Much of the mystery clouding week one is due to the high number of closed-door contact groups, informal sessions, and “indabas” - Zulu-inspired informal discussions encouraged by COP President Maite Nkoana-Mashabane - that are taking place on a wide range of issues. Both the media and delegates have said it has been difficult to keep track of the many discussions, let alone get a read on how the talks are progressing.

Informally, several delegates have expressed concern that while there has been movement on many unresolved details pushed forward from Panama, macro issues - most notably the future of the Kyoto Protocol - are advancing too slowly to be resolved before the talks come to a close on Friday.

Kyoto remains foggy at best

Last week’s discussions on a second commitment period of the Kyoto Protocol under the Ad Hoc Working Group on Further Commitments for Annex I Parties under the Kyoto Protocol (AWG-KP) were intense, KP Chair Adrian Macey of New Zealand noted during Saturday’s plenary, with some core issues having “crystallised.” While the talks to date have shown a “considerable amount of common ground” regarding the Protocol’s continuity, commitments, and future certainty, Macey also acknowledged that divergence among the Parties still remains “significant. ”

Macey thanked Parties on Saturday for discussing issues that were “outside their comfort zone.” However, he cautioned the Parties against locking in a deal with low ambitions, urging instead that any second commitment period - should there even be one - be for a period of time that is worthwhile.

What is crucial for moving forward on Kyoto, he added, is that the Protocol be part of a whole Durban package - a package that will undoubtedly need to include a deal on mobilising the Green Climate Fund.

Green Climate Fund talks look positive

Despite complaints from critics that Washington was blocking the process on establishing a deal on the Green Climate Fund - agreed to at COP 15 in Copenhagen - talks in Durban have made some forward movement. Key Parties - including the US, Australia, and the EU - have indicated that the “middle ground” report that Fund Transitional Committee Co-Chair Trevor Manuel of South Africa introduced on Wednesday could be agreed to, as long as it is a part of a more balanced package.

The Transitional Committee had hoped to conclude talks on the Fund’s structure - such as establishing the 24-member board, deciding on a host country, and setting up regular meetings - in October. However, the matter was pushed back to Durban after hitting roadblocks on a range of outstanding issues.

A key sticking point for the US continues to be restrictions on who can contribute to the fund. Washington says it is crucial for the private sector to be able to contribute to the fund, while some developing countries are concerned about an overreliance on the private sector. The US also said on Friday that the Fund’s governing instrument should be approved in Durban.

The Fund was discussed in contact groups and informal consultations on Saturday, with several countries voicing concerns over the legal framework that will govern the  Fund and its formal relationship to the COP. Developing countries are looking for reassurance that there will be some safety mechanism in place, should Annex I countires be unable to live up to their commitments. Meanwhile, Japan suggested that this tricky issue could be addressed later by the Board, rather than having to establish the relationship beforehand.

The EU wrapped up the discussion on Saturday, saying that they were confident they could agree on the draft instrument and that the Board should start work as soon as possible.

IP on back burner

While the past week’s negotiations have devoted some attention to the issue of technology transfer, intellectual property issues related to a range of climate change issues have been largely ignored.  Even the discussions on technology transfer have failed to make much headway, with disagreements emerging on multiple fronts.

Last year’s Cancun Agreements established a Technology Mechanism intended “to facilitate the implementation of enhanced action on technology development and transfer in order to support action on mitigation and adaptation to climate change.” To date, however, the relationship between the two elements of the mechanism - the Technology Executive Committee (TEC) and the Climate Technology Centre and Network (CTCN) - remains unclear. The hope for Durban was that this issue would be resolved, but talks are moving too slowly to tell.

This week, developing countries, the G77 and China, and others expressed a desire to have a clear mention of the link between the TEC and the CTCN in a decision currently being drafted at a COP contact group on the TEC. The United States, however, expectedly proposed that the CTCN not be mentioned.

This decision - based on a report presented by TEC Chair Gabriel Blanco - will also combine inputs from the COP’s subsidiary bodies, the Subsidiary Body for Implementation (SBI) and the Subsidiary Body for Scientific and Technological Advice (SBSTA), as well as the AWG-LCA contact group on technology development and transfer.

Regardless of how the relationship between the TEC and CTCN is ultimately defined, neither of these elements will be fully operational until the financing issue is resolved.  Talks on financing, which are largely dependent upon the Green Climate Fund, are still unripe at the moment.

While intellectual property concerns are linked to most key items on the Durban agenda, some observers say tackling these details on top of the array of contentious issues already on the agenda may be overwhelming.

