Bridging climate change mitigation economic development Li

Bridging climate change mitigation & economic development Li Lailai Stockholm Environment Institute Paris, 26 October 2009

Outlines n Global targets urge large joint mitigation actions. n Current global mitigation mechanism is insufficient. n Inter-country joint mitigation plan (ICP), an inclusive mechanism n ICP bridges mitigation and economy

Global targets urge large joint actions Complexity of mitigation features following facts: n Concentrations of GHG have grown up to over 430 ppm CO 2 e today, being added at a rate of 2. 5 ppm per year. n Developed countries are responsible for 70% of carbon dioxide accumulated in the atmosphere; developing countries are catching up. n To reduce poverty, developing countries need to speed up economic development while climate change is hitting the poor the first and most.

Global targets urge large joint actions n Holding below 500 ppm CO 2 e requires bringing emissions down to below 20 Gt CO 2 e, around 50% of 1990 and 2000 levels (Stern 2009). n Given the global population will likely be around 9 billion by 2050, emissions have to be around 2 tons person in average. n Large-scaled reduction is needed urgently; joint, collective actions from developed and developing countries are the MUST.

Global targets urge large joint actions n Mitigation is estimated to require $100 billion each year and aggressive dissemination and deployment of available technologies. n Given the legitimate right of growth for developing countries, a fundamental solution is the shift of the pattern of growth toward low carbon. n Questions: Who will finance it, and where is the money from? How can we bridge climate change mitigation with shifting to a low carbon economy?

Current global mitigation mechanism is not effective n CDM is the only mechanism for Annex 1 countries and non-Annex 1 countries to take joint actions of emission reduction. n It is marginal in global carbon market, primary CDM making for 19% in 2006 and 12% in 2007. n Technology transfer is low: great disparity between the national need of technologies for mitigation and TT realized through CDM. n “Cap - trade” regime prevents developing countries from participating in global carbon market.

Current global mitigation mechanism is not effective – a case of China n China’s 5 -year national plan with quantified targets of reducing 20% energy intensity and 10% pollution intensity is not recognized by the current cap-trade regime. n Implementation of such targets in 2 more FYP periods results in cumulative avoidance of 58. 1 Gt. CO 2 e and peaks China’s emission b earlier before 2030 or much earlier depending on the growth rate without substantial slow down.

If GDP grows at 10. 04% in the 11 th FYP, and 7. 67% in 12 th and the 13 th FYP periods. If GDP grows at 10%, 7. 5% and 5% respectively If GDP grows at 10%, 6% and 5% respectively

Current global mitigation mechanism is not effective – a case of China n To meet the targets of “ 20%+10% energy and pollution intensity reduction in 2006 -2010, China has q Closed small power plants of 25. 87 million Kw, production of cements by 100 million tons, steel by 50 million tons, coke 30 million tons and paper 5 million tons in 2. 5 years; invested 21. 3 billion in 2006, ￥ 23. 5 billion in 2007 and ￥ 27 billion in 2008, not counting social costs from unemployment caused. q In 2007, 1000 enterprises spent￥ 50 billion on technology updating to fulfill the contracts of energy saving signed with the Chinese government, in addition to ￥ 5. 56 billion from the government finance.

Current global mitigation mechanism is not effective – a case of China n In the current “cap and trade” regime, these targets, investments and contributions are not recognized, which if continued would be the largest the climate change mitigation program in the world. n The reality is that China is doing this alone by itself. A crucial question is “can China alone afford to continue this ambitious plan for 2 or 3 more 5 -year periods? ” What if not?

Inter-country joint mitigation plan (ICP) n Given the urgencies of large-scaled joint mitigation actions, participation of developing country as MUST, financial flow and technology TT, and so little hope for a global deal to be agreed, n ICP is proposed as a middle-ground mechanism that can be put in operation based on bilateral or multilateral agreements.

Inter-country joint mitigation plan (ICP) n Under the principle of “common but differentiated responsibilities”, ICP has 3 pre-conditions: q The national voluntary intensity-based energy saving and emission reduction targets from developing countries should be recognised internationally. q Emission reduction targets, technology transfer and financial flows built into an ICP reflect international monitoring, reporting and verification (MRV) standards. q An international fund should be set up to fund the ICP.

Inter-country joint mitigation plan (ICP) n ICP formed by a host (non-annex 1) country and one or more partner (annex 1) countries. n The host country proposes an ICP featuring its national intensity-based reduction targets and needs of technology and finance inviting partner countries for joint implementation through negotiations to reach agreement. n The results of ICP count toward the emission targets of the participating countries based on the responsibilities committed.

Inter-country joint mitigation plan (ICP) n The partner countries have two to three basic responsibilities or rights to an ICP: q sharing the targets of emission reduction, q transferring the needed technologies required for realizing the target, and/or q allocation of finance required for realizing the target through investment or other forms.

Inter-country joint mitigation plan n Role of an UN body: q q To support and facilitate negotiations, and q n In assessing ICP proposals, To evaluate ICP implementation. Assessment of ICP proposals focusing on q Targets, joint actions of delivery, responsibilities and commitments, resources required, milestones and benchmarks for monitoring and evaluation.

