely to be funded by the private sector. These credits will be traded on international carbon markets.
The Role of Carbon Markets and Carbon Finance
There are two types of carbon markets which interact with each other. In the first—carbon compliance markets—companies buy and sell units associated with their compliance obligations at the country level and occasionally the regional level. The second type, carbon credit markets, are international and involve the buying and selling of carbon credits that companies in less-advanced nations earn by undertaking projects that reduce their greenhouse gas emissions.
Carbon compliance markets will continue to operate only on a national or regional basis. The EU ETS (the biggest carbon compliance market in operation) will be followed by a Japanese system, the New Zealand Emissions Trading Scheme, the Australian Carbon Pollution Reduction Scheme, and some form of cap and trade in the U.S. “Each of these will define how its participants can use international credits and will specify other units that may be eligible for compliance purposes,” Fayad stated. The role of carbon markets and carbon finance cannot be understated.
Climate Change and the MENA Region
In the MENA region, climate change poses substantial primary risks including diminished supplies of potable water, extreme weather events, and rising sea levels. There are also significant secondary risks, namely reduced agricultural productivity and security threats from displaced persons. To date, almost all MENA nations have ratified the Kyoto Protocol, but as “developing” nations, they are not committed to quantified limits on their national emissions between 2008 and 2012.
The Kyoto Protocol provides MENA nations with the opportunity to benefit from emission-reduction projects financed via the clean development mechanism. “Only a handful, however, have begun to develop CDM projects, and MENA countries have done much less than other regions to take advantage of CDM opportunities” noted El Sayed.
Risks for the MENA Region
COP15 may create a pathway toward deeper commitments that MENA countries will have to make in the future. Efforts to minimize climate change are partly aimed at reducing the world’s reliance on fossil fuels. If the MENA region wants to maintain its position as a global leader in energy, it will need to adapt to global changes in demand that could result from new policies. “There is also a risk that protectionist approaches to international trade will emerge as a way to force nations to adopt low carbon practices. Some advanced economy nations have suggested that they may impose carbon tariffs to protect sectors and companies facing competition from nations or regions without restrictions on emissions,” stated Fayad.
Opportunities for the MENA Region
There are a variety of ways in which the MENA region could either benefit—or limit negative impacts—from a new agreement to reduce global emissions:
Carbon markets: MENA companies that earn emissions reduction credits through the clean development mechanism can sell them to their counterparts in advanced nations, generating substantial funds.
Carbon finance: With the implementation of carbon markets on a broader scale, volumes of trade will rise even faster. This will create additional opportunities for the MENA region to benefit from the financial flows associated with emissions reductions and the carbon markets.
Funding mechanisms for mitigation: A centralized funding mechanism is likely to be a core component of the new architecture. This will provide nations with direct funding for nationally appropriate mitigation actions.
Funding mechanisms for adaptation: A centralized funding mechanism will also assist with adapting to climate change that is already under way. “Any financing provided through this fund or mechanism could present a welcome addition to national efforts to cope with climate change,” explained El Sayed.
Technical assistance and technology transfer: Apart from the financial aspects of any emissions reductions, the rapid rollout of low-carbon technologies and best practices, mostly from advanced economies, will also play a major role in reducing emissions. The MENA region can capitalize on this influx of new technologies to develop its own capabilities and meet its goal of becoming a technology exporter in some areas.
International recognition and political goodwill: Advances in climate change mitigation can be used to generate goodwill and political capital and help other initiatives of national importance. Such advances will also support future efforts by the region to position itself as a region of “green” suppliers.
Preparing to Tackle Climate Change
COP15 will not produce a new treaty, but what happens at COP15 and after is likely to have a big impact on the MENA region. “Climate change and the world’s efforts to combat it present risks for many MENA countries, but there are also opportunities for MENA countries that anticipate what is coming and can devise a plan for capitalizing on what the future brings,” said Fayad.
In order for the MENA region to benefit from the development of a new framework for global climate policy, regional governments need to ensure they are making emissions reductions in good faith, while preparing a national low-carbon development strategy. MENA countries will have to balance plans to reduce emissions with their need to continue on a trajectory of growth.
In the coming years, MENA countries will face the challenge of ensuring the sustainability of the region’s significant growth for future generations. In this context, they have a unique opportunity to make their voices heard and start to prepare for their low carbon future. They should not let this opportunity pass them by.