New Paradigm of Low Carbon Development Rae kwon Chung Climate Change Ambassador Republic of Korea
Story of Three Myths Climate Action (CA): Bad for Economy Target: only way for Emission Reduction Not Enough Money/Technology for CA Story of Low Carbon Parad Climate Action: Good for Economy E R: Possible without Target Enough Money/Technology for CA
High Carbon Paradigm: Energy, Growth, Climate Nexus Cheap Fossil Fuel Low Energy Efficien Vul To high oil price High Fossil Fuel Depend Vul to Climate Change Economi vulnerability MDG in danger Ecologic Unsustainable Growth vulner ability
Low Carbon Paradigm • High Energy Efficiency Saving Energy Costs Energy Security against High Oil Price Improve Industrial Performance Sustain Economic Growth • Low Fossil Fuel Dependency Reducing GHG Emissions Reducing vulnerability to Climate Change Improving Ecological Sustainability • Economic Growth + Ecological Sustainability Green Growth • Turn Vicious Cycle to Virtuous Cycle
Paradigm Shift from High to Low Carbon Paradigm
Climate Action = Energy Security • Especially When Oil is 130 USD per Barrel • Climate Action Improving Energy Efficiency Improving Energy Security • High Oil Price is making Climate Action not only Ecological action but Economic Action
CA Bad for Economy ? • Internalize Ecological Costs Improves Energy Efficiency Strengthen Competitiveness Encourage R&D, Create New Market, Employment, Growth • Countries with High Energy Price High Energy Efficiency
Then Why Resist ? • Positive Results: Long-Term • Afraid of Short-Term Burden/Costs • Key: How to close Long-term/Short. Term Gap ? • Need Policy Support to Minimize Short-Term Burden to Maximize Long-Term Gains
Because We do not know yet • • Whether decoupling could happen in DCs Low Carbon Development: still vision, Decoupling only happens in rich countries Korea: 75 -06, GDP increased 7. 5 times Energy Consumption 7. 4 times • We need Low Carbon Economics: Ø that can make decoupling happen in DCs.
A/P Can not repeat Quantity of Growth Market Cost Efficiency Grow First, Clean Up Later
A/P 새로운 성장 패턴 Quality of Growth Eco-efficiency Green Growth
Asia & Pacific • • • High Growth 2/3 of world poor 1. 5 times population density 34% of global GHG emission Lowest ecological carrying capacity
Ecological Status of Global Economy • Deepening Ecological Deficit – Footprint is surpassing Biocapacity
Unmet basic needs… need for further economic growth • • 600 million without safe drinking water 1. 9 without sanitation 800 million without electricity Still need rapid economic growth
Asia-Pacific situation Limited Carrying capacity
A/P has to change “Growth Pattern” • To attain • MDG 1 (poverty reduction) • MDG 7 (environmental sustainability) at the same time
Paradigm Shift from • Quantity of GDP to Quality of GDP • • • Ecological Quality Economic Quality Social Quality
Current Paradigm: MCE • Market Cost Efficiency: market price • Market Price < Ecological Price • Market Cost Efficiency (MCE) < Ecological Cost Efficiency (ECE) • Gap between MCE & ECE has to be closed
Need to shift from MCE to Ecological Efficiency (EE) • EE: Key Concept of Green Growth • EE is ØInternalize Ecological Cost ØMaximize Resource Efficiency ØMinimize Pollution Impact
EE of Economic Growth • Different Pattern of Growth • Japan> EU > US • In Asia: Singapore
Different Patterns of Growth (global hectares per capita, 2003)
Examples of Eco-Efficiency • • • Japan: rail based transport system Singapore: private car control London: congestion charge Norway: Road Pricing, ban shopping mall Failure of EE: Traffic Congestion Costs Japan 0. 79%, US 0. 65%, UK 1. 25%, Bangkok 6%, Korea 3%
Basis for Eco-Efficiency 1. Price-structure: close gap between market Price & Ecological Price * Invisible Infra of society 2. Infra-structure: Frame of Economic Performance * Visible Infra of society
Policy Tool for Eco-Efficiency • Eco-Tax Reform: Tax Base, Income Carbon • Sustainable Infra: Transport • Demand-side Management • Green Business Promotion • Climate Action
Eco-Tax Reform Tax Base: Income Tax Base: Carbon Income Tax Carbon Tax • Changing Tax Base
Double Dividend • 1 stone 2 birds • Reducing GHG Emissions • Promoting Growth
