IGES Consultations on the Post-2012 Climate Regime
Forum in Kyoto on the theme "Towards the Copenhagen Agreement - Challenges and Perspectives"
20 October 2008
On 9 and 10 October 2008, the Institute for Global Environmental Strategies (IGES - Hayama, Kanagawa; Chair - Hironori Hamanaka) organised a policy forum on Asia's Post-2012 Climate Regime, with the theme "Towards the Copenhagen Agreement - Challenges and Perspectives". The event was held in Kyoto, in collaboration with the National Institute for Environmental Studies (NIES) and the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP).

Approximately 80 participants attended the forum including policymakers, businesses and intellectuals from Asian countries (including India, Indonesia, Bangladesh, Republic of Korea, Singapore, Thailand, China, Japan, the Philippines and Viet Nam), as well as representatives from developed countries (including Australia, Canada, Denmark, New Zealand and USA) and from international organisations such as the Organisation for Economic Co-operation and Development.

IGES has held this forum since 2005*1 to deepen the debate in Asia on the international post-Kyoto climate change regime, and works to reflect the Asian viewpoint in the shaping of future regimes.

The consultation focused on 8 controversial themes in the Bali Action Plan (sectoral approaches, co-benefits, adaptation, REDD etc.) and there was a frank and lively exchange of opinions on current issues and possible options. In particular, there were discussions on incentives for a sectoral approach, support for co-benefits, appropriate national reductions for developing countries, climate change commitments, and definitions of measuring, reporting, and certification of activities.

The results of this consultation will be presented at a side event at the 14th Conference of the Parties to the UN Framework Convention on Climate Change (COP14/COP MOP4) scheduled for December 2008 in Poznan, Poland.

*1: the policy forum has the twin goals of (a) promoting new and constructive thinking in the Asia-Pacific region on future climate actions and (b) contributing to the shaping of a post-2012 climate regime that adequately reflects the concerns and developmental aspirations of countries in the Asia-Pacific region.

For additional details, Contact:
Dr. Kentaro Tamura, Sub Manager,
Climate Policy Project
The Institute for Global Environmental Strategies (IGES)
Tel: +81-46-855-3810 Fax: +81-46-855-3809

Ms. Megumi Kido, Public Relations Officer,
The Institute for Global Environmental Strategies (IGES)
2108-11 Kamiyamaguchi, Hayama, Kanagawa, 240-0115 Japan
Tel: +81-46-855-3700 Fax: +81-46-855-3709

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Summary of discussions on the theme
"Towards the Copenhagen Agreement - Challenges and Perspectives"

Session 1: Introduction

- In his opening remarks, Professor Hamanaka argued that economic development is vital to lift poor communities out of poverty. However, economic development is also the key driver of energy consumption and GHG emissions. This meeting, which was a continuation of the 4th round of IGES consultations, explored how a post-2012 agreement can help developing countries grow and combat climate change. Professor Hamanaka concluded by thanking the National Institute for Environmental Studies (NIES) and the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) for jointly organising the forum.
- Mr. Masakazu Ichimura then welcomed participants to the meeting on behalf of UNESCAP. He noted that UNESCAP has been increasingly involved in efforts to help developing countries in the region shape the future climate change regime. While UNESCAP is not in a negotiating position, it can offer an objective analysis of the pros and cons of different post-2012 options. He then pointed out that the Kyoto meeting is one of several meaningful regional and interregional fora in which UNESCAP has sought to contribute to post-2012 negotiations.
- Ambassador Nishimura followed the opening remarks with a keynote address that focused on the good and bad news facing climate negotiators. In terms of good news, he highlighted the expanding role of developing countries, the impending change in United States leadership and growing public pressure from around the globe. In terms of bad news, he pointed to the recent financial crisis and lingering divisions between developed and developing countries. To move negotiations forward, Ambassador Nishimura suggested that a Copenhagen agreement must not only be effective, but realistic, practical and simple.
- Dr. Ancha Srinivasan summarised the outcomes of the past IGES stakeholder consultations and noted that most of the post-2012 climate regime proposals have given insufficient attention to Asia's developmental concerns. He mentioned that ignoring such concerns might make it more difficult to arrive at a Copenhagen consensus. He then presented meeting participants with a series of questions that were used to frame the forum's seven sessions.

