n.41 May

2016

n. 41 May2016

International Climate Policy is a bi-monthly magazine aimed at providing a clear analy-sis of the worldwide evolution of both inter-national and domestic climate and energy policies, as well as the carbon market.

For questions and comments please contact: Katie Johnson – katie.johnson@feem.it

The magazine is organized into four sections focused on i) international nego-tiations and national policies, ii) European and international energy policy, iii) flexible mechanisms and developing countries, and iv) evaluation of the carbon price in the European and global markets. The infor-mation and data presented in each section are not only an update of recent events, but also an extrapolation of the quantitative implications of these events, based on a detailed analysis of academic papers and published reports. Every two months the most important proposed or applied poli-cies and actions are briefly introduced and analyzed. Each article includes boxes, figu-res, and graphs in order to provide in-depth examination and data exemplifications. All papers and reports used in the analyses are cited at the end of the relevant article.

INTERNATIONAL NEGOTIATIONS AND NATIONAL POLICIES

4. Paris Agreement: first steps toward implementation Marinella Davide

6. Coalition for Urban Transitions launched to empower cities

Katie Johnson

ENERGY POLICY

8. Impending challenges of old age for European nuclear generation

Aurora D’Aprile

10. Renewable Energy Investments as an opportunity for growth

Isabella Alloisio

12. Embarking on early climate action with cool contributions in Asia

Philipp Munzinger, Proklima International

FLEXIBLE MECHANISMS AND DEVELOPING COUNTRIES

14. Climate Cooperation in Latin America and Caribbean countries Alessandra Lazzari

16. New Adaptation Finance Gap Report 2016 released Elisa Calliari

THE CARBON MARKET

18. Carbon markets April– May 2016 Aurora D’Aprile, Marinella Davide

FEATURING

International Climate PolicyDirector: Prof. Carlo CarraroEditor: Katie S. JohnsonContributing authors: Isabella Alloisio, Aurora D’Aprile, Marinella Davide, Elisa Calliari, Katie S. Johnson, Philipp MunzingerGraphic designer: Renato Dalla Venezia

Info: info@iccgov.org

ISSN 2279-7270

A joint initiative of

In collaboration with

The first step towards the implementation of the Par-is Agreement was taken on

April 22nd when the landmark cli-mate change deal, adopted in the French capital last December, was opened for signature. To celebrate this occasion, United Nations Sec-retary General Ban Ki-moon or-ganized a day-long special event at the New York UN headquar-ters, involving a wide number of Heads of State and Government officials, as well as business rep-resentatives, youth, and civil so-ciety organizations. The Signing Ceremony represented the first official event to take place since the Paris Agreement was adopt-ed, and aimed at enhancing ac-tion toward its entry into force.

At the end of the day, 175 Parties to the UNFCCC had signed the Paris agreement. Among them were all key emitters such as United States, China, the Euro-pean Union, Russia, India, Japan and a wide number of developing nations, actually reaching a record for support in the history of inter-

national treaties. The remaining 22 countries have time until April 21, 2017 to sign the agreement.

More importantly, 15 States also deposited their instruments of ratification during the signing ceremony, whereas two others did it in the following days. These primarily include developing and small island states, accounting for 0.04% of the total global green-house gas emissions [2]. Howev-er, the double threshold imposed by the Paris Agreement requires the ratification of at least 55 Par-ties to the UNFCCC accounting for 55% of global emissions. Although there are different combinations that satisfy this threshold, both major emitters and a wide num-ber of emerging and developing countries are needed to join the agreement in order to allow it to become operative (see figure).

The ratification process of an in-ternational treaty such as the Par-is Agreement varies across coun-tries according to their domestic constitutional or legislative proce-

dures. For some of them, a quick ratification of the Agreement can represent a challenge, as for sev-eral large and middle-sized GHG emitters that need national par-liaments’ approval, or the Europe-an Union, which has to go through a long ratification process involv-ing all its 28 Member States. zthe Senate is expected to do so in the next few months [4]. Among the other key countries, the US and China, which together account for almost 40% of total emissions, pledged to ratify the agreement as early as possible in 2016 [5].

Meanwhile, negotiations resumed on Monday, May 16th in Bonn with the aim of defining the agenda for future negotiations and moving discussions forward. The two-week meeting was preceded by a Reflection note through which the president of the Paris COP21, French Environment Minister Segolene Royal, and the incom-ing president of COP22, Moroc-co’s Foreign Minister Salaheddine Mezouar, encouraged participants to shift “from a focus on negotia-

Marinella Davide

INTE

RN

ATIO

NAL

NEG

OTIA

TIO

NS

AND

NAT

ION

AL P

OLI

CIES

PARIS AGREEMENT: FIRST STEPS TOWARD IMPLEMENTATION

- 4 -

tion to a focus on implementation and cooperation” and to work on “a comprehensive, coherent and balanced manner” [6].

During the meeting, the newly es-tablished Ad Hoc Working Group on the Paris Agreement (APA) held its first session in conjunc-tion with the forty-fourth sessions of the subsidiary bodies. The three will work together in the next years to finalize decisions on issues that will be crucial for the practical implementation of the Paris Agreement by 2020, as well as for its credibility. In particular, the APA will be responsible for the definition of procedure relat-ing to NDCs, the transparency framework, the global Stocktake and the compliance/implementa-tion issues, whereas the cooper-ative mechanisms, the accounting framework for finance and tech-nological support, the IPCC role in the global stocktake and the pro-cedures of the NDC registry will be discussed within the two Sub-sidiary Bodies of the UN Frame-work Convention.

Yet technical work cannot replace political will. The momentum built in Paris and confirmed in New

York will be key in determining the effective implementation of the agreement. This is especially true when considering the particular institutional architecture, based on voluntary contributions, and its compliance system relying on shared awareness and peer pres-sure. National governments’ com-mitments and international insti-tutions’ oversight will be decisive in keeping the system on track in delivering an effective, consistent and fair global response to cli-mate change.

