Markets working to support sustainable development

Climate negotiations: from Lima to Paris, what implications for sustainable markets in 2015?

21 Jan 2015

The UNFCCC COP20 negotiations in Lima have a number of potential implications in terms of their impact on sustainable markets and market governance mechanisms.  This article explores what some of these implications may look like in practice, and what may lie ahead in the year leading up to the Paris conference at the end of this year.

Underpinning the ‘Lima Call for Climate Action’ communique, countries have agreed to announce their post-2020 emission reduction targets, also referred to as the Intended Nationally Determined Contribution (INDC), by the end of March 2015. However, a key point of contention during the Lima negotiations was the principle of ‘common but differentiated responsibilities’ (CBDR), which first emerged at the 1992 Rio Earth summit and has informed many previous negotiations. When embedded in agreements such as the Kyoto Protocol, CBDR put the onus on developed countries to curb their carbon emissions in light of their overwhelming responsibility for accumulated historical emissions, which impelled the majority of funding for a low-carbon transition to come from the developed world, in the form of the Green Climate Fund and other mechanisms.  

COP20 proceedings in Lima. Source: Wikipedia

In the communique from COP20, the principle was adapted to ‘common but differentiated responsibilities and respective capabilities, in light of different national circumstances’. There have been a number of different reactions to this change. Frank Jotzo, Associate Professor at Australian National University argues that the change "will encourage countries to make nuanced pledges" and allow developing countries to do so and not be seen to "break ranks" with other developing countries in different circumstances. Chandra Bushan, deputy Director General of the Indian Centre for Science and Environment, argued that “COP20 has eroded the difference between developed and developing countries”.  In agreeing with this, Malaysian negotiator Gurdial Singh Nijar claimed that differentiated responsibilities was “inextricably linked to the obligation by developed countries to provide finance, technology and capacity building to developing countries", pressing home that decarbonisation in developing countries will require large-scale investment and the use of new technologies. This means that changes to CBDR could damage flows of knowledge and funding from developed to developing countries despite new research by the International Energy Agency which shows that global energy use will grow by 37 percent by 2040, with the bulk of that in developing countries in Asia, Africa, the Middle East and Latin America. The question of how developing countries will fund this energy expansion via new low carbon technologies will be key to any global agreement.

In assessing how market governance mechanisms will be affected by the debate over CBDR and other negotiating points from COP20, the Green Climate Fund will most pointedly be informed by discussions in the lead up to the Paris conference. In the Lima Call for Climate Action, the Green Climate fund was nominated as the main ‘financial entity anchored in the new [Paris] agreement’. As discussed in an article on these pages last month, the Green Climate Fund has raised over $10 billion USD for climate adaptation and mitigation, but this falls short of the $100 billion USD per year committed to at the 2009 Copenhagen conference. Developing country blocs such as the G77 and the ‘Least Developed Countries’ have pressed for clarity over how large-scale contributions will be dispersed through the fund, particularly if more responsibility is to be put on developing countries to make emissions reductions. The Malaysian negotiator Nijar has further argued for scrutiny of contributions to the fund, to ensure that funds are not simply “re-labelled parts of the normal overseas aid budgets”, and that they are indeed additional contributions to assist climate mitigation and adaption in developing countries.

A number of other mechanisms were part of negotiations at COP20.  The REDD forestry programme announced the implementation of a consultation process to garner stakeholder opinion regarding the REDD 2016-2020 strategy. Meanwhile, key elements of a potential future carbon trading market including the ‘Framework for Various Approaches’ (FVA) the ‘Clean Development Mechanism’ (CDM) and the ‘New Market Mechanism’ (NMM) were not finalised in Lima with countries like Brazil leading other developing countries in stating that it was useless to make firm decisions on these mechanisms before the Paris COP21 negotiations. This argument was used to quash a European Union proposal in favour of ‘net mitigation’. Net mitigation would allow buyers of CDM credits for emissions reductions in another country to count this as part of the submission of their Intended Nationally Determined Contribution. The CBDR principle appeared as part of the debate around the mechanisms such as FVA, with developing countries such as Bolivia referring explicitly to CBDR and flows of finance and knowledge from developed to developing countries when setting out their positions on the mechanisms. Todd Stern, US lead Climate negotiator foreshadowed that the CBDR debate will arise again  in the lead up to COP21 in Paris, alongside the number of ‘to be confirmed’ discussions begun during Lima. Talks will continue in Geneva from February 8th to 13th. Follow @IIED for analysis of the year’s negotiations.