ENVIRONMENT

No winners in Bonn

The compromises made at the conference on climate change held in Bonn seem more of a step backward than an attempt to push the Kyoto Protocol and aid the environment.

AMBUJ D. SAGAR

THE Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change that concluded late last month in Bonn resulted in what is being described as "a historic agreement" and "a major victory for the environment". The so-called landmark deal reached by Environment Ministers from 178 nations agreed on the operational outline for the 1997 Kyoto Protocol that had set specific objectives for reductions in greenhouse gas (GHG) emissions of industrialised countries. This agreement should smooth the way for negotiations on the remaining details that need to be ironed out for the implementation of the Protocol and will thus hopefully lead to its ratification by next year in time for the 2002 World Summit on Sustainable Development (WSSD) in Johannesburg.

HERMANN J. KNIPPERTZ/AP
Coinciding with the climate conference, the water-installation, "Climate Accident", by German activist and artist Kurt Jotter in Rhine in Bonn.

There is no question that the outcome of the Bonn meeting is remarkable in that it resulted in an agreement despite the widely divergent views of many of the key Parties, including a clear indication by the United States - the biggest GHG polluter that is responsible for over a quarter of the global emissions and about a third of the total GHG emissions covered by the Kyoto Protocol - that it will not participate in the Protocol. Most observers believed that disagreements over many of the central elements would likely stymie any successful outcome, and so the agreement came as a bit of a surprise. If the Kyoto Protocol does come into force, it will be the first binding agreement to reduce GHG emissions in order to limit climate change.

The Kyoto Protocol requires industrialised countries, including a number of economies in transition, to reduce their overall emissions of greenhouse gases by at least 5 per cent below their 1990 levels. There are, however, different specific targets for different countries. It also contains three "flexibility mechanisms" - emissions trading, joint implementation (JI) of GHG-reducing activities among Annex I Parties and a clean development mechanism (CDM) that allows for GHG-reducing activities that may be carried out between Annex I and non-Annex I Parties - to give the Annex I countries some leeway in the matter of achieving their targets. The negotiations on the specifics of implementation were to be completed at the sixth COP held in The Hague last November.

The main sticking points at that time related to the nature, scope and use of the flexibility mechanisms (especially what kinds of projects should be allowed and to what extent Annex I Parties could use these mechanisms to reach their emission reduction targets), the use of carbon sinks (such as forests and range lands) in meeting emission reduction targets (through domestic as well as flexibility-mechanism-based activities) and the system of facilitating and enforcing compliance with the commitments under the Protocol. Issues that were of particular importance to developing countries, relating to capacity building, transfer of technology and financial assistance, were also discussed.

The meeting in Bonn was a continuation of the failed COP-6 at The Hague held with the aim of exploring ways to break the impasse between the Annex I countries - with the European Union (E.U.) on the one side and the Umbrella Group (a loose alliance of countries including, among others, the United States, Canada, Australia, Japan and the Russian Federation) on the other side on many issues - as well as between Annex I and non-Annex I countries.

To complicate matters further, the U.S. administration announced that it had no interest in implementing the Kyoto Protocol and that it was "fatally flawed" for fundamental reasons, including the exemption of developing countries from the emission reduction commitment regime. Since one of the conditions for the Protocol entering into force is its ratification by Annex I countries that account for at least 55 per cent of the total carbon dioxide emissions by Annex I Nations in 1990, the withdrawal of the U.S. from this Protocol (with its 36 per cent share of the carbon emissions) effectively meant that most countries had to be brought on board if there was to be an agreement that kept it alive. This gave tremendous bargaining power to countries such as Russia, Japan, Canada and Australia, which effectively shaped the negotiating dynamics in the run-up to, as well as in, Bonn. Many observers thought that the U.S. position spelt doom for the Kyoto Protocol, given the stalemate in the previous meeting and the additional constraints created by the U.S. position. Yet the participants in Bonn did not abandon their wish to move forward, and successfully negotiated an outcome that may yet allow the Protocol to come into force.