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Session 2: Sectoral approaches

- The fact that sectoral approaches are not well-defined suggests two things: while it would be difficult to reach a sectoral approach agreement, the architecture should be kept flexible to reflect various concerns and interests. It was argued that small differences in institutional design could have sizable environmental, economic impacts, and sectoral approaches should be a means to an end, but not an end per se.
- One participant agreed to nationally adjusted benchmarks or targets to make sectoral approaches consistent with the principles of common but differentiated responsibilities. Given significant difference in technology stocks across countries, it was pointed out that a single benchmark or efficiency target would not be feasible. It was also suggested to focus on a specific type (same generation) of technologies.
- There was a shared understanding of the importance of providing incentives for developed and developing countries to take sector-specific actions. With regard to sectoral crediting mechanisms, however, participants expressed different views on intensity or absolute targets, and discussed pros and cons of each option (e.g. the possibility of "hot air" for absolute targets, and the concerns on the fungibility of intensity-based credits with compliance units based upon absolute caps).
- Another participant pointed out the importance of putting national emissions reduction caps on developed countries as a driving force for internationally competing firms in developed countries to embark on sectoral approaches. These firms would seek to level the playing field. To ensure the environmental integrity of sectoral approaches, the involvement of governments, such as public-private partnership, was suggested.
- A question was raised as to technical feasibility of implementing sectoral approaches in developing countries. It was pointed out that IPCC guidelines provide methodologies for measuring emissions, but there is a problem of data availability, which varies across developing countries.

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Session 3: Co-benefits

- It was widely agreed that the current climate regime has provided insufficient support to actions with co-benefits. For instance, a participant from India noted that the country's national climate change action plan integrates climate concerns and development needs, but that there are few international mechanisms to recognise that progress.
- The majority of participants could not identify incentives for developed countries to support actions with co-benefits. One participant mentioned that an "indirect" incentive for developed country investors would be expanding the scope of the CDM gold standard to include not only energy but also non-energy projects. On the other hand, several participants felt that developed countries needed to remove barriers to help developing countries realise co-benefits rather than receive incentives to provide support. For example, a participant from China argued that intellectual property rights (IPRs) often prevented the transfer of important co-control technologies.
- Participants disagreed over whether support for CDM projects should be based on a quantifiable measurement of co-benefits or less stringent criteria. Some participants raised concerns that requiring developing countries to quantify the co-benefits would place a burden on designated national authorities (DNAs). It was, however, pointed out that reviewing a project's co-benefits would be difficult without firmer measures to assess co-benefits.
- Participants offered several approaches that could make CDM projects with co-benefits more competitive. A participant from Japan suggested that positive list of CDM projects activity could receive fast-track approval from the CDM Executive Board (EB). A participant from Cambodia suggested that projects with co-benefits should receive a doubling of credits or a "gold" designation distinguishing them from ordinary CERs.
- Most participants felt actions with co-benefits should receive support chiefly from a reformed CDM as opposed to other non-market mechanisms. There were nevertheless concerns that too much was being expected of the CDM, and some argued the chief role of CDM should be to offer cost-effective emissions reduction opportunities for Annex 1 parties. Others noted reforms to the CDM such as scaling up the mechanism to the programme or policy level would require deeper Annex 1 emission reduction targets to avoid swamping the markets with cheap credits.
- A consistent theme was the need to reduce the implementation costs of recognising co-benefits. A participant argued that greater coordination between the work of the UNFCCC and quantitative research on co-benefits could reduce those implementation costs. For instance, researchers could provide the UNFCCC with the estimation techniques and analytical inputs used to quantify co-benefits. A body within the UNFCCC could then use those techniques and inputs to set threshold levels (USD/t carbon) at which actions could qualify for preferential treatment from the future regime.

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Session 4: Enabling conditions

