Australia: Outcomes from the Bonn Meeting (June 2010) UN Framework Convention on Climate Change

Context

The annual mid-year meeting of the UN Framework Convention on Climate Change (UNFCCC) was attended by 2,900 participants in Bonn, Germany between 31 May and 11 June 2010.

The meeting's intent was to progress the work of the Ad Hoc Working Group on Long-term Cooperative Action (AWG-LCA), the Ad Hoc Working Group on Kyoto Protocol (AWG-KP) and the Subsidiary Bodies of UNFCCC, part of the UNFCCC negotiation processes in preparation for Conference of Parties 16 (COP 16) scheduled for Mexico in December 2010.

Background

The AWG-LCA, established to implement the Bali Action Plan, focuses on implementing long-term cooperation between countries to effectively implement the UNFCCC through agreement to actions relevant to mitigation, adaptation, finance, technology transfer and capacity building. The AWG-LCA is the group working toward a new global deal for climate change.

The AWG-KP is responsible for determining future commitments to reduce greenhouse gas emissions from industrialised countries and countries in transition to a market economy - known as Annex 1 countries - after the first commitment period (that is, post 2012).

The Subsidiary Bodies provide scientific, technical and socio-economic advice to AWGs and UNFCCC.

At the Bonn meeting, the AWG-LCA commenced their work by discussing a new draft text prepared by the Chair of AWG-LCA and parties responding to a series of questions posed by the Chair on each section of the draft text.

While there was widespread initial consensus that the Chair's draft text was a "good basis for discussion", the formal responses by delegates quickly moved to repetition of countries' long-held positions. As a consequence, during the Bonn meeting, progress on clarifying the text to allow effective actions to be implemented to deliver increased mitigation by developed countries, support for up-scaled mitigation in developing countries, financing and technology transfer was slow.

The work of the AWG-KP opened with an appeal by the Chair for Annex 1 parties to focus again "with renewed vigour and goodwill" on both reaching agreement on global aggregate emission targets and individual country emission reduction commitments. An underlying issue related to the work of AWG-KP was the gap in emission reductions pledged by countries under the Copenhagen Accord and the emission reduction required to restrict global warming to 1.5øC and 2øC benchmarks.

The Chair of AWG-KP also requested participants, while continuing work on other issues, to place priority on finalising issues associated with operation of LULUCF (Land Use, Land Use Change and Forestry) and the flexibility mechanisms (Clean Development Mechanisms (CDM), Joint Implementation (JI) and market based instruments).

Finalisation of accounting rules for forestry and land use, a continual theme of the Bonn meeting, refers to rules under Kyoto Protocol that govern the accounting for carbon from forestry and other land uses by Annex 1 countries that add (debit) and/or remove (credit) carbon in the atmosphere.

Key Outcomes from the Bonn Meeting

For the AWG-LCA

The headline outcome, on the final day of the meeting, was the Chair of AWG-LCA presenting a paper titled "Advance draft of a revised text to facilitate negotiation among Parties". The purpose of the Paper was to provide a framework for discussion by countries at the next session of AWG-LCA, scheduled for 2 - 6 August 2010 in Bonn. The Paper reflects the Chair's views on the work undertaken during the Bonn meeting, covering shared visions for each of the building blocks of the Bali Action Plan and long-term goal for emission reductions (mitigation); adaptation, institutional arrangements; technology transfer; finance and capacity building.

The Chair's draft revised text received lukewarm support with all countries expressing various levels of concern. Developing countries strongly expressed views that the draft revised text was unbalanced in that it comprehensively incorporated the views of developed countries and significantly failed to incorporate the views of developing countries as expressed regularly during the Bonn meeting. Specifically, developing countries objected to:

1. potential "loopholes" for developing countries to offset and in some cases increase their domestic emissions through use of LULUCF activities (particularly forest management) and use of market-based mechanisms to offset domestic fossil fuel based carbon emissions;
2. prejudicing the future of the Kyoto Protocol by attempting to merge the two track processes. (The two-track refers to the legally distinct work of the AWG-LCA and the AWG-KP under the UNFCCC.) Developing countries strongly advocate the importance of maintaining the role of the Kyoto Protocol in order to keep pressure on Annex 1 countries to undertake their 'fair share' of greenhouse gas emission reductions. (It is worth remembering that USA, having not signed the Kyoto Protocol is not an Annex 1 country.);
3. downplaying of equity and just transition requirement for people impacted by implementation of low carbon economies;
4. requirement for developing countries to "peak" their greenhouse gas emissions by 2020;
5. reducing the distinction between developed and developing countries regarding requirements to register and report mitigation activities thus making monitoring, reporting and verification (MRV) "more onerous" for developing countries;
6. focus of paper on "pledge and review" approach (as incorporated into Copenhagen Accord) (bottom-up approach) rather than science based approach to setting an aggregate emissions reduction target (top-down approach);
7. lack of adequate predictable and "sustainable" financing and technology transfer commitment to implement required mitigation actions in developing countries.

