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ERM Client Alert: COP17 Climate Negotiations in Durban - Implications for Business

29 November 2011

ERM at COP17 in Durban Government negotiators, advocacy groups and the media will converge on Durban, South Africa from November 28 to December 9, 2011 for the 17th round of annual international talks on the U.N. Framework Convention on Climate Change and the Kyoto Protocol.

ERM, the world’s leading sustainability consultancy, will send a delegation to Durban to share results of some of our work in side events, learn from other experts and keep track
of developments on behalf of our clients. We will have an information stand throughout the two weeks of COP17 in Durban at the South Africa Business Forum Pavilion across from the main meeting hall entrance.

ERM experts attending COP17 can be contacted through this ERM Stand and will be available at designated times to meet with interested persons and answer questions.

What is COP17 in Durban?
The Copenhagen Accord adopted at COP15 in 2009 and the Cancun Agreement reached at COP16 in 2010 made useful progress in codifying pledges for countries’ actions to address climate change and creating a Global Climate Fund and technology mechanism. But, the two prior COPs failed to produce a comprehensive agreement on a shared international effort beyond 2012 to mitigate emissions and support climate adaptation.

Commitments under the Kyoto Protocol for certain industrialized countries to reduce greenhouse gas emissions expire at the end of 2012. Global momentum to act on climate change is at risk until countries make a new agreement with broad participation and clear goals. The post-2012 uncertainty for an international carbon regime puts heavy pressure on COP17 to confront and resolve the key issues blocking a new agreement, but most observers see little chance of a comprehensive outcome in the Durban talks.

The implications of COP17 for business and industry?
The lack of progress on a comprehensive global greenhouse gas regime means business will continue to be faced, maybe for many years to come, with a ‘patchwork’ of greenhouse gas policies, programs, regulations and reporting requirements.

  • Dozens of national and sub-national jurisdictions have adopted or extended carbon rules and regulations with momentum growing for more such action despite the lack of international progress. This year, we have seen the adoption of major new carbon trading regimes in Australia and California, on top of new European Union rules to extend its Emission Trading Scheme (ETS) to 2020 with major innovations around auctioning, benchmarking and trading system integrity.
  • The Western Climate Initiative in the US and Canada expects several US States and Canadian provinces to adopt parallel carbon trading programs to that in California. The US federal government has implemented its Greenhouse Gas Tailoring Rule and other provisions to monitor and regulate CO2 emissions from stationary sources absent national trading.
  • Japan has an initiative for bi-lateral carbon reduction project crediting.
  • China and South Korea are each starting pilot emissions trading regimes.
  • Mexico is implementing climate change laws created around COP16 in Cancun. South Africa has proposed plans for transition to a low-carbon economy in the runup to COP17.
  • Brazil and Indonesia have new legislation to address their climate change pledges.

Business must follow these many diverse developments in every jurisdiction where they operate or may operate in future. The range of programs will also affect suppliers and could lead to differential pricing or change in trading terms. A famous current example is the lawsuit by many non-European airlines to block aviation’s entry into the EU ETS.

Reporting regimes for energy and greenhouse gas related activity are proliferating with only limited attention being paid to consistency and comparability between regimes. For example, the EU has just proposed a broad set of changes to its GHG reporting regime. Companies with group-wide data management and reporting systems will have to be flexible and adapt their systems to the growing number and diversity of requirements.

Regulatory diversity or inaction have no effect of course on the growing incidence of physical impacts from climate change with the need to plan and manage weather impacts in-house and with regard to transportation networks, suppliers, customers or employees. In sum, gauging climate risk and estimating opportunities from low-carbon and energy efficient investments will remain complex and varied for some time to come. Carbon regulation and carbon markets are expected to continue to see dynamic changes with greater diversity being the norm in the absence of an umbrella global agreement.

What are the main sticking points blocking a new post- 2012 global agreement?
There are literally hundreds of unresolved issues in the debate on a new global climate change agreement because carbon emission constraints, climate adaptation costs, climate finance needs and trading emission reduction credits strike at the heart of all nations’ energy and economic well-being, international trade competitiveness and sovereignty.

So far, no one has put on the table a draft agreement which major developed and developing countries, not to mention least developed countries and vulnerable small island states, can all see as a balanced approach to limiting greenhouse gas emissions and supporting the cost of climate change adaptation and low-carbon technology deployment.

There is no agreement on how ambitious greenhouse gas emission reduction targets should be for 2020 or later timeframes or on which countries should be bound by such new targets. There is no agreement on when promised contributions will materialize for the Global Climate Fund or on the extent to which climate adaptation will be pursued. Without a positive decision before end-2012 on continuation of the Clean Development Mechanism (CDM), it is unclear what the future status or market will be for project-based carbon credits that incentivize investment in low-carbon technologies.

What can we hope for from the COP17 negotiations in Durban?
Achieving a comprehensive binding international agreement on climate change could be akin to the challenge of agreeing on a new global trade regime under the pending talks in the World Trade Organization (WTO). Such a far reaching outcome is too much to expect from the Durban climate talks since far too many matters remain unresolved.

We can hope for negotiators to make progress on what the framework for a post-2012 global climate regime could be, including a possible aim for future emission limits. We can expect negotiators to be frank about current economic challenges, hopefully leading to a productive discussion of priorities within the funding levels available.

Investors in low-carbon projects and technologies need a clear decision in Durban that the Clean Development Mechanism (CDM) will continue to operate post-2012 and its Executive Board will continue to issue credits from projects that meet its standards. Failing that, there will be huge uncertainty and a likely downturn in carbon markets.COP17 can also adopt the decision allowing Carbon Capture and Storage in the CDM.

COP17 can recognize the importance of voluntary national greenhouse reduction pledges made under the Copenhagen Accord and agree on an accepted process for monitoring and reporting progress on countries’ climate mitigation and adaptation goals.

We are certain to learn much more from the debate in Durban about what is keeping countries apart in global climate negotiations. It remains to be seen whether anything will emerge from Durban to shed light on what could bring countries together in a future shared approach to global climate action.

COP17 Climate Negotiations in Durban - Implications for Business

Learn more on COP17, the implications for business and industry, what we can hope for and ERM's contributions (147KB PDF)