Unfortunately, the manoeuvring to save the Protocol extracted a heavy toll and the end-product was what Greenpeace termed "Kyoto-Lite". This agreement was the result of a veritable litany of concessions: despite all the scientific questions on sinks, they are included in the agreement whereby all Annex I countries are allowed to utilise forest management to cover a small part of their emission reductions (except Japan and Canada that get much higher quotas), some other land management and revegetation activities as well as limited credits from specific kinds of CDM forestry projects; there are no quantitative limits on the use of the flexibility mechanisms, although their use is to be supplemental to domestic action and the latter is thus supposed to constitute a "significant element" of the efforts made by Annex I countries to reach their emission goals; nuclear power is not specifically excluded from JI or CDM although Parties are to "refrain" from using credits derived from such facilities; and some key decisions on the legal nature of the compliance regime have been postponed. In fact, the compromises made by the E.U. are so numerous and wide-ranging that the general consensus is that they go beyond what the U.S. and others were holding out at last year's Hague conference.

Developed countries have also agreed to provide financial resources to help developing countries meet their obligations under the Climate Convention and adapt to adverse impacts of climate change. Consequently, under the Climate Convention two funds have been set up, one to finance activities relating to climate change and the other to assist least developed countries with their national adaptation programmes of actions, and a third one has been set up under the Protocol to finance concrete adaptation projects. Contribution to these funds is voluntary except for the Kyoto Protocol fund that will be partly funded by a 2 per cent levy on CDM projects. (In a strange twist, such a tax on the CDM will actually serve to discourage it in comparison to JI and emission trading that are not taxed.) Developed countries also acknowledged the need for new and additional funding under the Convention but, true to form, they did not undertake any legal obligation to provide such funds. There was a political declaration, however, by the E.U. and some other countries on funding for developing countries that includes an undertaking to provide an annual contribution of $410 million by 2005.

The fact that Annex I emission targets for the first commitment period in the Kyoto Protocol are based on 1990 levels (as is the case for most countries, with exceptions for a few) could have set a tricky precedent since these countries could in the future argue that the amounts allowed in the first period implicitly recognise their right to that level of the atmospheric commons, especially if they had been trading portions thereof - thus allowing a back door way to gaining emission rights. From this point of view, the clause in the Bonn agreement about the Kyoto Protocol not creating or bestowing any right, title or entitlement to emissions of any kind on Parties included in Annex I is helpful. Still, Annex I countries have been loath to discuss the allocation issue and will probably continue to be so - the absence of objective and consistent allocation criteria will only serve to maintain the status quo that is favourable to these countries, notwithstanding the above clause.

HOW did this agreement come about after the deadlock at The Hague? There are a number of contributing factors. Perhaps the most important was the domestic pressure on the Parties and the negotiators after the failure at The Hague to reach an agreement in Bonn. The recent Third Assessment Report of the Intergovernmental Panel on Climate Change also highlighted the increasing evidence of human-induced climate change as well as the potential for substantial human, socio-economic and ecological impacts. This heightened the urgency of making some progress in Bonn to "rescue" the Kyoto Protocol as well as meet the political deadline of having the Protocol ratified by the Rio+10 Summit in 2002. The attitude of the U.S. administration probably hardened the resolve of many negotiators to thumb their nose at it. The E.U. also saw a chance to assert itself on the world stage. The E.U. Environment Commissioner stated after the agreement was struck: "I think something has changed today in the balance of power between the U.S. and the E.U." Also, Jan Pronk, the president of the Conference, clearly wanted to leave a mark, as possibly did other negotiators in "delivering probably the most comprehensive and difficult agreement in human history".

The E.U. showed resolve in Bonn and made more than a good faith attempt to keep the Kyoto Protocol alive. The G-77 and China, under the strong leadership of Iran, also put in a good showing. On the other side, the standard for sordid behaviour was set not by Japan, even though it came under substantial criticism for playing hardball at this meeting, but more by Australia and Canada. Japan's economy is extremely carbon-efficient already, and thus the targets that it took on in Kyoto are far more onerous than the more relaxed targets taken on by Canada and Australia, countries that also have carbon-inefficient economies where it will doubtless be cheaper to achieve reductions. To put it in context, Japan emitted 29 kg of carbon per dollar of gross domestic product (GDP) in 1997, whereas the corresponding number for Australia and Canada is 76 and 83 kg of carbon. (In the same year, the U.S. emitted 65 kg of carbon per dollar of GDP - its disinterest in, or inability to, curb its voracious appetite for fossil fuels is the main reason why it balked at the Kyoto Protocol.)