On the other hand, developed countries in their initial comments, including Australia, articulated more positive but cautious support for the Chair's Paper.

It is to be seen whether the Paper issued by the Chair of AWG-LCA at the end of Bonn meeting will be useful in advancing the work of AWG-LCA into a format useful for decision makers at COP 16 in Mexico.

For the AWG-KP

Agreement on targets elusive

The outcome of the deliberations of AWG-KP at the June meetings in Bonn, shaped to accommodate the diverse positions of countries, is a future works program for the AWG-KP in preparation for COP 16. The core of future work is a workshop at the next session of AWG-KP in August on the aggregate emission reductions to be achieved by Annex 1 Parties and the contribution of Annex 1 Parties to achieve aggregate reductions. In other words, the ongoing debate on the targets for global greenhouse gas reductions and the level of contributions by individual countries continue.

A key issue raised regularly in deliberations of AWG-KP at Bonn was the accounting rules to establish the contribution of LULUCF to meeting countries' emission reduction targets and treatment, post 2012, of surplus (unused) AAUs (Assigned Amount Units) allocated to developed countries based on their Kyoto Protocol targets. The focus of discussions by parties was to establish more transparent accounting rules for AAUs to avoid potential for 'hot air' carbon credits in future commitment periods. LULUCF issues are further discussed in a later section.

Given the difficulties in obtaining agreement to aggregate (global) and country-based emission reduction targets post 2012 (the end of first commitment period under the Kyoto Protocol) the AWG-KP has requested the UNFCCC Secretariat to prepare for the next session of AWG-KP a paper that identifies the legal options to "ensure that there is no gap between the first and subsequent commitment periods" and the "legal consequences and implications of a possible gap between the first and subsequent commitment periods".

LULUCF

As noted previously, there were diverse views on the level and rules carbon credits generated by LULUCF activities - covers forestry, other land use activities and soils - should contribute to meeting global (aggregate) and country greenhouse gas emission reduction targets in the next commitment period.

The key LULUCF issues vigorously debated by parties, primarily using forest management as a case study, included the rules for establishing reference levels (baselines); accounting rules for yearly variability of greenhouse gas flows from activities; conditions to trigger force majeure; and accounting rules for harvested wood products. A number of parties also requested that accounting rules for LULUCF be linked to rules for REDD+ (reducing emissions from deforestation and forest degradation in developing countries including the contribution of forest conservation and sustainable management of forests). Additional comments on REDD+ are made in later section.

A core issue for countries considering accounting rules for LULUCF is the establishment of reference levels on which to evaluate country flows of carbon credits (debits and credits) from forestry and land use activities.

Environmental non-government organisations (ENGOs) and a number of developing countries strongly advocate that LULUCF accounting should be based on deviations between a historical baseline and current levels of emissions and carbon sequestration from forest management and other land uses. The historical baseline advocated by majority of ENGOs for forest management and other land uses is the net rate of emissions in 1990.

A number of developed countries - including Australia, the USA and Canada - are advocating a projected baseline (reference level) which takes into account the stage of development of forests and management regimes, consistent with sustainable management of forest criteria, which would be applied to these forests in the future. Accounting would be based on tracking deviations between actual emissions and a projected baseline.

In order to accommodate diversity of views on LULUCF accounting rules, options to cap (both debits and credits) the contribution forest management and other LULUCF activities could make to Annex 1 parties meeting their emission targets were discussed by parties.

Another element of the LULUCF debate, still to be settled - again using forest management as the case study - is whether accounting should be mandatory or remain voluntary. Australia's current negotiating position is that it is prudent to defer a decision on mandatory inclusion of LULUCF (including forest management) until accounting rules for LULUCF are finalised. Other countries including EU, Canada and Japan are presenting similar positions.

In recognition of the significance placed by countries, and the diversity of views, on the role forest management could play in managing a country's emission targets the AWG-KP has agreed to organise a workshop on forest management accounting prior to the August meeting of AWG-KP and invited Annex 1 countries to submit new data on their expected use of LULUCF in the next commitment period. The results of this meeting could establish the framework for establishing binding accounting rules for forest management in terms of a country's further carbon management.

REDD+

The AWG-LCAs discussion on REDD+, a priority for developing countries with tropical forests, were undertaken against the background of high recognition and support from countries for potential of REDD+ and the positive announcements supporting implementation of REDD+ generated from Oslo Climate and Forest Conference (The REDD+ Partnership) held the week prior to June meeting in Bonn. At the Conference, Norway announced agreements to pay Indonesia US$1 B to maintain tropical forests with Indonesia agreeing to a 2 year moratorium on issues of new logging concessions.