Demand-side Management • As Income level rises, consumption will place major pressure on CO₂emission • Deteriorating EE of Consumption • Consumer Acceptance: Key • Congestion charge, Road Pricing
Climate Change • Market Failure (MF): Stern Review Ø Need invest 1 -2% of Global GDP Ø If not, global GDP will be lower 5 -20% • From GG perspective: EE Failure • GG Ultimate answer to Climate Change • Low Carbon Paradigm: Ø one of the tools for GG/EE
EE & Carbon Intensity • • Ecological Efficiency GG Low Carbon Intensity (LCI) LC Dev. EE: improving efficiency of Power plants LCI: switching Coal-fired power station to Gas-fired one GG / EE LCS United Nations Economic and Social Commission for Asia and the Pacific
3 myths of Climate Regime • Target is Good. No Target is Bad. • “Binding” is better than “Voluntary” • “Binding Target” is the only option to reduce Global Emission. - placing a far greater role on Government over Market (Finance, TT)
2 Cases of Target • When BAU (ANNEX 1) • When BAU (Non-Annex 1)
Fixed/Absolute/Binding Target • When BAU : Feasible • When BAU : Not Feasible - Uncertainty of Projection - Difficulty of Agreement • Hot Air / Growth Capping
Flexible/Relative/Voluntary Target • Target: Indicative Goal, Political Will • Driver of Short Term Action • Pledge & Review: adjustable to changing circumstances
When target has limited role? • MRV (Measurable, Reportable and Verifiable) actions of NA-1: Need Incentives • Market Mechanism could play key role in providing Incentives.
In designing Post-2012 • Need Market and Private Sector Dynamism • Improve Commercial Viability of Investment • What is lacking is not money and technology In fact we have too much money and enough technology. • Once we can design a mechanism which can improve commercial viability of mitigation investment money & tech will flow to Mitigation
DC: “Unilateral Actions” • China & DCs: already taking significant mitigation actions • China: 20% energy efficiency target, has to be recognized & incentivized ØIt is not fair to say that China does not have a target. It already has. • Nicklaus Stern: Key Elements for Global Deal for CC, incentive for DCs as Carbon Credit for mitigation
Unilateral Developing Country Actions Compared to US and EU • Reductions from BAU (CCAP)
Cost of 1 ton CO₂Reduction • CO 2 ER per ton (USD): 234 Japan, 153 USA, 198 Europe. • a few dollars to 20 or 30 $ per ton in developing countries (less than 20 $ in China) Asia-Pacific Integrated Model (AIM), Japan • Cost Differential: can make ER investment in DC commercially viable: drive market mechanism
Barrier for Market Mechanism • Political Ideology: Supplementarity Principle Reduce in your country Is it necessary ? To what extent ? ? ? • Additional Burden on Annex 1 ? ? ? it depends on design of Climate Regime • If Supplementarity Principle is relaxed, reduces burden on Annex 1 & enables Deeper Cut/Deeper Global Net Reduction
Original CDM Design • Annex 1 Compliance Mechanism – Political (Not Market) Mechanism – Supplementarity Principle: – CDM: loophole of A-1 Compliance § Restrict CDM As Much As Possible § Impose Additionality Criteria: Technical, Project, Financial Additionality Ø CDM has to be redesigned as market incentive mechanism
Evolution of CDM Design • From Compliance to Market Mechanism • Bilateral to Unilateral CDM: – A-1: Investing in NA-1 to generate CER (B/CDM) – A-1: Buying CER from NA-1 (U/CDM) – Proposed in 2000 at COP 6, Approved in 2005 – Strong opposition: G-77(China, India), EU • U/CDM: incentive for investment in mitigation projects in NA-1, about 70% U/CDM
Still Half Way: • Original Bilateral CDM: Political Mechanism • U/CDM: Hybrid of Political / Market Mechanism – Still Same Additionality Criteria: restricting project scope • CDM: yet very limited incentive for investment in mitigation in NA-1 – Need to remove project & financial additionality criteria, but maintain Technical Baseline strict
Key Issues for Post-2012 • For Developing Country: How to design finance & technology transfer mechanism? – Current Debate focusing on the role of Governments of Annex 1: Not Realistic • For Investor: How to improve commercial viability of investment for mitigation?
