Bridges Weekly Trade News Digest • Volume 10 • Number 39 • 22nd November 2006

Nairobi Climate Meeting Focuses On Future Climate Action, Adaptation Needs

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Amid rising greenhouse gas emissions and a heightened focus on the economic costs of global warming, a two-week long UN climate change conference in Nairobi left both government delegates and civil society representatives with the feeling that they had accomplished little.

The UN Climate Change Conference - Nairobi 2006, encompassing the twelfth meeting of the Conference of the Parties (COP-12) of the UN Framework Convention on Climate Change (UNFCCC) and the second meeting of the parties to the Kyoto Protocol (COP/MOP-2), was held from 6-17 November.

Given the location of the conference — it was the first such climate conference to be held in sub-Saharan Africa — much of the focus was on adaptation and on the difficulties African countries are already facing as a result of climate change. Outgoing UN Secretary-General Kofi Annan put his weight behind calls for concrete action by announcing a new UN multi-agency Nairobi Framework to secure additional funding for clean energy in African countries.

Future action to combat climate change, especially after the Kyoto Protocol’s emissions reduction requirements expire in 2012, was extensively discussed at the meeting. Delegates also considered the flexible mechanisms under which countries can fund emissions reduction projects abroad to offset some of their own reduction obligations.

Multi-track approach for the post-Kyoto regime

Discussions on future action took place on several tracks, the broadest being a "Dialogue on long-term cooperative action to address climate change by enhancing implementation of the Convention." The second workshop of this ongoing dialogue consisted of presentations and discussions on market-based opportunities, adaptation, and the effective use of technology. All parties to the UNFCCC participate in the dialogue, including countries that have rejected the Kyoto Protocol, such as the US and Australia.

A working group that focuses on a post-2012 regime for Kyoto Protocol parties also continued talks in Nairobi. Participants agreed to a plan of work, but did not set dates for how to wrap up these talks as demanded by the developing countries. Instead, they simply underscored the need for an "energetic and timely pursuit" of the work programme. Parties could not agree on a suggestion by the EU and Norway to set an ‘aspirational’ long-term goal for the Kyoto Protocol as a whole, such as target ceilings for temperature increase or greenhouse gas concentrations in the atmosphere.

Certain ‘Annex I countries’ — the developed countries that have committed to binding emissions reduction objectives — insisted that future targets needed to reflect the range of options available to parties in order to ensure that they were achievable. Furthermore, they argued that in order to be effective, a future regime would require a broad commitment to emissions reduction from all parties — developed and developing countries alike.

Delegates decided to persist with the "multi-track" approach agreed at last year’s conference. Accordingly, the ‘Ad Hoc Working Group on Further Commitments for Annex I Parties’ is set to focus on three aspects: analysis of mitigation potential and ranges of emission reduction objectives; analysis of possible means to achieve mitigation objectives; and consideration of further commitments.

In particular, the future work on mitigation could have crucial implications for how action under the climate regime could relate to initiatives in other policy fora that relate directly or indirectly to global production and competitiveness.

Also on the agenda was a "review of the Protocol." This issue was contentious because the review provides a signal for future action. The review could conceivably lead to the conclusion that in order for the Protocol to be effective, all countries need to make emissions reduction commitments — something emerging developing countries are resisting to do, especially until they see developed countries show leadership in terms of their own action. Many developed countries on the other hand want rapidly growing developed countries to take on commitments of their own. In the end, countries agreed to hold a second review in 2008, which they stressed "shall not lead to new commitments for any party."

Meanwhile, both environmental groups and the private sector are looking for speedier action. Industry groups including the World Business Council for Sustainable Development (WBCSD) called upon governments to quickly agree on a policy framework for the post- 2012 period, preferably by 2008, in order to give them longer-term certainty for investment decisions.

Private sector concerns were particularly based on the security of investments in the carbon markets and projects to reduce emissions, both of which stand to expand with a clear framework for the years beyond 2012.

French PM calls for extra tariffs on non-parties post-2012

While the conference was underway in Nairobi, French Prime Minister Dominique de Villepin made headlines around the world on 13 November by suggesting that countries that do not sign up to a post-2012 international treaty on climate change could potentially be made to face extra tariffs on their industrial exports. Countries like the US and China, he said, should not be allowed to benefit from efforts to reduce climate change without having to shoulder some of the costs or suffer from any related loss in competitiveness.

"Europe has to use all its weight to stand up to this sort of environmental dumping," de Villepin added, saying that he would encourage EU member states to examine the "principle of a carbon tax on the import of industrial products from countries that refuse to commit themselves to the Kyoto Protocol after 2012." The French government is expected to make concrete proposals about how such a tax might work by March 2007.

The controversial announcement came after a French government committee included a proposal for an EU carbon import tax in a newly-published national strategy for sustainable development. The strategy’s other recommendations called for a coal tax and a 10-percent increase in taxation of industrial and air transport pollution from 1 January 2008.

Officials from countries that would be the target of these measures have dismissed the French government’s proposal as unlikely to pass muster with the WTO.

Members of the European Parliament have previously issued similar calls for ‘border tax adjustments’ (see BRIDGES Trade BioRes, 18 March 2005).

No precedent exists for how the WTO or the climate change regime would treat a border tax adjustment of this kind. Indeed, even the Kyoto Protocol provides that parties "shall strive to implement policies and measures …in such a way as to minimise adverse effects, including… effects on international trade."

Some experts suggest that a unilaterally-imposed carbon tax on imports would probably be illegal under WTO rules, which prevent foreign products from being treated differently from domestic ones.

However, opinions are divided on whether WTO law permits border tax adjustments for taxable inputs that are not physically incorporated into the final traded product. For instance, it is not clear if an import tax could vary based on the amount of carbon dioxide emitted during a good’s production — WTO rules would have to be interpreted in a way that considers products not to be ‘like’ each other based on their carbon footprints.

Richard Tarasofsky, who heads the Energy, Environment, and Development Programme at Chatham House, said that another key issue would be whether a border tax adjustment could be deemed justifiable under GATT Article XX, which describes the circumstances under which Members may deviate from their WTO obligations. They may do so, for instance, to safeguard exhaustible natural resources and public health.

The introductory paragraph, or ‘chapeau,’ of this article specifies that such measures are permitted so long as they "are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination… or a disguised restriction on international trade." Tarasofsky suggested that an internationally agreed measure would be harder to dismiss as arbitrary or disguised.

"Any multilateral cover for such [border tax] adjustments, for example, through setting criteria in the next Kyoto agreement, might help meet the thresholds in the chapeau of Article XX," he said.

Meeting documents are available at http://unfccc.int/meetings/cop_12/items/3754.php.

Daily reporting was provided by IISD Linkages, http://www.iisd.ca/climate/cop12/.

ICTSD reporting; EARTH NEGOTIATIONS BULLETIN Vol. 12 No. 318, 20 November 2006; "Climate conference settles on next steps to negotiate future emissions cuts," ASSOCIATED PRESS, 17 November 2006; "Nairobi climate talks end in deal," BBC NEWS, 17 November 2006; "Little progress at climate summit," THE GUARDIAN, 18 November 2006; "French PM Proposes Taxing States that Shun Kyoto," REUTERS, 14 November 2006; "French PM wants to hit Canada with carbon tax," GLOBE AND MAIL, 15 November 2006.