- 5 -

References [1] Photo: Secretary Kerry Addresses Delegates Before Signing the COP21 Climate Change Agreement on Earth Day in New York (2016) Credit: U.S. Government Works on Flickr. [2] UNFCCC (2016) Paris Agreement - Status of Ratification, UNFCCC official website [3] World Resources Institute (2016) After COP21: What Needs to Happen for the Paris Agreement to Take Effect? [4] Climate Home (2016) French Parliament passes law to ratify Paris Agreement. [5] Climate Policy Observer (2016) Commitments to sign the Paris agreement are piling up. [6] UNFCCC (2016) Taking the Paris Agreement forward. Reflections note by the President of the twenty-first session of the Conference of the Parties and the incoming President of the twenty-second session of the Conference of the Parties.

3 examples of how the Paris Agreement could take effect [3]

The Coalition for Urban Tran-sitions aims to help achieve the Paris climate goals by

making cities a focus of national economic planning, improving city access to financing for low-car-bon infrastructure, and making the economic case for climate friendly urban growth, especially in developing countries. Recent-ly launched at the Climate Action 2016 multi-stakeholder summit in Washington, D.C., it is “the first major international initiative to make the economic case for bet-ter urban development globally” [2].

Initiated by the New Climate Econ-omy, the flagship project of the Global Commission on the Econ-omy and Climate, along with C40 Cities and the WRI Ross Centre for Sustainable Cities, the Coalition is a partnership of over 20 global fi-nancial and business institutions, think tanks, city officials, and ur-ban planning experts that are com-mitted to supporting national-lev-el decision making that ensures climate action in cities is linked to broader economic planning.

Motivation for the coalition comes from recent research published by the New Climate Economy, the Compact of Mayors, and C40, which confirms that with some power and vertical and horizontal collaboration cities will be better suited to meet their climate action potential.

Beyond supporting global emis-sion reductions, The New Climate Economy’s working paper Accel-erating Low-Carbon Development in the World’s Cities [3] indicates that actions taken by cities to re-duce carbon emissions in urban areas are expected to produce a $17 trillion global economic op-portunity by 2050, based on en-ergy savings alone. Yet for cities to take steps to effectively reduce emissions, their national govern-ments must empower them, for example, by eliminating outdated national laws preventing cities from utilizing local tax revenues or borrowing money on their own, or by removing national fossil-fuel subsidies that undermine urban incentives for public transit and clean energy. The paper recom-

mends prioritizing policies and investments in public, non-motor-ized and low-emission transport, building efficiency, renewable en-ergy, and efficient waste manage-ment.

One of the key goals of the Co-alition for Urban Transitions is to encourage national govern-ments to help cities accelerate emission reductions, and in turn help achieve the Paris climate goals. As many of the barriers to city level action lie in the hands of national leaders who are key components in shaping urban de-velopment, such as ministers of finance, energy, transportation, or economy, the role of the Coalition will be to support decision-mak-ing on urbanization at the national level, linking city-level strategies with broader economic planning through economic research and in-country engagement. Accord-ing to their website [4], “The Co-alition will provide an indepen-dent, evidence based approach for thinking about ‘well managed’ ur-ban transitions to ensure that the growth of urban areas, and the ac-

Katie Johnson

- 6 -

COALITION FOR URBAN TRANSITIONS LAUNCHED TO EMPOWER CITIES

INTE

RN

ATIO

NAL

NEG

OTIA

TIO

NS

AND

NAT

ION

AL P

OLI

CIES

companying process of economic, social, and environmental trans-formation, maximizes benefits for people and the planet.”

The Coalition for Urban Transi-tions is highlighted in theC40’s Unlocking Climate Action in Meg-acities [5] report as an initiative to reduce barriers to action, as it aims to improve decision making on urban transitions at the nation-al level, linking city-level strate-gies with broader economic plan-ning. The coalition specifically addresses the first barrier identi-fied in the report: a lack of vertical and horizontal co-ordination be-tween city, regional, and national governments.

The report is an analysis of the barriers limiting the ambition of more than 80 of the world’s largest cities to address climate change, with “innovative and rep-licable solutions to address and overcome these challenges.” It was released by C40 just ahead of Climate Action 2016 and pro-vides a deeper understanding of the barriers holding mayors back, a vital step in overcoming obsta-cles and realizing the scale of ac-tion needed to meet international climate goals, such as the 1.50C degree target of the Paris Agree-ment.

Unlocking Climate Action in Meg-acities builds upon C40’s Poten-tial for Climate Action [6] report, launched at COP 21 in Paris in De-cember 2015, which identified nu-merous high-impact projects and policies that cities could imple-ment to save 450 MtCO2 by 2020. The report found that there is po-tential to expand cities’ activities, programs, procurements, and policies, but this potential is lim-ited by many challenges, of which 75% require support from part-ners (i.e. national governments or the private sector) as they cannot be overcome unilaterally by cit-ies. These challenges primarily include resources and funding, political leadership, and institu-tional, regulatory, and legislative challenges.

Unlocking Climate Action in Meg-acities provides some responses to the key barriers to effective city action on climate change: estab-lishing a new paradigm of govern-ment collaboration via better ver-tical and horizontal coordination (e.g. Coalition for Urban transi-tions); enabling cities to lead from the front with better internal city operation and capacity; resetting the climate narrative by present-ing the case for climate action; unlocking the power of citizens by understanding and engaging ur-ban stakeholders; building collab-oration between the private sector and cities; and improving the flow of finance to cities to support cli-mate action [5].

The Compact of Mayor’s report, The Power Behind the Paris Agreement [7] was also released in the lead up to Climate Action 2016, confirming that where cit-ies have the power to act, they reportedly take 30% more action, and that even more action to re-duce greenhouse gases can be achieved by identifying and over-coming the barriers to action identified in the C40 analysis, Un-locking Climate Action in Megac-ities. The report finds that when cities are empowered to work with other levels of government and the private sector, their potential to realize climate protection ben-efits is even greater. Giving cities more power yields more action, yet this could be further augment-ed by addressing barriers that im-pede action through, for example, collaboration with other levels of government or the private sector. Research shows that rates of ac-tion increase with increasing lev-els of power or local control, and that cities must work with other stakeholders to address the fi-nancial, political, institutional, regulatory and legislative chal-lenges to achieve a low carbon fu-ture, as they manifest the greatest opportunity for efficiency and lead the way for innovation, economic growth, and progress in advancing climate commitments [7].