Response measures

Several of the past week’s meetings in Durban have focused on response measures - the domestic measures taken by countries to respond to climate change. During a workshop held early last week, several countries showcased their proposals for the establishment of a forum on response measures. While some - mostly developed - countries said they only want an informal forum to be a means of exchanging information on how to address climate change, others - mostly developing countries - argued that they would like to see the establishment of a permanent forum that offers a way of addressing substantial issues, such as the potential trade impacts of response measures.

Meanwhile, another forum was held on the impact of the implementation of response measures under both the SBI and the SBSTA. Several informal group meetings also took place, in which members drafted and considered a text on the response measures forum.

While no consensus was reached on the issue, it is worth following closely. Even if purely procedural in nature, many developing countries say the issue is key for them in moving the wider negotiations moving forward.

Politics more sensitive than usual

How the rest of Durban will unfold remains largely contingent on the US and China. Washington has been panned in recent years for its slowly diminishing commitment to climate change, especially given President Barack Obama’s post-election pledge to “engage vigorously” in the UN talks. Contrary to that promise, however, the Obama Administration’s presence has instead been markedly cautious.

“Some countries want to stipulate up-front that [post-2020 initiatives] should be in the form of a legally-binding agreement,” said Jonathan Pershing, US Deputy Special Envoy for Climate Change on Monday. “We want to know more about the content of such an agreement before we commit to a particular legal form. One thing I would underscore about any post-2020 accord is that the only way it could be effective - and garner broad support - is if it applies fully to all significant players.”

Washington’s presence at this year’s talks has been conspicuously small, with not a single member of Congress - or any other major political figures - in attendance for the first time in years.

The role of the BRICS (Brazil, Russia, India, China, and South Africa) countries has also painted much of the speculation regarding Durban‘s ultimate outcome. In particular, the future of Kyoto appears to hinge upon major developing country emitters signing on to some form of binding commitment to reduce emissions.

Some crack have already emerged over the first week among traditional political groupings, with rumours that poor countries that are particularly vulnerable to climate change were becoming frustrated with their fellow G77 and China members who were blocking movement on contentious issues that could help move Kyoto forward.

Speaking to reporters on Friday, Su Wei, China’s lead negotiator, surprised many by saying that Beijing may agree to binding emissions cuts.

“We do not rule out the possibility of legally binding,” he said in English. “It is possible for us, but it depends on the negotiations.”

It is unclear whether the move is a reaction to pressure from fellow G77 and China members or, simply, an attempt to elicit a response from Washington. Climate watchers will certainly be waiting to see how this move by China colours the discussions in week two as senior ministers arrive.

ICTSD Reporting.

One word can sum up the outlook for the Durban Conference of the Parties (COP) this year: uncertainty. But that may not be all bad. Last year’s meeting in Cancun, Mexico showed us all that sometimes low expectations may be the best way to get results at climate negotiations. Jump back a year further to 2009, when many observers said that parties meeting in Copenhagen, Denmark, were poised to deliver a new binding treaty for climate change cooperation. Instead, great expectations resulted in a mighty flop.

Disappointment in Copenhagen cost many global leaders a good deal of political capital – leaving them unwilling to make such a gamble the following year. But whether pre-COP doldrums prove to be a magic formula for lifting the fog at UNFCCC COPs remains to be seen. The show bill for this year includes several overview agendas and an array of unfinished texts, making it impossible to tell how this year’s climate spectacle will unfold.

Future of Kyoto up in the air

By all accounts, the headliner at this year’s COP is the Kyoto Protocol. Signed in 1997, the Protocol’s first and, to date, only period of implementation – “commitment period” in climate parlance – began in 2008 and will end in 2012. The Protocol envisages a second commitment period, and countries have spent over a decade negotiating the finer details of what the future of the Protocol would be. An array of influencing elements has derailed progress on the next term’s negotiations, and only a handful of redeeming qualities may keep the agreement alive.

One glaring shortcoming of Kyoto is the failure of the United States to ratify, despite having negotiated and signed the agreement alongside all other signatories. The US is the largest historical emitter and held the record for highest annual emissions until 2009, when it was surpassed by China. Its absence from the game is a major imbalance in the equity of the multilateral climate system, to say the least. But more importantly, considering the US’ contribution to the problem, their absence from full participation in Kyoto – or any other multilateral climate agreement, for that matter – will ensure that the problem remains inadequately addressed. Solving the global problem, according to scientists and economists, requires the participation of all major players. The US has adamantly and clearly refused to join the Kyoto Protocol, and therefore the new round of negotiations launched at Bali in 2007 were intended, in part, as an “on-ramp” for their participation.