- Some participants urged governments to create favourable market conditions to attract private investment and financial support for climate relevant technologies - private investments being a major driver of technology transfer. What comprises "effective policy tools" will however vary across countries. It was pointed out that, in India, for example, renewable energy purchase obligation and application of preferential tariff on renewable energy under the 2003 Electricity Act paved the way for a significant increase in private investments in renewable energy, particularly of wind and hydro.
- The growing debate on intellectual property rights (IPR) on climate-friendly technologies as a potential barrier to technology transfer needs to be further assessed. It needs to be verified whether they are in fact met with IPR restrictions through a process known as patent landscaping. On the other hand, many developing countries advocated the creation of a Technology Funding Mechanism to facilitate the acquisition of key technologies.
- It was argued that how trade policies facilitate the diffusion of climate change technologies would need to be examined closely. Many developing countries are also becoming producers of climate-friendly technologies such as China and India (wind energy), and China and Indonesia (fluorescent lamps). Governments are called upon to be more aware of existing or parallel multilateral or bilateral trade negotiations and their impacts on the diffusion of key climate change relevant goods or technologies.
- On the role of performance indicators, it was argued that understanding that technology transfer is a process, and how much the needed climate change relevant technologies have been transferred into developing countries deserves greater attention. Governments should assist the Expert Group on Technology Transfer (EGTT) in developing and testing robust indicators to effectively monitor the implementation of technology transfer.
- Participants from developing countries continue to argue that new and additional funding resources will be required to adequately address their mitigation and adaptation needs. Re-labelling of funding windows must be avoided, as it may create distrust among developing countries. On the other hand, participants from developed countries argued that both donor and recipient countries needs to be more accountable for the effectiveness of currently available funds.
- To scale up financing for the future climate regime, participants called for a transitioning from voluntary commitment to new burden sharing scheme among donors, a greater reliance on market mechanisms (such as extension of 2% levy to Joint Implementation and International Emissions Trading), the auctioning of credits, an international levy on energy-intensive activities (such as International Air Travel Adaptation Levy), as well as factoring additional revenue streams for project financing through upfront carbon purchase agreements. In the meantime, some argued that scaling up may be difficult to achieve, and we should instead focus on improving the efficiency of existing bilateral and multilateral aid modalities in line with the Paris Declaration on Aid Effectiveness.
- Some participants argued that private investment and public investment have different characteristics and will play different roles. Given that private investment has greater potential and carries less risk, setting an enabling environment and incentives are essential for attracting investment. This could be accomplished by setting clear mid-term and long-term GHG reduction targets, enhancing private-public partnerships (PPP), providing risk guarantees on carbon finance projects as well as the improvement of procedural efficiency for such projects.
- There was a general consensus that the presence of over 100 carbon funds causes fragmentation of funds and thus reduces overall funding effectiveness. Harmonisation among financiers, investors, donors and stakeholders was strongly recommended.

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Session 5: Adaptation

- The future climate regime should promote a mix of pubic and private funding, since adaptation costs are sizable and increasing. Mainstreaming adaptation and identifying win-win solutions could reduce these costs and should therefore be encouraged at all levels.
- Any future adaptation funding mechanism should result in additional and sustained supply of finances. Management of these funds could ideally be on the lines of Adaptation Fund Board constituted under the Kyoto Protocol, to manage the Adaptation Fund, since it is represented by majority developing countries leading to greater ownership and decision making powers. Multilateral financial institutions can play an important role but the regime should make sure that they do not dominate the decision making process and do not result in atomisation of funds.
- Differentiation among developing countries was considered possible and could have positive implications for the future adaptation framework. Nevertheless, some participants opined that the discussion on differentiation is still ongoing and will need additional inputs. Many participants felt that developing countries could ideally be differentiated based on their vulnerabilities. The development of a climate vulnerability and adaptation index may help in this regard.
- It was argued that the most significant incentive for developed countries to invest in adaptation might be securing sustained supply of goods and services from the south. Developing countries have incentives to adapt in the form of additional finances and technologies that could help them build efficient institutional systems and capacity to make adaptive policies. The co-benefits of adaptation in developing countries could also offer incentives.
- Risk insurance in developing countries could be quite costly due to the insufficient risk mitigation mechanisms (e.g. better structural standards in high risk prone areas and integrating disaster risks with the land use zones). Hence, it was suggested that any future climate regime should feature risk transfer mechanisms in order to reduce high risk insurance costs. A mix of public and private financing should be involved in future risk transfer mechanisms. Risk transfer mechanisms based on country-specific circumstances rather than a single global risk transfer mechanism should be established.

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Session 6: REDD

- Most participants agreed that REDD negotiations should focus on reducing emissions through avoided deforestation and forest degradation, while some favoured an "all in" approach, which could (in the long term) include conservation (biodiversity and water catchment services) and sustainable forest management.
- Participants generally shared the view that an incentive system under REDD would require both multilateral and bilateral assistance. However, several participants pointed out that market-based mechanisms and private sector engagement are also needed for REDD to have a substantial impact.
- Most participants supported a combination of national action and sub-national or project based implementation - at least in the case of decentralised forest management regimes - while stressing the importance of the national level for estimation of carbon sequestration and reporting.
- There was consensus that REDD should not be placed under the CDM scheme to avoid both the problem of leakage and complex approval modalities, which have prevented A/R CDM from happening on the ground. Instead, participants suggested a flexible mechanism for REDD to be established in the broad context of the Bali Action Plan and the Kyoto Protocol.
- Several participants pointed to numerous existing opportunities for developing countries to receive assistance in order to meet capacity building needs. Capacity building activities might be difficult to organise under the UNFCCC umbrella, but resources can still be mobilised through multilateral, bilateral and private sector initiatives.