An example of cities taking more action can been seen in the build-ing sector - the source of most

- 7 -

GHG emissions, as well as the sector where cities have the great-est ability to make change, as cit-ies have a large amount of control and limited number of barriers. Cities can take 25-30% more ac-tions with additional power in the case of commercial buildings, and even more if additional barriers are addressed. While power is a significant factor, lowering oth-er barriers can also help cities achieve their greatest potential, especially with the support of na-tional governments [7].

The Coalition for Urban Transitions is an attempt to address some of the barriers and implement some of the solutions suggested in the recent research on climate action in cities. The launch of the new co-alition and release of the C40 and Compact of Mayor’s reports follow the Paris City Hall Declaration an-nounced at the Climate Summit for Local Leaders during COP21, where city and regional leaders committed, amongst other things, to engage in partnerships to en-hance cooperation and capaci-ty-building programs, scale-up climate change solutions, develop metrics and promote innovative finance mechanisms and invest-ments in low-emission projects – goals directly aligned with the ob-jectives of the Coalition for Urban Transitions.

References [1] Photo: Vincenzo di Giorgi (2015) Photo. Upsplash. [2] C40 Cities (2016) Press Release: Major coalition launched to make economic case for better cities. [3] The New Climate Economy (2015) Accelerating Low-Carbon Develop-ment in the World’s Cities. [4] The Coalition for Urban Transi-tions (2016) Website. [5] C40 Cities (2016) Unlocking Cli-mate Action in Megacities. [6] C40 & ARUP (2015) Potential for Climate Action. [7] Compact of Mayors & C40 Cities (2016) The Power Behind the Paris Agreement.

ENER

GY

POLI

CY

IMPENDING CHALLENGES OF OLD AGE FOR EUROPEAN NUCLEAR GENERATION

Nuclear has been an im-portant component of the European energy strategy

for several decades. It currently accounts for around 28 percent of the EU domestic production of energy, and for about half of low carbon electricity [2]. Its features provide security of energy supply and reduce EU reliance on fossil fuel and energy imports. However, it also entails signif-icant drawbacks, mainly re-lated to public safety risks in the case of accidents and the disposal of nuclear waste. After the Fukushima Daiichi ac-cident in Japan in 2011, preven-tion and response systems came under the spotlight all over the world. In the European Union, Germany decided to pursue a pro-gressive phase out by 2022 and stress tests were carried out at nuclear power plants in all Mem-ber States in order to improve the protection against extreme natu-ral events and reinforce the ability to respond to emergency situa-tions.

An essential overview of the cur-rent status of nuclear power gen-eration in Europe, and of what future is in store for the indus-try, was provided by the Europe-an Commission with the recent Nuclear Illustrative Programme (PINC). It is the first report since the Fukushima disaster (the pre-vious PINC study dates back to 2008), focusing on the invest-ments in post-Fukushima safety upgrades and on the financing needs related to nuclear power plants’ decommissioning and the management of radioactive waste and spent fuel.

Key highlights of the study con-cern the so called back-end of the nuclear fuel cycle, that is the whole process including tempo-rary storage reprocessing and recycling before wastes are dis-posed. Europe holds one of the most ageing nuclear plant fleets in the world, with the average age approaching 30 years, and ques-tions about long term operation (LTO) and/or replacement of the existing capacity are gradually be-

coming more urgent.

Currently there are 129 nucle-ar power reactors in operation with a total capacity of 120 GWe, located in 14 EU Member States (see map). According to the study, around 90 percent of the existing reactors would be shut down by 2030. When cost-effective, it is possible to extend the original-ly designed lifetime of a nuclear plant by 10 to 20 years, by under-going a Long Term Operation (LTO) process granted case-by-case by national authorities and including safety upgrades, modernization or replacement of equipment and components. The Commission es-timated the investment needs in LTO for the period 2015-2050 at around 47 billion euros. With or without long term operation pro-grams, 90 percent of the existing nuclear electricity production ca-pacity is to be replaced by 2050 [3]. The current situation shows clearly the two key areas of atten-tion for European nuclear genera-tion in the coming years. First, the strategy and investment needed

Aurora D’Aprile

- 8 -

many and United Kingdom), only three have been completely de-commissioned (all in Germany). There are 147 reactors in shut-down mode worldwide, but only 13 have been completely decom-missioned (in addition to those in Germany), all in the United States.

According to the study, decom-missioning activities and man-agement of radioactive waste and spent fuel will cost around 253 bil-lion euros, of which 123 billion for decommissioning and 130 billion for waste management (includ-ing deep geological disposal). A significant gap between projected and available financial resources emerged from the EU Commis-sion’s study, as operators’ ded-icated assets in 2014 amounted to around 133 billion euros, only 52 percent of the total estimated decommissioning and waste man-agement costs.

The second issue appears chal-lenging as well. The PINC study foresees that EU nuclear gener-ation capacity will remain stable at between 95 and 105 GWe by 2050, with small oscillations (see graph). To maintain these capac-ity levels, by progressively replac-ing most of the existing nuclear plants after LTO and shut-downs, investments between EUR 350 and 450 billion will be needed until 2050. Currently four new reactors are under construction in France, Slovakia and Finland, while Po-land, Hungary, Czech Republic, Slovakia, Bulgaria, Romania and Lithuania are considering building plans.

References [1] Photo: Simon Ingram (2014) Dungeness Nuclear Power Station, UK. [2] European Commission (2016) Nuclear Illustrative Programme, Staff Working Document. [3] European Commission (2016) Nuclear Illustrative Programme. [4] Map produced by Carbon Brief based on an extract of data from the IAEA PRIS database (2016) Nuclear power plants in Europe by capacity and operational status. [5] European Commission (2016) Projection of nuclear installed capacity EU28 2015-2050. Nuclear Illustrative Programme, Staff Working Document.