ICP bridges mitigation and economy – incentives for participation n For host countries: q ICP places in the centre the national interests of sustainable development strategy, from which emission reduction targets are drawn. q ICP applies to particular sector, resulting in a shift to low carbon industrial sector through technology progress and infrastructure upgrading, in addition to emission reduction. q Operation of ICP enhances the capacity of economic coordination, which will benefit the economic development in a long run.

ICP bridges mitigation and economy – incentives for participation n For partner countries: they gain q q Large technology markets in the host country q n Low reduction costs in the host country Long-term leverage on CO 2 emissions reduction with joint research for new technology demonstration programs For both sides: q Operated transparently, the results of emission reduction, technology transfers and financial flows are measured, reported and verified.

ICP bridges mitigation and economy – incentives for financial flow n Open policies and market incentives in the host countries will attract needed technologies and investment, supporting an ICP – China’s 30 year reform. n Chain’s GDP soared from about USD$52 billion in 1978 to USD$3615 billion in 2007. n During 1979 -2007, use of foreign capital in China reached $138. 7 billion, of which FDI account for about $111 billion invested in 632298 projects.

ICP bridges mitigation and economy – incentives for technology transfer n By 2005, 750 R&D centres had been set up by foreign companies in China (Jiang X, 2007). n The percentage of foreign companies doing so increased from 6. 7% in 2000 to 17. 1% in 2007. n 61. 8% of transnational corporations selected China as their overseas R&D locations during 2005 -2009 (UNCTAD). It is not just the costs of in-action but opportunities of actions that will convince the actions. ICP provides them.

Thanks

Lessons from CDM: 55% of the projects >100, 000 t. CO 2 e Projects by scales (million t. CO 2 e) % Estimated annual t. CO 2 e reduced % 3 0. 19% 31, 358, 570 9. 64% 1 -9. 99 37 2. 38% 93, 840, 466 28. 85% 0. 5 -0. 99 58 3. 73% 40, 974, 773 12. 60% 0. 1 -0. 49 599 38. 55% 115, 151, 841 35. 41% 0. 05 -09 402 25. 87% 28, 929, 069 8. 90% <0. 05 455 29. 28% 14, 970, 865 4. 60% Total 1554 100% 325, 225, 583 100% # of projects >10

Lessons from CDM: Technology transfer level is very low # of projects % of projects Estimated annual t. CO 2 e reduced % of t. CO 2 e reduced Hydro 803 72. 67% 83462645 62. 73% Wind 237 21. 45% 27, 342, 691 22. 57% 49 4. 43% 9, 401, 993 7. 76% Power from methane 5 0. 45% 238, 570 0. 20% Wastes to electricity 8 0. 72% 936, 230 0. 49% Solar stove 3 0. 27% 107, 461 0. 09% 1105 100. 00% 121, 151, 000 100. 00% Types of new or renewable energy Bio mass Total

Lessons from CDM: One time deal at company level Estimated annual t. CO 2 e reduced % Carbon funds, dealers or traders 218, 170, 545 67. 08% Banks or financial institutions 58, 344, 639 17. 94% Energy or power companies 44, 744, 010 13. 76% One-side projects 2, 902, 295 0. 89% Governments 1, 064, 094 0. 33% 325, 225, 583 100% CDM buyers Total

Lessons from CDM: it is marginal in global market 2005 　　 Volume (Mt. CO 2 e) 2006 Value (MUS$) Volume (Mt. CO 2 e) Value (MUS$) Allowances 　 EU ETS Volume (Mt. CO 2 e) 2007 321 7, 908 1, 104 24, 436 2061 50097 New South Wales 6 59 20 225 25 224 Chicago Climate Exchange 1 3 10 38 23 72 UK-ETS 0 1 na na 328 7, 971 1, 134 24, 699 2, 109 50, 394 Sub total Project-based transactions Primary CDM 341 2, 417 537 5, 804 551 7426 Secondary CDM 10 221 25 445 240 5451 JI 11 68 16 141 41 499 Other compliance 20 187 33 146 42 265 Sub total 382 2, 894 611 6, 536 874 13, 641 TOTAL 710 10, 864 1, 745 31, 235 2, 983 64, 035

n Thirty years after the trip, the average annual disposable income of Chinese urban residents grew 6. 5 times from 343 yuan (50. 4 U. S. dollars) in 1978 to 13, 786 yuan in 2007. n Over the past 30 years, China has maintained an average annual GDP growth rate of 9. 8 percent, more than three times the world average, President Hu said. n Gross domestic product (GDP) soared from a mere 360 billion yuan (about 52 billion U. S. dollars) in 1978 to 24. 95 trillion yuan in 2007, making China the world's fourth-largest economy. n The country's poor population was reduced from 250 million in 1978 to 14. 79 million in 2007. n The President said China's GDP had soared from more than 360 billion yuan (about 52 billion U. S. dollars) in 1978 to 24950 billion yuan in 2007, making China become the world's fourth largest econom