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.‎