- 9 -

Nuclear power plants in Europe by capacity and operational status [4]

to properly manage and dispose of the increasing amount of waste and spent fuel (some 122,000 m3 of radioactive waste is generated every year), together with those necessary to complete the de-commissioning of the shut-down facilities. Second, the financial and operational planning required to replace the current installed capacity.

On the first issue, the challenges are huge. The world’s only func-tioning example of geological dis-posal facility is the Waste Isola-tion Pilot Plant in Carlsbad, New Mexico, USA. In Europe, Finland, Sweden and France have the most advanced programs for nuclear permanent disposal, but the oth-er Member States have no plans in the short term. Experience in decommissioning is also limited. Out of the 91 shut-down reactors in the EU (mostly in France, Ger-

Projection of nuclear installed capacity EU28 2015-2050 [5]

ENER

GY

POLI

CY

RENEWABLE ENERGY INVESTMENTS AS AN OPPORTUNITY FOR GROWTH

The report “Global Trends in Renewable Energy Invest-ments 2016” [2] produced

by the Frankfurt School – United Nations Environment Programme and Bloomberg New Energy Fi-nance shows the structural change under way in energy investments. In 2015, global investment in re-newables grew about 5 percent compared to the previous year and reached an all-time high of USD 286 billion. The most inter-esting trend is that, for the first time, investments in renewable energy in developing and emerg-ing economies, namely non-OECD plus Chile, Turkey and Mexico surpassed aggregate investment in developed countries (USD 156 billion, up 19 percent compared to 2014 and USD 130 billion, down 8 percent from 2014, respective-ly). China is by far the largest in-vestor in renewables growing and accounting for more than a third of the world’s investment in this sector (up 17 percent to USD 103 billion). Moreover, investment in renewables’ based electricity gen-eration capacity in 2015 has been

more than double the investment in the major fossil fuels (USD 266 bil-lion renewables against USD 130 billion for coal and gas stations).In 2015 renewables excluding large hydro made up 53.6 percent (134 GW of added capacity) of the ca-pacity installed of all other tech-nologies combined (conventional coal, gas, and nuclear). Was it not for renewables excluding large hy-dro, annual global CO2 emissions would have been an estimated 1.5 gigatonnes higher in 2015. Howev-er, renewables excluding large hy-dro still represent a small minority of the world’s total installed power capacity (about one sixth, equal to 16.2 percent) and actual electricity generated by renewable sources was 10.3 percent of global genera-tion in 2015. Coal-fired power sta-tions and other conventional pow-er plants continue to be built and have long lifetimes with impacts on CO2 emissions in the long term. According to the Report by the International Renewable Energy Agency (IRENA) “REmap: Road-map for A Renewable Energy Fu-

ture” [3], since 2011 there has been little growth in overall renewable energy capacity investment (see graph). This is more a function of falling costs for solar PV than the number of project shrinking. In the Reference Case for 2030, this trend is expected to remain unchanged. The continuing re-ductions in the cost of renewables largely offset increasing installa-tions. IRENA’s preliminary esti-mate of investment in renewable energy capacity in 2015 is around USD 360 billion, of which about USD 330 billion went to the power sector and the rest to buildings, industry and transport. Imple-menting REmap Options,1 howev-er, would require an annual invest-ment in renewable energy capacity averaging USD 770 billion per year from 2016 to 2030. Interestingly, the power sector would account for more than 80 percent of the to-tal investment needed annually to 2030, averaging USD 634 billion per year. This represents an in-crease of about 9 percent per year from 2015 levels, reaching USD 1.3 trillion in 2030. The invest-

Isabella Alloisio

- 10 -

ment need in renewable energy is largely offset by the avoided in-vestments in non-renewable power capacity that alone are estimated at USD 1.5 trillion to 2030.2 Almost half of these savings would come from not building coal-fired pow-er plants and another 30 percent from nuclear investments. IRENA concludes that doubling renew-ables in the global energy mix by 2030 is feasible and actually less expensive than not doing so. It can save up to USD 4.2 trillion annually by 2030 – 15 times more than the costs – while achieving numerous economic, social and environmen-tal goals.

The private sector is considered key to achieve the required additional investment needs, and though sig-nificant progress has been made in specific geographies and sec-tors, there is potential still to be met through public private part-nerships (PPPs). To a large extent this is due to the perceived risk

Renewable Energy Systems capacity investments 2007-2030 [5]

- 11 -

associated with renewable ener-gy investments especially in de-veloping countries. On the other hand, the share of public finance for renewable energy is not expected to increase above the current level of 15 percent [4]. Nevertheless, poli-cy makers have an important role to play in closing this gap, through ensuring enabling conditions and a stable regulatory framework. They are especially expected to use the instruments at hand and partner with international orga-nizations to mobilize private cap-ital. The availability of risk capital could be increased through PPPs between international financial institutions - such as development banks, green banks, and climate funds – and commercial banks and institutional investors.

Endnotes 1. These refer to the deployment of renewables in countries beyond the Reference Case. Remap Options were identified in consultation with countries and, if implemented globally in combination with energy-efficiency measures and access to modern energy alternatives, would boost the renewable share in the global energy mix to 30 percent by 2030. 2. These calculations do not account for savings in operating and fuel costs (Opex), but merely refer to upfront capital expenditures (Capex).

References [1] Photo: Asia Chang (2015) Bali District, Taiwan. Upsplash. [2] Frankfurt School – UNEP Centre and Bloomberg New Energy Finance (2016) Global Trends in Renewable Energy Investments 2016. [3] IRENA (2016) REmap: Roadmap for a Renewable Energy Future, 2016 Edition. [4] IRENA (2015) REthinking Energy: Renewable Energy and Climate Change. [5] Bloomberg New Energy Finance (2015) Global Trends in Clean Energy Investment.

