Insights

Insights

Technology development and diffusion within the UNFCCC

15th July 2015

Topic(s): Carbon capture, Carbon markets, Economics, Energy efficiency, law and regulation, Policy, use and storage (CCUS)

Technology is a central issue in addressing carbon emissions and the global climate change negotiations. Related issues including carbon markets, finance and technology transfer have widespread implications. The 2015 Agreement expected to result from the 21st Conference of the Parties (COP21) conference to be held in Paris this December is anticipated to provide a mandate but not detail for technology-related issues. In this Insight, the Institute's Mark Bonner Principal Manager - International Climate Change, provides analysis of the discussions over technology to date, some expectations for the 2015 Agreement and the implications for carbon capture and storage (CCS).

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Negotiators representing the Parties to the United Nations Framework Convention on Climate Change (UNFCCC) gathered in Bonn, Germany in June 2015 ahead of the crucial COP21. Picture: Global CCS Institute

How the international climate talks support technology development and diffusion

Now more than ever there is a need for global leadership on climate change action. Public discussion on what might be considered 'sufficient' climate action is often reduced to an aggregation of country commitments to reducing emissions. This is perhaps due to the historical pretext of the United Nations Framework Convention on Climate Change (UNFCCC) overarching objective of stabilising global emissions at levels that can avoid catastrophic impacts of climate change. In the context of the 2015 Agreement, this is comparble to halting global average temperature rises to 2 degree Celsius higher than pre-industrial levels.

But for countries to meet their emission reduction obligations, a number of enabling elements need to be nurtured. In the absence of any compelling reason to mitigate, then appropriate and sufficient action by either the public or private sector will simply not occur. While the UNFCCC is a government led process - that is over 200 governments get to 'legally' decide the future direction and nature of climate action - the lion's share of the mitigation effort rests with non-government actors such as civil society and business. This suggests that a balance needs to be struck between doing right by the global public interest (noting that greenhouse gases are non-localised pollutants) and observing national interests – especially in regards to localised capacities to act and the preservation of competitive advantages.

Technology is a core element of climate action

Since the beginning of the climate talks in 1992, many different approaches have been adopted to addressing the global nature of the mitigation challenge. The one constant amongst these approaches is almost universal recognition of the critically important role technology must play in reducing emissions through both consumption and production.

In the Convention itself, Article 4.5 is referred to as the technology transfer framework. In the Kyoto Protocol, Article 2.1.a.iv refers explicitly to supporting 'environmentally sound technologies' including carbon capture and storage (CCS) and renewable energies. The 2015 Agreement will also include an explicit recognition of the value of technology development and transfer. But simply endorsing technology is not enough to mobilie the resources needed for these technical solutions to reach their full potential. What is also needed is policy formulation and funding to shore up the economics of action.

International policy can provide impetus for domestic policy decisions

The Kyoto Protocol essentially embraced the expansive role that carbon markets and carbon pricing arrangements can play in facilitating climate friendly outcomes and supporting technology projects. The Protocol’s Article 2.1.a.v (following immediately on from the CCS paragraph) urged Parties to implement a "progressive reduction or phasing out of market imperfections, fiscal incentives, tax and duty exemptions and subsidies in all greenhouse gas emitting sectors that ran counter to the objective of the Convention and application of market instruments". Despite this, a reflective observation of the Kyoto Protocol suggests that its architecture perhaps placed too many demands on some countries and not enough on others. This has clearly influenced the politics of the 2015 Agreement negotiations.

There are two negotiating camps in regards to the role the UNFCCC might play in canvassing greenhouse friendly policy options. The first is that quite a few countries are seeking UNFCCC policy sanctions for compliance purposes, which could essentially require UNFCCC governance and oversight. The other is that many other countries are not seeking UNFCCC ‘permission’ to adopt certain policies but rather guidance on internationally agreed procedures that can ensure fungibility of action and avoid double counting of abatement.