In addition, the new round, known as the negotiation on Long-term Cooperative Action (LCA) was a way to a substantially increase the role of the other big players: the major economies among the developing countries – which have no commitments under the Protocol – are now at the top of the list of carbon emitters. However, the LCA process has sent Kyoto into a tail spin, because many developed countries would now like to shelve the old agreement and replace it with something based on new rules and principles. The developing countries, negotiating primarily as the G77 and China, hold tight to the overarching framework of the UNFCCC and insist on a new commitment period for Kyoto. One reason is because Kyoto is premised on principles and rules that developing countries consider to be fair and equitable, such as developed countries taking the lead in carbon emissions reductions and the respect for the former’s overriding development concerns. The sum of these two components specifically translates in the Convention to financial and economic support for developing countries’ climate change mitigation and adaptation activities. For developing countries the LCA would be a complementary agreement to the Kyoto Protocol, rather than a replacement.

That said, Japan and Russia indicated this past year that they do not intend to sign on to a second period for Kyoto. However, a special voting rule and a handful of tools created within the Protocol may still lead to the survival of the agreement. These tools include the “flexibility mechanisms” – such as the Clean Development Mechanism, Joint Implementation, and the Emissions Trading Schemes – that were created to help developed countries to meet their mitigation commitments; perhaps more importantly, these tools are the primary platform upon which the current global carbon market is based. An end to the Protocol could, in theory, topple the multi-billion dollar market. But a little-talked-about voting rule – which provides that in the absence of full agreement a three quarter majority vote could suffice to trigger a second commitment period – may just prove to be enough to hold Kyoto together for now.

The fact of the matter is that, while the LCA has generated a number of key agreements on certain aspects of its mandate, it has not concluded talks on emissions reductions, which is at the heart of solving the climate problem. Until it does, the Kyoto Protocol is the only concrete agreement on emissions reductions.

Trade issues loom ever larger on the horizon

Recent years of negotiation have seen a steady rise in discussions on the potential role of trade measures on the impacts of and responses to climate change. In particular, Durban will host the second part of a special “forum” on the impacts of domestic measures taken to combat climate change upon other countries. “Response measures,” as they are known in the negotiations, have been discussed in different ways for years, but have primarily been associated with the possible harm to oil-producing economies that may arise from a potential global decrease in oil consumption. A rise in domestic protectionist measures and debates on designing policies and measures with global trade implications, nonetheless, have pushed the issue closer to the top of the negotiating agenda for several countries.

The response measures forum began in Bonn at the mid-year negotiation sessions in June and is scheduled to conclude in Durban. Its mandate is to put together a work programme to address the issue and consider the possible establishment of a permanent forum. Considering the fact that no venue currently exists for countries to present information, exchange views, and consider solutions to potential challenges that result from the implementation of burgeoning climate measures, the proposition of a permanent forum is a particularly interesting prospect.

The WTO has its dispute settlement body to consider instances where such measures might violate trade rules. But affected countries can only exercise this option after the measure has been adopted, rather than provide a potential instance for conflict avoidance. In addition, the WTO only addresses the violation of international trade rules and would not consider the broad spectrum of potential consequences to economic development, impacts to the environment – including evaluation of the actual mitigation benefits – or impacts on society. These sustainable development dimensions are protected under the UNFCCC, and such a forum would provide a concrete process for reducing negative and maximising positive impacts. The response measure forum takes place under the auspices of the Subsidiary Body for Implementation, one of the two principle negotiating bodies of the Convention.

LCA track weighed down by trade concerns

Meanwhile, under the Ad-hoc Working Group on Long-term Cooperative Action, several trade-related discussions continue. The first is related to the question of competitiveness, where some countries fear that action to reduce climate emissions will negatively impact their companies’ and industrial sectors’ competitiveness in international markets. In essence, many developed countries say they will be at a disadvantage if some countries with competing industries are required to do less than others to mitigate emissions at a global level. For their part, developing countries have concerns about the potential use of trade measures by developed countries attempting to “level the playing field.” Poor countries argue that such measures could impact their economic and sustainable development. To pre-empt the use of such measures, they are insisting that language prohibiting the use of unilateral measures to address climate change be included in the new agreement. Similar language is included in a draft text on response measures under the LCA. These discussions are taking place under a sub-category known as the “shared vision,” where parties also discuss the composite emission cuts for the world and how the total agreement balances out.