What is NAMA ? • Nationally Appropriate Mitigation Actions (NAMA) by developing country parties, supported and enabled by technology, financing and capacity-building, in a MRV (Measurable, Reportable, Verifiable) manner - Bali Action Plan Decision 1/COP 13, Para. 1. (b). (ii)
If Credit is awarded to NAMA • Mitigation initiated even without Finance & Technology (e. g. Unilateral CDM) • Commercial Viability will be improved Fin & Tech flow will be scaled-up • Global Mitigation Cost could be reduced • Annex 1 could take deeper target • Mitigation will be driven by market dynamism/ Private Sector.
With credit for NAMA • Global Carbon Market will function as Fin & Tech Transfer Mechanism • DCs can initiate mitigation while pursuing Low Carbon Development (GG) • Certain share of proceeds can be allocated to Adaptation Fund, then 4 key issues of Bali Roadmap positively addressed
How to Operationalize NAMA? • Demand Side: need buyer of credit Ø Annex 1: deeper target • Supply Side: Wholesale approach for CDM, programmatic and sectoral CDM Ø Can build on existing rules of CDM Ø Total cost of Global Mitigation: reduced
Carbon Intensity (CI) • Can be applied sector by sector Power Sector, Transport Sector etc. Ex. Reduce CI by 20% in 3 years: • NAMA: actions lowering CI • CI: Key concept in calculating Carbon Credit • Basis for Wholesale CDM: Nicklaus Stern
Related Issues • Additional Deeper Cut: Additional Financial burden? Ø Better than Fund or Bond • Carbon Trade: only carbon offsetting? No. • How to balance supply and demand? Ø Needs study (price differentiation, CER Discounting etc. )
How to negotiate NAMA? • Agree on principle by 2009 Work out details after 2009 as was CDM • Scope and Extent of Credit & Modality is open to negotiation • Carbon Intensity of Sectors: can be applied to sectoral approach
Another Idea of Market Mechanism • Reform & Expand CDM Scope: removing Project & Financial Additionality but maintain Technical Additionality • Enhance and Wholesale CDM: Lord Nicklaus Stern • Multiply CER for Solar & Wind
Climate Regime after 2012 • A-1: Deeper Target (more than potential domestic reduction) to create demand for carbon credit from NA-1, Ø Fin & Tech Transfer • NA-1: Incentive Mechanism through Carbon Market Mechanism (NAMA Credit) Ø Mixed with Soft Target (Vol, Pldge & Review)
Net Global Reduction ? • CDM: Emission Shifting (Carbon Offset) Mechanism Not Global Emission Reduction Mechanism • But if we Discount CER: Ø Then CDM can function as Mechanism for Net Global Reduction Mechanism without imposing target on NA-1 • CER Discount: CER price stabilization & Net Global Reduction
UER/CER Discounting Carbon Credit Sold No Reduction Unsold Carbon Credit Net Global Reduction
How About Korea ? • Early Mover/Bridging Role • Set Mid-term Target for 2020: to be announced by next year • Pledge & Review: Adjustable/ /relative/ voluntary target • Post-2012: Recognize vol target/ Incentive for Mitigation Action • East Asia Climate Partnership:
East Asia Climate Partnership • Vision: Low Carbon Development Strategy Common Challenge of Harmonizing Growth & Climate • 200 Million USD for 5 years • Policy Forum: launching early next year • Technology & Finance Cooperation • Pilot Projects
Climate Change • Need “Beyond GDP Paradigm” • “Low Carbon Paradigm” Need to change the way we live/new value: Ø Happiness/Quality of life/ Motainai (Japan) Sufficiency Economy (Thailand)
Climate Change • Not just an ecological issue • Issue of changing lifestyle • If we just try to maximize GDP, we will end up with shrinking GDP (Stern Review) • If we focus on quality of GDP, then actual GDP will be even bigger
Happiness Equation West GDP Happiness New Asian Consumerism Desire New Western Consumerism = East
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