Investment in renewable power generation capacity with REmap Options, 2016-2030 [4]

ENER

GY

POLI

CY

EMBARKING ON EARLY CLIMATE ACTION WITH COOL CONTRIBUTIONS IN ASIA

Following the Paris Agree-ment, countries are now starting to revisit their

greenhouse gas (GHG) mitiga-tion strategies and policies that build the underlying framework of their nationally determined con-tributions (NDCs). The aggregat-ed countries’ mitigation pledges shall stabilize the rise of global average temperature to well be-low 2ºC. A number of countries are now in the process of priori-tizing potential mitigation actions according to their technical mit-igation potential and other so-cio-economic factors that shall enable policy makers to make in-formed decisions about the next steps for NDC implementation. Here, the marginal costs per ton of CO2eq emission reduction serve as a key metric to rank mitigation actions and to identify ‘low-hang-ing fruits’ or ‘quick wins’. The fol-lowing article illustrates why cli-mate friendly refrigeration and air conditioning (RAC) is such a field of action that allows cost-effec-tive and socio-economically viable GHG mitigation, and thus is highly

relevant to Asia’s growing cooling needs and NDCs. With a growing population, an increasing middle class, chang-ing lifestyles and rising ambient temperatures, the global demand for cooling has grown rapidly in the last decades and is project-ed to grow at even higher rates in the years ahead. This devel-opment causes a rapid growth of GHG emissions both indirect from electricity consumption and direct from released high GWP F-gas re-frigerants (F-GHGs), and the RAC sector will contribute up to 13 per cent of global GHG emissions by 2030 [2]. Direct emissions include hydrofluorocarbons (HFCs), which are primarily used as refrigerants and for the producing of insulation foams. They are the fastest grow-ing GHGs, increasing at a rate of 10-15% per year [3]. The global warming potential (GWP) of HFCs is up to 12,400 times higher than the one of CO2 [4]. Thus, without any international intervention, the continuous growth of HFCs will be responsible for 0.1°C tem-

perature rise in 2050, increasing up to 0.5°C by 2100, and thereby neutralizing much of the expected emission reduction of other GHGs [5]. In turn, the phasedown of the production and consumption of HFCs can provide an estimated 6 -10% of the total GHG reductions by 2050 [6]. Combining this with a more progressive uptake of best available RAC technologies to maximize energy efficiency could therefore double the climate ben-efit [7]. Aware of these trends, in-ternational negotiations have also taken first steps: More than 100 Parties to the Montreal Protocol have so far endorsed HFC phase-down amendments in different fora. Meanwhile, within the UN-FCCC, close to half of the parties have mentioned HFCs in their in-tended NDCs [8].

In almost every cooling applica-tion low-cost mitigation can be realized in two ways: (i) Enhanced energy efficiency through im-proved RAC system design, such as improved refrigeration cycles, and an optimized cooling load

Philipp Munzinger

- 12

Refrigeration shall provide a sig-nificant share of GHG emission reductions in the energy sector by 2030 [12]. The enforcement of increased minimum energy per-formance standards (MEPS) al-lows for an increase in the sales of more efficient appliances in the market over time.

The RAC mitigation measures presented in the table focus on energy efficiency improvements which aim at CO2 emission reduc-tions and are planned to be imple-mented with domestic resources, given their low mitigation costs. A well-timed HFC reduction sched-ule that is implemented with a set of supporting policies could ef-fectively complement these mea-sures. Thereby, instead of risking HFC emissions neutralizing CO2 mitigation, one would maximize the climate benefits significantly. Supporting measures could, for example, include technical and financial assistance for manu-facturers in converting their RAC production to climate friendly re-frigerants (see example in India) or limiting the import and use of HFCs. Furthermore, the design and establishment of suitable re-frigerant application standards and certification schemes can build the basis for safe and effi-cient use and design of cooling systems. The GIZ PROKLIMA proj-ect Cool Contributions fighting Cli-mate Change has recently started assisting the government of Viet Nam in developing a GHG miti-gation strategy for the RAC sec-tor. This shall enable Vietnamese policy makers to shift to climate friendly cooling as one corner-stone of Viet Nam’s NDC imple-mentation.

References [1] Photo: GIZ PROKLIMA (2016) [2] 1 Green Cooling Initiative (2015) Country data map. [3] Velders, et al. (2012) Preserving Montreal Protocol Climate Benefits by Limiting HFCs. SCI. 335(6071):922-923. [4] IPCC (2014) Fifth Assessment Report. [5] Xu Y., Zaelke D., Velders G. J. M., & Ramanathan V. (2013) The role of HFCs in mitigating 21st century climate change. Atmospheric Chemistry and Physics. [6] Zaelke, Borgford-Parnell, Andersen (2015) Primer on HFCs. Institute for Governance & Sustainable Development. [7] Shah, N., Wei, M., Letschert, V. and Phadke, A. (2015) Benefits of Leapfrogging to Superefficiency and Low Global Warming Potential Refrigerants in Air Conditioning. Lawrence Berkeley National Laboratory. [8] UNFCCC (2016) INDC Portal. [9] Munzinger (2015) Climate friendly refrigeration and air conditioning and the role of NAMAs. Mitigation Momentum NAMA Status Report 2015. [10] Overview marginal abatement costs of HFC, for instance, at: Schwarz, et al. (2011) Preparatory study for a review of Regulation (EC) No 842/2006 on certain fluorinated greenhouse gases or Environmental Protection Agency (2015) Executive Summary: Global Mitigation of Non-CO2 Greenhouse Gases, 2010-2030. [11] Raitzer et al. (2015) Southeast Asia and the Economics of Climate Stabilization. Asian Development Bank. [12] MONRE (2015) Viet Nam’s Intended Nationally Determined Contribution - Technical report.

- 13

Mitigation options in the Vietnamese RAC sector [12]

management in buildings. (ii) Re-duction of fluorinated refrigerants - mainly HFCs – through proper equipment operation, repair, and disposal, and the change to refrig-erants with a significantly lower GWP. Options are, for instance, natural refrigerants such as hy-drocarbons, ammonia or carbon dioxide, which are already used in various RAC applications [9]. Us-ing energy efficient components during manufacturing of RAC appliances already is a cost-ef-fective mitigation measure with very low or negative incremen-tal costs. As natural refrigerants have similar or even higher effi-ciencies than HFCs, conversion of appliances can be realized in a similar cost-effective manner, thereby eliminating almost all di-rect emissions [10]. Policy instru-ments to promote such technol-ogy transitions on a larger scale have been proven effective in a couple of countries.