In a separate sub-group on “sectoral approaches” to mitigation, the topics of agriculture and bunker fuels – dirty fuel used in shipping and aviation – are back on the table in a similar form to what was considered and then dropped in Cancun. The trade implications remain an obvious concern under both of these topics and are reflected in references in the draft texts. The agriculture text proposes the creation of a work programme on both mitigation and adaptation in the agriculture sector. Meanwhile, the bunkers discussion is oriented more toward whether to advance discussions on climate change issues related to global transport under the UNFCCC, rather than under the International Maritime Organization (IMO) and International Civil Aviation Organization (ICAO), as is currently the case.

Finally, while the role of intellectual property rights in the deployment and transfer of technologies for climate change remains a concern for many countries, the issue is far from resolved. There is little indication from inter-sessional negotiations or meetings that Durban is poised to make any decisions on this topic, which is among the most contentious subjects under the technology negotiations. It may, nevertheless, get some traction.

Potential advances

While the Kyoto issue will be hogging the spotlight in Durban, there will still be many other decisions taken in an array of negotiating branches. For example, forward movement is expected as the Green Climate Fund is operationalised and as it gears up for disbursement. With this issue resolved, the new Technology Mechanism will then have access to financing for its work on assessments, capacity building, and other substantive topics. Progress is also expected on the adaptation front, with the new strategy agreed to in Cancun taking greater shape. This strategy is also poised to receive financing for initiatives such as National Adaptation Plans.

Discussions on mitigation in the search for a new agreement are unlikely to produce any major results. However, some progress could take place on the measuring, reporting, and verification of national actions, as well as on International Consultation and Analysis – the two developing issues that would constitute some form of compliance for a future regime. Currently, movement on both these topics is slow, almost to the point of being imperceptible – a fact that is frustrating to many countries and observers in light of the conspicuous gravity of the global climate situation.

Whether success in Cancun was reaped by the low expectations, the brilliant diplomacy by the COP president, or, simply, the tranquil atmosphere brought on by warm breezes and palm trees – then Durban is as prepared as any host could be. If one can take anything from the Cancun experience, it is not to be swayed by early reports of a deadlock. These two weeks set aside for tedious negotiations can easily change at any time, for either better or worse; the real answer will only be found after the dust settles on 10 December.

When: 5 and 6 December, 2011

Venue: North Beach Hotel (Durban, South Africa)

More information: www.ictsdclimate.org

Purpose:

It is with the aim of generating proposals for fostering strong multilateral regimes on trade and climate change and promoting a transition to a low-carbon economy and a sustainable energy future that ICTSD, the World Trade Organization (WTO) and the Department of Trade and Industry (DTI) of the Republic of South Africa are co-organising The Durban Trade and Climate Change Symposium, to take place on 5 and 6 December 2011 in parallel to the 17th Conference of the Parties (COP 17) and the 7th Conference of the Parties serving as the Meeting of the Parties to the Kyoto Protocol (CMP 7) of the United Nations Conference on Climate Change (UNFCCC) in Durban, South Africa.

This initiative flows directly from ICTSD’s primary objective - to empower stakeholders in the trade policy and sustainable development domain through providing a forum to generate innovative thinking, analysis and dialogues on the pressing issues of the day.

The broad topics for the Symposium will respond to the principal issues at the nexus of trade policy, market approaches and climate change: market mechanisms such as emission trading schemes and sectoral market mechanisms; carbon leakage and competitiveness; intellectual property and technology transfer; climate-friendly goods and services; agriculture; biofuels; financing mechanisms; the linkages between trade, poverty and climate change; fossil fuels subsidies; transportation and bunker fuels; emerging economies; investment; standards; fisheries; energy and natural resources.

ICTSD already has a long history of working on specific aspects of these linkages. For this Symposium, we envisage a series of panels that will involve a diversity of stakeholders in a constructive, forward-looking dialogue on a set of principles and solutions to ensure the multilateral climate and trade regimes and institutional frameworks are properly equipped and harnessed to deliver on the challenges before them, for Durban and beyond.

The Symposium will provide a space for key voices such as climate delegates, academics, policy researchers and analysts, representatives from IGOs and NGOs to showcase cutting edge analysis of trade, market approaches, climate change and development issues, as well as for an open, multi-stakeholder discussion on the future of the linkages between the multilateral trade and climate change regimes. It would also support other key ICTSD objectives: building and strengthening informal networks of leading institutions from developed and developing countries interested in strengthening policy-making on those issues, and fostering an exchange of views with other knowledge communities.
For more information on sessions, videos and photos, please visit: ww.ictsdclimate.org

As these competitiveness and carbon leakage concerns seem to be forming a bottleneck in the UNFCCC negotiations, understanding them is of crucial importance. At the same time, response measures addressing these concerns can have large trade effects, and systemically speaking, may test the limits of the WTO, its dispute settlement and negotiation process. It is essential that the views of all different stakeholders are heard and understood. The first part of this roundtable will address these needs.