In the end, almost nobody emerged a real winner in Bonn - the E.U. got an agreement despite the U.S. absence but had to abandon most of the principles that it had stuck to steadfastly in The Hague; Japan, Australia, Canada and Russia did get a good deal at this point but quite possibly with the loss of much goodwill for future negotiations; developing countries forced some movement on issues of importance to them but without any quantum gains; and non-governmental organisations involved with environmental issues achieved success in their efforts to "save" the Protocol even though it was only a shadow of its earlier self. The U.S. certainly did not come out a winner since its strategy (if there was one) backfired and it found itself quite isolated on this issue - it is too important a player, although, to be sidelined for long. Possibly the clearest winners will be the numerous individuals and institutions in industrialised as well as developing countries that have been positioning themselves to be players in the emissions trading and CDM game.

THE loser, not unexpectedly, is the environment. The Kyoto Protocol was already a pretty small step in what will be a long march to meet the goals of the Climate Convention, and it has been further weakened by this agreement. Estimates suggest that the Bonn agreement will reduce the Kyoto target of 5.2 per cent reduction below 1990 levels to something like a 1.8-2 per cent reduction. Still, given that under a business-as-usual scenario, GHG emissions from Annex I countries by 2010 were likely to have been about 10 per cent above 1990 levels (and possibly higher depending on economic growth trajectories), the dilution by the Bonn agreement is unfortunate but not a complete giveaway - at least in emission terms. A much greater cause for concern is that the agreement gives little direction, and in fact adds to the confusion, about the next major step in the climate negotiations. With all the political horse-trading that went on, few principles were left untwisted, and in an effort to meet the letter of the Kyoto Protocol at the lowest cost, its spirit was mostly subverted. In the absence of any robust principles or objective criteria for choosing a goal or the paths to move towards it, the outcome was decided almost exclusively by negotiating power and strategy. This does not bode well for developing countries for the future rounds of negotiations.

And what does all this mean for India? For one, if the Kyoto Protocol does get ratified, as looks likely at this point, the Indian government may be well advised to do some careful thinking on what the country could and should do to get out of the CDM. If the U.S. does stay out of the Protocol, as it has threatened to do, the demand for CDM projects is likely to be much smaller - this may increase the need for a strategic approach to maximise the aggregate gain from CDM activities. Building synergies between such GHG mitigation activities and national development goals will yield greater benefits not only in the short term but also in the long term. For example, the government could indicate a preference for projects that enhance technological capabilities in specific sectors (rather than those that just involve simple technological substitution or forestry and offer few, if any, ancillary benefits) and even encourage appropriately bundled projects that could achieve such a goal (and reduce transaction costs per unit credit).

The government also has to start planning for the next phase of the climate negotiations that will focus on the second and other future commitment periods. The pressure on India, China and other major developing countries to take on commitments will increase substantially once the Kyoto Protocol has been ratified and it is imperative for the government to carry out thorough analyses of its various options and their costs and benefits. This requires the government to enhance substantially the internal resources that it devotes to policy analysis as well as transform the level and nature of its interactions with other experts to promote open review and discussion of various alternatives. The current situation is hopelessly inadequate against the massive analytical machinery of industrialised countries where governments have substantial in-house capabilities as well as numerous independent analysts to help examine the ramifications of various proposals and approaches. We will soon move beyond the heady success (if one can call it that) of Kyoto and Bonn, and then doubtless the stakes will be raised for developing countries. The sooner and more prepared we are for that next chapter, the better.

Ambuj D. Sagar is a Research Associate at the John F. Kennedy School of Government at Harvard University.