It is worth noting that no changes to draft text for REDD+ within AWG-LCA working document were made during the Bonn meeting.

There is no agreement on accounting rules for REDD+ (as is the case with rule for LULUCF) in such areas as reference levels (baselines) for estimating forest related GHG emissions and sequestration.

The focus for REDD+ is the implementation of large-scale national and project based REDD+ activities funded primarily by public funding. The focus of these activities is to provide knowledge and experience (for example on governance, finance, reference levels and MRV) to assist developed and developing countries effectively, efficiently and appropriately manage REDD+ in future global emission arrangements. These activities, such as the announcement by Indonesia and Norway, and the US$600M pledged by Australia for REDD+ scheme over the period 2010-2012, is part of the fast-start financing strategy being implemented to operationalise REDD+.

Observations

With the purpose of providing information and assisting people to prepare for future climate change meetings, I would offer the following observations:

1. Core issue no closer to resolution

Settling the targets for greenhouse gas emission reductions is still the intractable issue. At the Bonn meeting, little progress was made on agreements specifying the global greenhouse gas reduction targets and the sharing of efforts between countries to deliver these targets. The focus of developed country negotiations is to reach agreement on actions to operationalise the emission reduction pledges made by countries under the Copenhagen Accord (a bottom-up approach). Developing countries advocate a top-down approach to settling global aggregates and associated country commitments which recognise historical carbon legacy for developed countries and promote their sustainable development. This is a core issue for countries and is often referred to as north-south divide. These positions are reflected in aggressive discussion on the "gigatonne gap" between the emission reduction pledges in Copenhagen Accord and levels of emission reductions required to limit global warming to 1.5øC and 2øC benchmarks.

2. Advocacy of ENGOs more effective

The ENGOs, through their internal negotiation processes, have the ability to present to delegates common positions on the core issues such as emission reduction targets, the sharing of efforts between countries to deliver the targets and accounting rules for LULUCF. Business and industry groups - such as forestry - primarily because of their varying national interests and circumstances, do not display this ability. As a consequence the advocacy work of ENGOs is perceived to be more effective.

3. Compliance risks with LULUCF

While the accounting framework for forestry and land use (LULUCF) are still being settled, there are different compliance risks for land managers depending on the definition of activities (for example a forest), accounting framework, and force majeure provision. Accounting rules which do not incorporate sustainable management of forests at landscape level through time have potential to generate significant compliance and financial risks for forest owners and managers.

4. REDD+ being implemented

It is probable that carbon credits (offsets) from REDD+ activities will be generated within the next two years as significant bilateral funding (so called fast-start funding) for REDD+ activities by developed countries, including Australia, is applied to developing countries to manage their forest resources.

A regular issue informally discussed by participants at the Bonn meeting was the influence the American Power Act (APA), introduced into US Senate on 12 May 2010, would have on the structure of global management regimes for climate change. The APA - using a proposed emissions trading scheme - sets progressively tightening legally binding caps on greenhouse gas emissions - 17% below 2005 levels by 2020, and 83% below 2005 levels by 2050 - by large US emitters including electric power stations, manufacturing facilities and oil refineries.

The APA allows US companies covered by APA to offset up to 2 billion tons of their carbon dioxide emissions from forests, peat lands and farm generated carbon credits. The APA allows 0.5 billion tons of compliance grade credits, including REDD+, to be generated from overseas credits.

It was also interesting to note the commentary of US observers on the likelihood of the APA becoming law by November 2010, the time of the next US Congressional election. The consensus of opinion was that the APA had a reasonable probability of being passed into law given the oil spill crisis in the Gulf of Mexico and associated desire to move to higher levels of renewable energy for US; the priority in implementing standard greenhouse management practices for US to address the myriad of regional carbon emission schemes being implemented by states and the opportunities for increased revenue associated with implementation of ETS.

6. Expansion of flexibility mechanisms

Agreement on streamlining the current cumbersome process associated with CDM appears close.

7. Concerns at potential trade barriers

Developing countries expressed concern at the potential of developed countries to utilise nationally based carbon emission schemes to impose trade barriers. For example, the APA provides for goods imported from countries which do not have similar carbon emission requirements to the US to have to meet such carbon emission requirements. Participants expressed various views on the "legality" of such requirements under World Trade Organisation rules.

8. Investors wary of carbon markets

Compared to other UNFCCC climate change meetings private sector investors and analysts were thin on the ground. A common view of the small number of investors and analysts at the June meeting in Bonn was that current investment opportunities - for example in CDM projects - and potential investment opportunities - for example REDD+ - are stifled in short terms due to lack of progress in negotiations and the complexities and uncertainties associated with investment.

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