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13 December 2012

Doha Climate Gateway – a modest deal with plenty to be modest about

PwC analysis of COP18, Doha

12th December 2012

The Doha climate summit was no landmark event, but governments adopted an extension of the Kyoto Protocol, set milestones in the lead up to a 2015 agreement and did some institutional tidying up. In other words, Doha achieved what was expected and kept the process on the rails.  As is now typical, the negotiations stretched well beyond the Friday deadline into Saturday evening when the Qatari COP President gavelled through the agreement ignoring the objections from some countries.  While there is always brinkmanship in these talks, the difficulty in reaching such a modest deal does not bode well for a truly ambitious global treaty in 2015. 

Kyoto lives on

The most significant outcome from Doha was the adoption of the second commitment period of the Kyoto Protocol.  Europe, Australia and a handful of others, amounting to less than 15% of global emissions, effectively put their existing national targets under the Kyoto framework.  In doing so, they maintain the institutions and mechanisms established by the Protocol through to the end of 2020.  However, only those developed countries which have taken on targets are eligible to use credits from Clean Development Mechanism (CDM) projects after 2012.

The thorny issue of the use of ‘hot air’ was settled by the end of the summit.  Russia, the Ukraine and some others have Kyoto targets that are well above their current emissions.  This is because Kyoto’s baseline year is 1990 and emissions from industrial activity in these countries collapsed in the 1990s following the breakup of the Soviet Union.  These countries can keep their ‘sovereign wealth’ in a surplus reserve account, so their economic growth is not constrained by emissions targets, but they are not allowed to sell this KP1 surplus thus retaining some integrity in the KP2 targets.  Ukraine, whose annual energy-related emissions were roughly 320m tCO2 2011 took on a second Kyoto target equivalent to around 570m.  After the President gavelled through the Kyoto deal, Australia, Japan, Norway, Switzerland and the EU all made statements saying that they would not buy hot air.

Institutional housekeeping

In addition to concluding the Kyoto working group, the Long-term Cooperative Action group was wrapped up in Doha, which will help to simplify the process going forwards.  But the issues themselves – financing, targets, technology, markets etc – were unresolved, and these will now be addressed by the Durban Platform group or the technical bodies.  Tidying up the institutional arrangements of the UNFCCC will ease the pressure on negotiators as the major issues will at least be discussed in the same room.  It could even facilitate the talks by allowing for clearer trade-offs to be made on some of the major sticking points.

Finance was perhaps the most heated part of the negotiations. Many developing countries called for developed countries to ramp up their climate funding from the $10bn per year currently (so-called Fast Start Finance) to $100bn per year in 2020.  There was no formal agreement on finance, but countries should submit plans on how they plan to reach the $100bn target. The UK, Norway and a handful of others made funding commitments.   While not sufficient to satisfy vulnerable developing countries, it was enough to avoid a de-railing of the meeting. Next year we can expect developing countries to demand more.

Loss & damage

One outcome from Doha which took many by surprise was the agreement to establish a mechanism (or institutional arrangements) to address loss and damage associated with the impacts of climate change in vulnerable developing countries.  Some suggest that this raises the threat of liability for extreme weather events and compensation.  However, in practical terms such a mechanism could form part of the Green Climate Fund or climate finance more generally, for example, by way of a climate risk insurance facility.  For the talks to make progress on this issue, the discussion needs to consider this simply as another form of climate finance.

The inescapable logic of a 2 degrees carbon budget

The Durban Platform group (ADP) aims to develop a new legal agreement by 2015 which would bind all countries to more ambitious commitments to climate change mitigation from 2020. This was loosely divided into two sub-groups which discussed the principles of a new 2015 agreement and how to raise ambition in the short and long-term.  These meetings were interesting and wide-ranging but directionless, unstructured and rarely insightful.  By the conclusion of the summit, countries had agreed a very high level timeline for the discussions in the lead up to the 2015 COP. 

In previous analysis, we quantified what ambitious targets might look like to keep to the two degree goal.  The inescapable logic of a 2 degrees carbon budget is that developing countries will need to take significant action to reduce emissions rapidly enough in the 2020’s and beyond.  This is the case even if developed countries follow a pathway from 2020 to achieve 80% reductions by 2050.  Lord Stern referred to this as ‘brutal arithmetic’. In Doha, equity and historical responsibility dominated the ADP discussions rather than targets and timelines.  This does not inspire confidence in the ambition of the deal that the group should agree in 2015. 

An ambitious global deal in 2015 seems ambitious

Our Low Carbon Economy Index suggested that governments’ 2°C target appears highly unrealistic.  The Doha summit showed just how difficult it will be to achieve a meaningful global treaty in 2015 with ambitious targets for all developed and emerging economies.  This is particularly the case if countries continue to look in the rear-view mirror rather than consider what truly ambitious targets look like and how they might realistically be achieved.  

Neither governments nor business can wait for or rely on a ‘clear signal’ from an agreement in 2015.  So businesses face a much more challenging future in terms of planning and financing new investments as well as maintaining continuity of supply chains and existing operations.   They will need the tools to manage uncertainty and build resilience to both climate shocks and policy shocks.