Production and sales of RAC ap-plications are growing largest in Asia, driven by the vastly growing cooling demand. The resulting GHG emissions from fossil-based electricity use and refrigerant leakage in the RAC sector are one of many reasons that push the region among the top emitters worldwide [11]. In Asia, Vietnam is one of countries to recognize the low-cost mitigation potential of the RAC sector for future NDC implementation. After having assessed a number of potential mitigation options in the Energy sector, three out of twelve priori-tized actions were selected in the RAC sector. As indicated in the table, efficiency improvements in the key areas Residential AC, Commercial AC and Residential

Mitigation potential until 2030 (MtCO2e)

Incremental cost of GHG saved (US$/tCO2e)

Planned mitigation action

Residential AC 12,4 -4.3 By 2030, the use of high efficiency air conditioners will incre-ase from 30% in the BAU to 60% of total households in urban areas and from 15% to 32% in rural households

Commercial AC 11,1 -15.5 By 2030, 3 million high efficiency air conditioners will be in use in the commercial/service sector (e.g. workplaces, hotels and restaurants) and replace traditional air conditioners

Residential refrigeration

12,4 5.8 By 2030, the use of high efficiency refrigerators will increase from 25% in the BAU to 85% of total households in urban areas and from 10% to 75% in rural households

FLEX

IBLE

MEC

HAN

ISM

S AN

D D

EVEL

OP

ING

CO

UN

TRIE

S

CLIMATE COOPERATION IN LATIN AMERICA AND CARIBBEAN COUNTRIES

Latin America and Caribbean (LAC) countries continue to stride forward in address-

ing climate change, as exempli-fied by commitments made over the last several months. At the XX Forum of the Environmental Ministries of LAC, held in March 2016, all 33 countries adopted the Cartagena Declaration [2], repre-senting a brand new engagement for regional climate cooperation, whilst without denying the differ-ent pathways to undertake actions and perform national priorities. Cartagena exemplifies the intent to improve cooperative behavior among the LAC countries as an essential pillar for taking action against climate change. It helps support decision making based on an updated Initiative for Sus-tainable Development (ILAC) by creating a Regional Cooperation Platform to advance mitigation, adaptation and loss and damage, as well as to facilitate biodiversi-ty protection, waste and chemi-cal management, cut short-lived pollutants, and reinforce the 10-year framework of programs on sustainable consumption and pro-duction patterns (10YFP) and the 2030 Agenda on Sustainable De-velopment.

Alessandra Lazzari Similarly, in signing the Paris Agreement in April, all LAC coun-tries, except for Nicaragua, Chile and Ecuador who did not sign, exhibited a common response to climate change. Barbados, Belize, Saint Lucia, Grenada, Saint Kitts and Nevis, and Guyana have even already ratified the Agreement.

Adoption of the Cartagena Decla-ration and the signing and ratifi-cation of the Paris Agreement are two political decisions represent-ing unprecedented action for LAC counties, as the situation other-wise appears very fragmented based on the regional climate co-operation framework [3]. Except for the Environmental Ministries Forum, the Economic Commis-sion of LAC (ECLAC), and CELAC (Comunidad de Estados Latino-americanos y Caribeños), in which all 33 countries participate [4], each belong to different groups of organizations (see box), some of which are entrusted also with ar-ranging climate policies and proj-ects. Furthermore, the countries are even part of different negotiat-ing blocs [5] under the United Na-

tions Framework Convention on Climate Change (UNFCCC) (see map).

Notwithstanding this lack of or-ganization in region-wide co-ordination and cooperation on climate change, LAC countries share many goals and objectives in terms of the features they are looking for in international climate policies. First of all, LAC countries are dependent on financing from international donors such as the World Bank, the Inter-American Development Bank, the Green Climate Fund and the UN to carry out programs. Sharing the princi-ple of “common but differentiated responsibilities,” as developing countries not chargeable for the current global CO2 concentration level, LAC countries regularly ask for developed countries to inter-vene with financial aid.

Regarding mitigation, the main sectors addressed in LAC coun-tries are energy and forestry. Endowed with about 22% of the world’s forests, LAC countries house numerous climate mitiga-

- 14 -

- 15 -

regarding adaptation as the main priority, though this paragraph was not compulsory. Moreover, all LAC countries have already or are in process of developing National Adaptation Plans. Partners in-cluding the World Bank, the Euro-pean Union and the United States are diverting their financing even towards climate risk insurance to support climate action in LAC countries.

As LAC countries continue to progress their climate agendas with commitments to internation-al agreements including the Cart-agena Declaration and the Paris Agreement, climate policies re-main primarily focused on energy and forestry measures, benefiting from the availability of renewable resources and the strong potential for mitigation, and are upheld by donors’ money. Meanwhile, adap-tation remains the cornerstone for future actions.

References [1] Photo: Tim Snell (2012) Beauty carved out of absolutes. Flickr. [2]Foro de Ministros de Medio Ambiente (2016) Cartagena Declaration: XX Meeting of the Forum of Ministers of Environment of Latin America and the Caribbean. [3] Edwards G., Roberts J. T., et al. (2015) A New Global Agreement Can Catalyze Climate Action in Latin America. The Brookings Institution. [4] CELAC (2016) IV CELAC Summit 2016 Action Plan. [5] COP20 News (2015) Countries from Latin American and Caribbean have conflicting position on the new COP21 Climate Agreement. [6] White House (2016) FACT SHEET: U.S.-Caribbean and Central American Energy Summit. [7] IPCC (2014) AR5 WGII Impacts, Adaptation and Vulnerability. [8] UNFCCC (2015) Synthesis report on the aggregate effect of the INDCs. [9] ICCG (2016) LAC countries divided by membership in main regional climate-related organizations. [10] ICCG (2016) LAC countries by negotiating bloc.