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Session 7: Inventories

- This session identified the lack of high quality data, uncertainty of activity data, absence of capable inventory teams, and significant upfront costs as major barriers for routine inventories in non-Annex I countries. To overcome these barriers, participants suggested securing financial resources, providing capacity building in line with the Kobe Initiative, raising awareness among policy makers and stakeholders of the value of inventories, clarifying incentives and punishments, and encouraging countries to develop country-specific emission factors.
- Participants agreed that the use of inventories for other policy purposes is always valid. The availability of data enables baseline calculation for CDM projects, formulating adequate energy security policies, quantifying co-benefits, as well as developing other policy instruments such as taxation and trading systems.
- Due to the presence of gaps in the quality and depth of inventories between Annex I countries and non-Annex countries, some participants suggested that there should be a voluntary cross-checking system within the region for external review by non-Annex I countries.
- In order to overcome existing barriers, participants expressed the need for developing information sharing networks to exchange good practices and lessons learned, and conducting training workshops to transition from 1996 IPCC guidelines to 2006 IPCC guidelines. A sub-grouping of non-Annex I countries into similar emission patterns was also suggested, but the Chair reminded participants that it may not be constructive due to political reasons.
- Some participants expressed the view that reporting information on all gases from all countries - particularly from those countries with insignificant amounts of emissions - may not be necessary in the future climate regime. On the other hand, the chairman of the session suggested that excluding small countries may be politically difficult because these countries are often the most vulnerable to climate change.
- Many positive signs were observed in inventories preparation. Many countries now recognise the wider value of inventories and are expanding their use. Developed countries are also more aware of the need for international cooperation. Given the inactivity of the consulting group of experts (CGE), the session urged the negotiators to move the discussion forward.

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Session 8: Bali Action Plan: The Way Forward

- There was a wide variety of assessments of the strengths and weaknesses of the Bali Action Plan (BAP). In terms of strengths, some participants emphasised the BAP's attention to previously neglected issues such as adaptation and REDD. Others noted that the very fact the agreement exists and that it covers all countries and a wide range of issues were signs of progress. In terms of weaknesses, some participants noted that there are still many issues that remain to be resolved. Also, some suggested that the Bali Plan was just one of many negotiating tracks, lacks integration across key elements and fails to offer a shared vision and a clear goal.
- While most participants were hesitant to define what is meant by a "nationally appropriate mitigation action" (NAMA), one suggested that it was any policy or action that leads to a reduction in emissions from a business-as-usual (BAU) scenario. This definition might be complemented by a negative list of actions not qualifying as NAMAs (nuclear power or carbon capture and storage). NAMAs should be supported and enabled with technology, finance, and capacity building that is commensurate with the divergence from BAU.
- There was also a reluctance to define how commitments or actions should be measured, reported and verified (MRV). An insightful recommendation came from an Indonesian participant who suggested that the total value of funds allocated for mitigation actions could serve as an indicator. Others suggested that energy efficiency measures could serve as an indicator. Most participants felt that MRVs would be difficult to generate in developing countries due to constraints on capacity.
- Defining a comparable effort by developed country was considered to be relatively easy for the parties already involved in Kyoto processes. One model to demonstrate comparability would be the European Union's burden sharing mechanism. Devising a comparable measure for parties outside Kyoto such as the United States might be problematic.
- Participants felt that the regime could be more development-friendly if it demonstrated a clear political commitment to helping developing countries decouple GHGs and GDP growth. According to one participant, this would require more closely aligning the rules governing the future regime with the needs of developing countries. Another participant noted that developed countries should show good faith in reducing their emissions. Agreeing to a deep cut in GHGs would both demonstrate this good faith and increase demand for CERs.
- Participants identified several priorities to reconcile developed and developing countries' interpretations of the Bali Action Plan. Many participants pointed to recognising a common interest in adaptation. A participant from the Republic of Korea (ROK), for instance, observed that even though ROK was an OECD country it was already suffering from the adverse effects of climate change.
- Others suggested that there could be greater cooperation on mitigating emissions from the household and services sectors. A participant from India suggested that in both developing and developed countries most of the increase in emissions have come from changing lifestyle patterns. Developing innovative technologies and institutions to capture demand-side efficiencies could therefore be a shared priority.
- Greater recognition of the progress already made in developing countries to mitigate GHGs could also reconcile these gaps. A participant observed that China had been particularly bold in taking on aggressive energy efficiency targets but has not received adequate recognition for those efforts.
- Another frequently reiterated theme was the need to strike a balance between simplicity and complexity during post-2012 negotiations. Some participants commented that this discrepancy could be resolved by reaching a consensus on the broad contours of an agreement and negotiating the implementation details after the agreement was in place. Others suggested it was important to look at the history of previous climate negotiations after agreements similar to the BAP were established.

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