This is certainly the case with carbon markets at the moment. The Protocol established comprehensive modalities, procedures and institutions to support its four carbon markets;

  • international emissions trading (IET),
  • the European Union's trading 'bubble',
  • joint implementation (JI),
  • clean development mechanism (CDM).

However the future role of carbon markets in the 2015 Agreement seems increasingly uncertain.

An uncertain Agreement

It is likely that the new Agreement will specify general support for carbon markets, but will fall well short of specifying any detail (ie the future of CDM in a post-2020 period will unlikely be addressed). This reflects over a decade's experience with emissions trading schemes (ie the European Union Emissions Trading Scheme, started in 2005 and the CDM started in 2006) with nations now reflecting on whether carbon markets have delivered what they were expected to.

For many developed countries that established cap and trade schemes to help meet their Quantified Emissions Limitation and Reduction Obligations (QELROS), many report that least cost abatement outcomes have been delivered although there have been no shortage of design issues. Likewise, many developing countries that have relied on baseline-credit schemes (such as JI, CDM) indicate that substantial and additional income has been generated from their abatement efforts and technology transfer has been given effect.

What can the UNFCCC provide in support of technology development and transfer?

Clearly, the sequencing of a number of core elements needs to happen before the UNFCCC can show 'cause and effect' with regards to supporting CCS. The first is that countries must come together to agree to a credible level of emissions reductions. Without this, there is no reason why nations would agree to absorb additional mitigation costs by investing in next generation technologies.

The second is that once nations accept the reality of needing to move away from business as usual norms, then public policy necessarily shifts from ‘what’ to 'how'. Depending on localised conditions, nations will see themselves as technology exporters and/or adopters for different sectors. In simplistic terms, most nascent climate technologies have to overcome fairly ubiquitous barriers, for which the suite of policy remedies are relatively well known to governments all over the world. The experience of many countries to date shows that resolving these types of challenges (ie market failures, regulatory frameworks, and economic incentives) is manageable and affordable.

While economy-wide carbon pricing as implemented through national taxes, trading schemes or implicitly through regulations can assist technology transfers, efforts to develop technologies still require a global mobilisation of financial resources as well as international acceptance of their environmental credentials (pilots and demonstration).

What can the UNFCCC provide in support of CCS?

CCS has been scientifically and institutionally considered by UNFCCC institutions over many years now. Ultimately CCS has been adopted as an environmentally sound technology (EST) in the Kyoto Protocol, the CDM and the Green Climate Fund (GCF). For an indication of the extent and rigour of examination, refer to the CDM webpage.

The UNFCCC has a comprehensive architecture in which to support the development and transfer of ESTs. Its platform continues to evolve with the role of technology expected to be enhanced in the 2015 Agreement. There are two main mechanisms supporting technology development:

  1. the Technology Mechanism (consisting of a policy and implementing arm)
  2. the finance mechanism (consisting of funds managed by the Global Environment Facility and the GCF).

Within this framework, the treatment of CCS should be on par with every other promising mitigation technology. This effectively means that UNFCCC and UN System support for CCS should be regarded as being additive – not competitive – to alternate technologies, and represented in an equitable and respectful manner. This has not really been the experience to date although its consideration by Parties continues to heighten over time as mitigation ambitions strengthen and become more stringent.

Policy and implementation support for technology

The Technology Mechanism has embedded in it a Technology Executive Committee (TEC) to advise Parties on policy relevant issues such as how to foster 'healthy' national innovation systems. A current focus of the TEC is examining the efficacy of the UNFCCC endorsed process of Technology Needs Assessments (TNAs). TNAs identify nationally relevant technologies – not necessarily nationally developed technologies – that can help deliver on national strategies. Examples include:

  • Nationally Appropriate Mitigation Actions (NAMAs)
  • Low Emissions Development Strategies (LEDS)
  • Intended Nationally Determined Contributions (INDCs)
  • Technology Action Plans (TAPs).

The Institute recently submitted its views to the TEC on this matter and will provide Members with a link to this document once published.