LAC countries by negotiating bloc [10]

tion projects related to stopping deforestation and protecting the environment and biodiversity (e.g. REDD+).

In addition, as part of the Ameri-cas, they find broad support from the United States. Looking back at Obama’s Climate Action Plan and activated projects (e.g. low-emis-sions development, LEDs, or the Energy and Climate Partnership of the Americas), there is some history of cooperation based mainly on financial support di-rected towards clean and effi-cient energy, and energy access. This is due to the wide potential individuated in the LAC countries in terms of renewable energy re-source availability. The United States’ commitment to supporting LAC countries has been recently reiterated at the May 2016 US-Ca-ribbean-Central American Ener-gy Summit [6], where the White House, in cooperation with other

international partners, pledged to provide several millions of dollars in additional funding to endorse plans for energy security, access and efficiency, as well as regional energy integration and renewable clean energy production.

Along with mitigation, various national or regional cooperative policies in the LAC countries are directed towards the chief ur-gency of adaptation. All of the 33 countries are severely threatened by climate change impacts and are considered highly vulnerable [7]. While LAC countries count for less than 10% of global GHG emis-sions, they are exposed to climate repercussions, in particular those that affect Small Islands Develop-ing States. In fact, all of the LAC countries’ INDCs [8] submitted to the UNFCCC ahead of COP21 in Paris (with the exception of Nica-ragua, the only LAC country not to submit an INDC) include a section

LAC countries divided by membership in mainregional climate-related organizations [9]

FLEX

IBLE

MEC

HAN

ISM

S AN

D D

EVEL

OP

ING

CO

UN

TRIE

S

NEW ADAPTATION FINANCE GAP REPORT 2016 RELEASED

What are the costs of ad-aptation in developing countries? What is the

finance available to meet them? How can the anticipated differ-ence between the two estimates be bridged? These are the thorny questions addressed by the Ad-aptation Finance Gap Report 2016 [2], launched by the Unit-ed Nations Environment Pro-gramme (UNEP) on May 10th 2016 at the Adaptation Future Conference in Rotterdam. The report comes only a few months after the adoption of the Paris Agreement, which importantly placed adaptation and mitigation on equal footing and resolved to reach a balance between the fi-nancial resources devoted to both.

The report builds on a 2014 as-sessment by UNEP outlining three main types of adaptation gaps, namely technology, finance and knowledge. It specifically fo-cuses on developing countries, in consideration of their pressing adaptation needs and low adap-tive capacity, and adopts a short

and medium term time horizon (2030 and 2050) consistent with decision-making related to ad-aptation. The report confirms the findings of the previous edition with respect to the current un-derestimation of adaptation costs. These could be in fact two-to-three times higher by 2030 and four-to-five times higher by 2050 than current global estimates, totaling to USD 140-300 billion in 2030 and USD 280-500 billion in 2050. The range of estimates de-pends on the methodology used, the analytical principles applied, and the assumptions made.

The financial resources currently devoted to adaptation still rep-resent a small portion of total climate finance volumes flow-ing from developed to developing countries. However, the figure has increased considerably in the past 5 years, reaching USD 22.5 billion in 2014. Most of funds have tar-geted water and wastewater man-agement projects, followed by the agricultural and land use sectors. As for the geographical distribu-

tion of recipients, the main bene-ficiaries are East Asia and the Pa-cific (46% of the total), followed by Sub-Saharan Africa (14%), Latin America and the Caribbean (12%) and South Asia (9%).

While development financial in-stitutions continue to provide the lion’s share of adaptation funding, dedicated climate change funds are starting to play a crucial role in removing barriers to adaptation investments in developing coun-tries. The report also acknowl-edges the important contribution of private sector finance for adap-tation (debt, equity, and insurance products) despite the great meth-odological challenges in measur-ing the actual flows.

Yet, the available finance is still in-sufficient to meet adaptation costs in the developing world, a gap that is likely to increase substantially up to 2050. The graph shows how the adaptation finance gap could develop from today up to 2030 and 2050. It compares the estimated costs of adaptation against the in-

Elisa Calliari

- 16 -

ternational public finance actually deployed and the pledges made by developed countries to mobi-lize USD 100 billion per year from 2020 to be equally split between mitigation and adaptation. While current adaptation costs today are already two-to-three times higher than the finance available, this figure could steeply rise in 2030. Assuming that developed countries’ commitments will be honored, total finance for adapta-tion should increase from three-to-six times the pledged level. In 2050, the potential adaptation finance gap could be from six-to-ten times higher than the USD 50 billion commitment. It is worth noting that adaptation costs are emission dependent: this means that failing to meet the 2°C target could lead to substantially higher financial needs.

How can this (wide) gap be bridged? Reducing adaptation needs is key, and this can be done by pursuing ambitious mitigation policies in the first place and by re-ducing existing and future vulner-abilities through climate-resilient development cooperation. On the other side, scaling up both public and private finance for adaptation is equally crucial. Current esti-mates might underestimate the financial volumes devoted in ef-fect to adaptation, given the meth-odological difficulties in tracking and reporting private and domes-tic resources. Yet, the inclusion of the latter would not change the picture that much. It is thus fundamental to move beyond the current pledges as well as to set up frameworks and incentives for enhancing the role of private sec-tor investments in adaptation. The report makes also clear that is not just about financial flows avail-able, but also about how these can be optimally used to have the greatest possible impact. En-suring the effectiveness and effi-ciency of adaptation spending will be of paramount importance for delivering long-lasting outcomes that serve the needs and priorities of the most vulnerable.

References [1] Photo: Neil Palmer (2010) Tea pickers in Kenya’s Mount Kenya region. CIAT - International Center for Tropical Agriculture. [2] UNEP (2016). The Adaptation Finance Gap Report 2016.

- 17 -

Conceptualizing the adaptation finance gap [2]

THE

CAR

BO

N M

ARK

ET

- 18 -

CARBON MARKETS APRIL - MAY 2016

The EU carbon market has been highly volatile in past weeks amid speculative trad-

ing and the determinant influence of oil prices and energy complex.

