Technical paper

Summary of the Bonn Climate Change Talks (2 August 6 August 2010)

Prepared by: Daniela Stoycheva- climate change policy advisor UNDP BRC Bratislava, Slovakia, 11 August 2010
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Contents
1. General observation .............................................................................................................................. 3

2. Outlines of the work of 11th Ad-hoc Working Group on long-term cooperative action under the Convention .................................................................................................................................................... 4 3. Outlines of the work of 13th Ad-hoc Working Group on further commitments for Annex I Parties under the Kyoto Protocol .............................................................................................................................. 8

1.

General observation

From 2-6 August 2010, in Bonn, Germany, took place 11th session of the AWG-LCA under the UNFCCC and the AWG-KP 13 under the Kyoto Protocol. In general the just-completed Bonn Climate Change Talks observed some progress. The newly appointed Executive Secretary Cristiana Figueres said that the negotiations are "very close" to making a decision on "what shape the Cancun outcome is to be", as governments approached a set of decisions, that were "operational in nature and established the institutional arrangements for moving forward." However many described the negotiations as "slow-paced. There were different opinions expressed on the expectations for Cancun, a complete legally binding agreement (treaty) or building the basis for such treaty in South Africa in 2011. Before Cancun, an extra session will be held in Tianjin, China, on October 4-9, where Parties are expected to compromise amongst the various national positions, and begin to move closer to common positions. The Government of Mexico is committed to obtain a positive outcome for COP-16 in Cancun possibly by making advances in a few select areas, but with many delegations arguing that any future outcome must be a complete package it is difficult to see how progress can be made in a few (advanced) areas such as technology, adaptation, agriculture and REDD+. Some ambiguity related to the financing issues remains. Developed countries agreed in Copenhagen last December that they would offer 10 billion U.S. dollars per year to help poor countries address climate change in the next three years, and would boost the aid to 100 billion dollars annually by 2020. However still on climate funds there is no clear picture. There is a need for more transparency around both source and allocation of the fast-start financing, the very mechanism of financing still seems vague and uncertain. Another major uncertainty in August Bonn sessions was that in July the U.S. Senate decided to abandon the climate and energy bill this year, meaning USA would go to Cancun without any domestic climate legislation (same situation as in Copenhagen last year). US delegation made a statement in Bonn that the administration of President Obama would keep the promise of reducing its carbon emissions 17 percent from 2005 levels by 2020, and would not give up passing a broad climate bill. In the negotiations themselves: 1)The proposed revised negotiating text by the chair AWG-LCA was accepted and discussed in a negotiating mode, line by line during the meeting. The number of the pages of the text increased, as Parties reinserted previous national positions, appearing in the text in many options and bracketed. The text contains sections on a shared vision on long-term cooperation, mitigation, adaptation, finance, technology and capacity building. 2) The main issue under the AWG-KP was the aggregate cut of carbon emissions by 12 percent to 19 percent from 1990 levels by the developed countries, significantly lower than the cut recommended by the IPCC (the Intergovernmental Panel on Climate Change), which is minus 25 percent to 40 percent. Also were addressed: LULUCF, the flexibility mechanisms and the potential consequences of response measures of climate change. The AWG-KP decided to forward a Chairs text (FCCC/KP/AWG/2010/CRP.2) for further discussion at its next session. The proposed text was not discussed at all at this session and contains various draft decisions for the COP/MOP 6. These draft decisions, which are not yet agreed, focus on: amendments to the Protocol under Article 3.9 (subsequent 3

commitment periods); LULUCF; emissions trading and the project-based mechanisms; methodological issues; and the potential environmental, economic and social consequences of Annex I parties response measures to climate change. The AWG-LCA and AWG-KP texts that were developed in Bonn are expected to form the basis for negotiations in Tianjin, China, in October, where delegates will seek to narrow down options and produce outcomes to be considered in Cancun. Regional issues: Special attention deserves the debate over bracketing the "stars" above the name of the countries that are undergoing the process of transition to a market economy - a footnote below the list of countries in Annex I in the Convention. This issue has political, legal and practical aspects. For obvious reasons, Russia, Belarus, Ukraine, and probably other countries that wish to preserve "stars". But, in particular, the EU emphasized the change of the status of those countries, which finalized the process of transition to a market economy. The paragraph 4.6 of the Convention provides a certain degree of flexibility in the implementation of their commitments, in order to enhance the ability of these Parties to address climate change, including with regard to the historical level of anthropogenic emissions of greenhouse gases chosen as a reference (many of those countries have different than 1990 base year.). This will be further discussed at the October sessions. Special event: briefing on the UN Secretary-Generals High-Level Advisory Group on Climate Change Financings was held on August 5 to provide an update on the work of the group to the Parties. The Secretary-General has established a High-Level Advisory Group on Climate Change Financing to study the potential sources of revenue for financing mitigation and adaptation activities in developing countries to make progress on the key issue of finance in the course of 2010. Nicholas Stern, Professor of Economics and Government, London School of Economics, - provide a quite detailed outlined of different types of financial sources: governments, IFI, private. He also outlined controversial issues with different views of AGF members: taxation of finance mobilized, risk sharing mechanisms, carbon market. Venezuela made a strong statement that it will oppose any attempts to directly include the outcome of the HLAG in UNFCCC process. AGF is an advisory body but UNFCCC Parties did not ask for advice. She suggested that final AGF report should not be sent by UN Secretary General to the UNFCCC Presidents and Secretariat, instead it should be distributed through countries missions to UN. 2. Outlines of the work of 11th Ad-hoc Working Group on long-term cooperative action under the Convention