In the second part of the roundtable, response measures and, in particular, their effects on developing countries will be discussed. New ICTSD research focusing, in particular, on border carbon measures will be presented on this topic.

This Roundtable will take place at the WTO, Centre William Rappard, Room E. We would be grateful if you could confirm your interest to <ncubilla@ictsd.ch> by the 18th of October. Timely registration will be necessary in order to ensure your access to the venue.

Please do not hesitate to contact us with any questions or comments. We hope you are able to join us and look forward to welcoming you.

In the context of international trade, some countries are worried that by implementing stringent climate change policies they will have to compete with exports from countries where costs of production may be lowered as a result of the absence of mandatory emissions reduction obligations on producers. These concerns have prompted calls within industry as well as by politicians for the introduction of measures, including trade measures, to offset competitive imbalances and level the playing field vis-à-vis “climate free riders”. Rhetoric over the use of border tax adjustments and measures with similar effects has particularly been prominent in this regard.

China is poised to weigh heavily on the process and outcome of these debates through its domestic policies and modalities of its participation in the crafting of multilateral regulatory frameworks. In that context, a number of opportunities and challenges for sustainable development arise for China and the international community at large.

This collection of papers is meant to bring together views and perspectives from a wide range of experts and analysts both within China and internationally to contribute to the debate on issues in the trade– climate change relationship that may impact on global competitiveness, with a particular focus on the role of China. Chapter 1 provides an overview of issues in the WTO-Kyoto Protocol relationship that pertain to competitiveness. It situates the debate on the impact of climate change measures undertaken by Annex I countries on competitiveness, discusses approaches being considered in response to such competitiveness concerns and highlights some of the key questions of particular concern to China.

The second chapter presents current policies related to climate change in China and examines key elements of the recently adopted National Climate Change Programme, including challenges that China is likely to face in its implementation. The paper also discusses most likely scenarios regarding China’s role in a future climate change regime (post-Kyoto) and the implications for global efforts to tackle climate change.

Chapter 3 provides an analysis of the effects of climate change measures adopted in OECD countries on international trade and competitiveness. The chapter presents initial empirical evidence obtained on the impact of carbon taxes and energy efficiency standards on international trade flows and competitiveness. It addresses the question of whether or not “carbon leakage” is occurring and whether China is benefiting from industrial relocation from OECD countries in energy-intensive industries. The chapter finally examines to what extent climate change policies are driving positive developments in global competitiveness.

Concerns over competitiveness were invoked by the US to justify its non-ratification of the Kyoto Protocol. Such concerns have recently been common in many Kyoto Protocol Annex I countries. This has led to a debate over the need for measures such as border tax adjustments to enable industry in countries subjected to mandatory emissions reduction obligations to insure that conditions are equal vis-à-vis countries that have not accepted similar obligations. In that context, Chapter 4 discusses initiatives being considered in the EU and the US, which may have important implications for China.

As its exports to OECD countries expand, China is bound to comply with increasingly stringent energy efficiency and other climate related standards. Moreover, Chinese exports of certain products such as energy efficient light bulbs have been subjected to anti-dumping measures in the EU. Chapter 5 examines the impact of these measures on China’s exports of electric and electronic goods and discusses how industry within China is responding to trade and climate-related policy measures. Finally, the chapter discusses how these measures may be acting as drivers for improvement in resource and energy efficiency and competitiveness in China.

Technological development is a central aspect of climate change mitigation. Access to advanced technologies, including transfer of technology, will enable developing countries to enhance their capacity to reduce their emissions of greenhouse gases and “leap-frog” in their process of development. Chapter 6 examines the question of whether or not there will be barriers related to intellectual property for developing countries to access clean energy technologies. It does so by analysing the industry structure and intellectual property implications in three clean energy sectors – solar photovoltaic, biofuels and wind energy technologies.

This paper is part of ICTSD’s Trade and Sustainable Energy series, published under its programme on Trade, Climate Change and Sustainable Energy. The programme aims to generate policy-oriented and solutions-focused knowledge on key issues at the interface between the multilateral trading system and various regimes and initiatives promoting the transition to a sustainable energy future.