An arguably greater challenge is the scaling up of technology action. This goes to the heart of issues such as funding and national capacities to implement technology projects. In this regard, the GCF aims to leverage its funding resources (US$100 billion per annum in 2020) by assuming a greater than expected share of the associated financial risk and thereby attract additional private sector contributions for projects. The GCF is expected to announce limited funding for projects located in developing countries by the end of 2015.

The Technology Mechanism's implementing arm, the Climate Technology Centre and Network (CTCN), also aims to provide practical and funded assistance to developing country project proponents to overcome implementation issues. The business sector continues to invest in maintaining a close relationship with both these organisations. For example, a Shell representative has been elected by the Business and Industry Non-Government Organisation constituency (BINGO) to formally observe the business of the CTCN Advisory Board over a two year period; and two representatives from the World Business Council for Sustainable Development and Climate Markets and Investment Association currently sit on the GCF’s Private Sector Facility. The Institute of course actively attends all of the business of the TEC as an accredited observer to the UNFCCC (as well a member of the TEC’s Cross-cutting issues taskforce), the CTCN as a member of its Network, and the GCF as an accredited observer to the GCF.

What might the Paris Agreement deliver?

Negotiations at COP21 will likely only skim the surface on carbon markets. This issue seems too politically charged between:

  1. developed and developing countries – noting that developing countries are mostly looking for direct financing options; and
  2. UNFCCC prescriptiveness versus a general desire for increased national flexibility.

This suggests that leadership will more likely be inspired from a ‘bottom up’ rather than ‘top down’ multilateral approach. This is already evident by the growing number of significant carbon markets emerging around the world (ie California and China). Indeed, some of the major INDCs (USA, EU) have played down the role of international markets and offsets in their efforts to reduce emissions.

There will inevitably be a heightened focus on the need for developed countries to fulfil previous funding pledges (ie the GCF funding envelope) as well as identify new and additional funding sources – some of which could possibly be hypothecated to technology development and transfer. There will likely be a strengthening of formal linkages between the technology and finance mechanisms which currently operate independently of each other.

Section G of the Geneva Text (ie the negotiating text for the 2015 Agreement) currently deals with technology transfer and development (noting that the sequencing and format of this document will likely change for Paris). This section is probably considered the least problematic by Parties in that the Technology Mechanism has only recently been operationalised with new institutional arrangements in place. There is almost universal recognition by Parties that these bodies need time to mature.

While the breadth of issues under the technology agenda have been briefly discussed in a previous Insight, there remain two substantive issues to be resolved at COP21:

  1. Many developing countries are arguing to establish a new framework for enhanced action on technology development and transfer under the 2015 agreement (including intellectual property rights (IPR)) in addition to the existing mechanism
  2. the adoption of a technology goal.

It is not exactly clear how such a technology goal could be defined but it is clearly aimed at ensuring that developed countries continue to resource the technology needs of developing countries. Similarly, the proposal for a new framework appears as an insurance policy to ensure the adequacy of servicing developing country technology needs, presumably including any costs of accessing IPR. This latter issue remains a red-line issue (ie non-negotiable) for the United States and many other developed countries. It is worth noting that both the World Intellectual Property Organization (WIPO) and the European Patent Office (EPO) strongly consider access to IPR as neither cost prohibitive nor a barrier to technology transfer to developing countries.

Closing observations

Much of the language to be adopted in the new Agreement will remain of a fairly generic nature without the identification of either specific options or preferences such as for ESTs. The detail accompanying the operationalisation of whatever is agreed to in Paris at COP21 will however be fiercely negotiated in the period 2016-2020 prior to the Agreement entering into force. This period will be just as important, if not more so, than the Paris Agreement itself.

CCS will once again re-appear on the CDM agenda in 2016 to resolve two outstanding issues on

  1. transboundary movement of CO2, and
  2. potential establishment of a global reserve of offsets.

The Institute remains committed to being the primary advocating voice on CCS matters in the UNFCCC.

Keywords: Bonn Insight series, Bonn, Insight, Insight series, COP21, Paris, UNFCCC Mark Bonner

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