PwC pre-COP briefing: UN Climate Summit – Lima
November 27, 2014
Leon Festinger first described the problem experienced by many of us involved in climate policy work. Cognitive dissonance is the mental stress or discomfort experienced by an individual who holds two or more contradictory beliefs, ideas, or values at the same time. It also affects those confronted by new information that conflicts with existing beliefs, ideas, or values. And we have been confronted by a lot of new information in the last three months.
The US-China climate deal, the EU 2030 targets, the $9.6bn pledged to the Green Climate Fund and the commitments made by business leaders in New York were widely celebrated. But in the same three months, the IPCC Synthesis Report and the World Bank warned of the severity of the issue and made the case for urgent action. And the IEA, UNEP and our own Low Carbon Economy Index revealed the gap between the 2 degree goal and our current trajectory. Others have noted the annual capex budget of a typical energy company dwarfs the amount pledged to the GCF.
All of this lays the foundation for the climate negotiations that should conclude in Paris late next year with the adoption of a new global treaty. The most divisive issues are emissions targets and climate finance, so the recent announcements will certainly reinvigorate the discussions. The next stop on the road to Paris is in Lima for COP20. As the big deal will be at COP21, it is likely that Lima will be no big deal. But there are three things particularly worth watching at the climate summit which starts on the 1st December: the targets; the text; and the role of business.
Much of the focus in Lima will be on the Intended Nationally Determined Contributions (INDCs), which is the UN’s slightly ambiguous and not very binding way of saying ‘targets’. Countries are encouraged to submit their INDCs to the UN by the end of March next year – and many have already started preparing them. So it is expected that countries will agree on the format of the targets in Lima. There is general agreement that the INDCs should include mitigation targets, but some of the options also include targets for adaptation, finance and capacity building. One option exposes an old fault-line in the negotiations by proposing different types of targets for developed and developing countries. Many now suggest the need for greater differentiation between countries than the binary division between rich and poor agreed in the Convention in 1992.
- Mitigation: Debate about the emissions targets will address the baseline year, sector coverage, geographical scope, the role of market mechanisms (and the need to avoid double counting) and how to account for land use change. Some options include descriptions of national policies and measures and allow for carbon intensity targets and projections of growth. Having a consistent format for the mitigation targets would allow comparison between countries and against a global carbon budget. Given the variety of options on the table, this may not be possible.
- Adaptation: The options for adaptation include projected climate impacts, analysis of vulnerable sectors, technology and investment needs and their costs and indicative timetable for their provision.
- Finance: Finance covers the type and scale of support as well as the timeframe and channel for its delivery.
While both finance and adaptation are important parts of the deal, it is unclear how or whether countries will make specific commitments in these areas. For business, the ambition of the mitigation targets is probably most relevant followed by the sector focus and policies to achieve them. But it is unlikely there will be much clarity on this in Lima.
The negotiating text
Under UN climate rules, countries need a draft text circulating six months before it can be adopted – i.e. by June next year. The co-chairs of the working group have drafted an ‘omnibus’ text which pulls together much of the work done in the negotiations this year. Much of the discussion in Lima will focus on how to develop this text. One aspect is how to accelerate action before the treaty comes into effect in 2020. Another is on the process to review targets (INDCs) submitted in the first half of 2015, and what to do if they look likely to exceed a 2 degree pathway.
The legal form of the new treaty is critical to many. Countries will discuss whether the emissions targets and financial pledges should be legally binding or just certain elements of the treaty such as the monitoring and reporting requirements. The US has consistently argued for legal symmetry i.e. that there is no distinction between the legal obligations of developed and developing countries. The US and China did not sign up to binding targets in Kyoto or Copenhagen, so agreeing to them in Paris would be unprecedented. Binding reporting requirements may be more acceptable as there are already provisions relating to this in the Climate Convention (which both have signed). Regular and frequent reporting on progress to tackle emissions could help build trust and consequently accelerate action.
The role of business
Business leaders made a series of pledges at the New York climate summit in September that is directly relevant to the negotiations. Some consumer goods companies set a target to tackle deforestation resulting from production of soy, palm oil, paper and beef. Some energy companies stated they would work to reduce emissions from their operations. And over 1000 companies from all sectors agreed to support carbon pricing.
The first thing that business will watch for in the negotiations is the level of ambition in the national targets. Then they will be interested in the detail: the role of market mechanisms, the policies that countries propose, the way governments will work with the private sector on deforestation or CCS or energy efficiency. Ultimately, they are interested in how this will affect their investment decisions and their investment portfolios. The UN negotiations rarely provide clarity in these areas. But if they maintain the momentum gained in the last three months, they will have a major influence in national capitals and consequently on business.
It will be up to the COP President to resolve the conflicting views to leave the negotiations in reasonable shape before the Paris Summit next year. Methods of dissonance reduction range from changing the behaviour, i.e. tackling emissions, to justifying it. Some will argue that action to tackle climate change will affect competitiveness and/or poverty reduction efforts. Others will question whether the response is proportionate. It is likely that we will hear all these arguments in Lima and on the road to Paris.
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 Festinger, L. (1957). A Theory of Cognitive Dissonance. California: Stanford University Press