The EUAs experienced a price ral-ly in mid-April reaching a three-month peak of €7.07 on April 27, well above the level around €5.00 consolidated in March. Market observers noted that there were few fundamental changes to sup-port such an upward trend and foresaw a potential for bearish pressures based on incoming 2016 free allocations, higher auc-tion volumes, and little expecta-tion of pre-2019 policy support.

The price correction started on April 29 and the EUAs slumped towards and below €6 in early May, consolidating on a €5.60-6.00 range for the rest of the month.

According to the recent Thom-son Reuters Point Carbon annual survey, European carbon market participants and observers expect EUAs benchmark prices to aver-

Aurora D’Aprile Marinella Davide

age €6.80 this year and to rise to €11.40 by 2020.

Meanwhile, significant moves and information came from European institutions.

In late April, the Court of Justice of the European Union declared invalid the ETS free allocation for the period 2013-2020, due to dis-crepancies in the data provided by the bloc’s 28 nations on new in-dustrial installations. In the April 28 verdict, the Court ordered a recalculation of the Cross Sec-toral Correction Factor (CSCF), the coefficient to ensure that total allocation in the EU ETS remains below the maximum amount pursuant to article 10a(5) of the EU ETS Directive. The sentence gives the European Commission 10 months to establish a new amount of emissions allowances to be handed out for free to Euro-pean industry. “Depending on the information to be provided by the Member States on the basis of the criteria set out by the Court, the maximum annual amount of al-lowances could be higher or low-

er than that thus far determined by the Commission,” the Court stated.

The case was brought to nation-al courts by a group of EU refin-ers and chemical companies in Austria, the Netherlands and It-aly, claiming that they had been given fewer free allowances than they were entitled to. In 2014 the national courts referred the cas-es to the EU top tribunal.

The ruling will not be retroactive and will not affect the overall cap of the EU ETS, but could lead in-stead to a slight cut in future free permits to industry from 2018, Reuters reported.

According to the EU Commis-sion’s allocation update issued in mid-May, a total 731.09 million free allowances for 2016 have been handed out by EU mem-ber states to big emitting indus-try, representing around 97% of the total quota of 752.92 million allowances earmarked for this year.

According to Carbon Pulse, the revision asked by the EU Court of Justice could result in a cut to the future free allocation for all ETS-regulated industry by up to 1.6% of its allocation of 6.6 billion EUAs for Phase 3 (2013-2020), with the allowances in question being put up for auction. More-over, it is likely to have an impact on how free allocation is deter-mined for Phase 4 (2021-2030).

On May 19, the EU Commission announced that GHG emissions from the about 11,000 power plants and manufacturing in-stallations participating in the EU ETS saw a slight year-to-year decline, according to data from the Union Registry. Verified emis-sions amounted to 1800 million tons of CO2-equivalent in 2015, about 0.37% below the 2014 lev-el. Moreover, the EU Commission said the surplus of emissions al-lowances in the EU ETS was re-duced by more than 300 million allowances to around 1.78 billion, thanks to the implementation of back-loading, fewer international credits exchanged for ETS allow-ances in 2015, and the fact that no allowances were monetized for the NER 300 funding programme in 2015, compared to 100 million allowances in 2014.

References [1] Photo: Rafael Matsunaga (2007) Sao Paulo Stock Exchange. Flickr. [2] Own elaborations from ICIS Tschach Solutions data and analysis. [3] Thomson Reuters (2016) Carbon Market Survey 2016 - Will Paris be a catalyst for more emission trading? [4] UNFCCC (2016) UN Credits Used to Make Paris Agreement Signing Climate Neutral. [5] UNFCCC (2016) Go Climate Neutral Now!

On Kyoto’s CDM side, CERs moved in close sympathy with their Eu-ropean counterparts. The price of December 2016 contracts ranged between a minimum of €0.39 and a maximum of €0.43, and con-solidated around €0.4 toward the end of May.

Noteworthy, the UNFCCC an-nounced that the travel emis-sions related to the participation in the signing ceremony of the Paris Agreement in New York have been offset, cancelling an equivalent number of CERs [4]. Overall, more than 10 million CERs have been deleted so far through both the UNFCCC’s vol-untary cancellation process for CER holders and the online offset platform that since last year al-lows consumers and businesses to retire credits from the project operators for around $2-4 each.

According to UN data, Samsung Display, a subsidiary of the Ko-rean electronics leading compa-ny, requested the cancellation of 705,300 CERs to be used as Kore-an Offset Credits (KOCs), whose trade in the South Korean OTC market is at around 18,500 won ($16.36, €14.38), well above the price per CER in EU market.

- 19 -

Front-year EUA and CER prices, 2016 (weekly closure) [2]

0,00

1,00

2,00

3,00

4,00

5,00

6,00

7,00

8,0008

-gen

-16

15-g

en-1

6

22-g

en-1

6

29-g

en-1

6

05-f

eb-1

6

12-f

eb-1

6

19-f

eb-1

6

26-f

eb-1

6

04-m

ar-1

6

11-m

ar-1

6

18-m

ar-1

6

25-m

ar-1

6

01-a

pr-1

6

08-a

pr-1

6

15-a

pr-1

6

22-a

pr-1

6

29-a

pr-1

6

06-m

ag-1

6

13-m

ag-1

6

20-m

ag-1

6

€/to

n

EUA Dec. 2016 CER Dec. 2016

The International Center for Climate Governance (ICCG) was founded in 2009 as a joint initiative of the Fondazione Eni Enrico Mattei (FEEM) and the Fondazione Giorgio Cini. The ICCG is now an internationally renowned center whose activities focus on the design of climate policy and related governance issues.

The ICCG’s mission is to disseminate scientifically-based, socio-economic research in the fields of climate change mitigation and adaptation to policymakers, business leaders, academics and the general public. It seeks to achieve this at the local, national and international levels through interdisciplinary activities as well as through the production of climate and energy policy analyses and definitions of optimal governance models for climate change management.

www.iccgov.org