The Chairs negotiating text (FCCC/AWGLCA/2010/8) was released on 9th July 2010. The first general statements made by Parties revealed that the majority were willing to use it to start negotiations. The USA expressed concern that the paper moved away from the elements of the Copenhagen Accord. G77&China again noted concerns on its balance and equitability but were, however, willing to use it to continue discussions. The majority of the positions taken by the delegations were unchanged from the June AWG-LCA meeting. Preparation of an outcome at COP 16: The AWG-LCA agreed on the Chairs text distributed in July (FCCC/AWGLCA/2010/8). The text covers in chapters the areas agreed in the Bali Action Plan (BAP) in 2007. The opening statements in plenary were focusing on the temperature targets, with some developing countries supporting temperature increases well below 1.5C and some developed countries 2C. Many developed countries, and the Russian Federation expressed position that the new agreement should cover 4

all major emitters and economies. While almost all countries now are ready to have two legally-binding outcomes, Japan supported a comprehensive outcome, involving major emitters and within a single framework. The US addressed concerns over US domestic climate politics, declaring that success in Cancun does not hinge on US legislation. There were four drafting groups on the following issues: shared vision; mitigation; adaptation; and finance, capacity building and technology transfer. In addition, delegates held informal consultations on the form of the outcome at COP 16 and the legal nature of obligations, commitments and actions by parties. These groups added many different (and sometimes conflicting) options and proposals to the text. This resulted in longer documents on most of the key issues. Next steps: The texts which came out of the drafting groups will be compiled into an official negotiating text and released two weeks prior to AWG-LCA 12 in October. Shared Vision: (Chapter 1, paragraphs 1-12). Delegates made numerous suggestions to amend or add to the text, including on emissions cuts, global reductions and funding. Shared vision long-term vision in the context of equity and common but differentiated responsibilities; human rights, including rights of indigenous peoples, women, children and migrants; emission reductions based on per capita accumulative historical emissions; global temperatures below a 1.5C increase; climate emissions debt; deadline for peaking of global emissions (2015 not 2020) and whether this is for Annex I Parties only; 2050 reduction commitments. On emissions cuts and global temperatures (paragraph 2), some differences of opinion emerged, with developing countries stressing historical responsibility for emissions and some proposing to limit the global temperature increase to below 1.5C from pre-industrial levels. However, the US and other developed countries indicated that 2C, not 1.5C, was the limit agreed by leaders under the Copenhagen Accord. The US also argued that this goal was intended to inspire and guide, but was not an operational directive to divide rights to the atmosphere based on a formula. Saudi Arabia responded that the Copenhagen Accord was not adopted by the COP and is not a legally-binding document and so should not determine what is included in a UNFCCC document. On global reductions by 2050 (paragraph 4), suggestions ranged from a 50% global goal to more than 100% compared with 1990 levels. There were also suggestions to identify Annex I parties collective goals for 2020 through 2050, with developing countries generally proposing more ambitious targets (in one case, up to 45% by 2020 and more than 100% by 2040). Developing countries contribution will depend on Annex I Parties meeting commitments on financing and technology transfer. On adaptation, financing and the impact of response measures, some developing countries suggested specifying Annex I parties funding obligations, including one requiring that developed countries provide 3% of their GNP to ensure implementation of the Convention. Mitigation: resulted in almost tripling the length of the mitigation text, from approximately 15 to 41 pages.

mitigation by developed countries (BAP paragraph 1(b)(i)); mitigation by developing countries (1(b)(ii)); REDD-plus (1(b)(iii)); cooperative sectoral approaches and sector-specific actions (1(b)(iv)); approaches to enhance the cost effectiveness of mitigation actions (market mechanisms) (1(b)(iv)); and consequences of response measures (1(b)(v)). 5

Developed countries: The main issues (Chapter 1, paragraphs 14-27) included: the baseline and target years; aggregate reduction ranges; the legally-binding nature of the agreement; relationship to the Kyoto Protocol, including inscription of targets and flexible mechanisms; the use of other market mechanisms and eligibility for participation; the nature of, and changes to, Annex I; comparability of efforts; response measures; MRV provisions; LULUCF; and historical emissions. Many interventions by developing country delegates called for strengthened compliance guidelines, MRV and national communications for developed countries. Several developing parties commented on the importance of development of low-emission plans, with developed countries noting this should apply to all parties. Many developed countries defended using the word objectives, while developing countries preferred the term commitments. Developing countries: within this issue (Chapter 1, paragraphs 28-51) the aspect that received the most attention was reporting requirements by developing countries in the context of MRV, national inventories and registries. Parties also addressed the types and scope of nationally appropriate mitigation actions (NAMAs), support for NAMAs by developed countries, and the linkage between that support and the NAMA registry. REDD-plus: (Chapter 1, paragraphs 52-53, and Chapter 6). Many delegates described the text, which had been forwarded from Copenhagen, as almost agreed. However, some points of contention emerged. In particular, Saudi Arabia, Bolivia and some other developing countries, opposed by many other parties, made proposals that included: modifications to the implementation of REDD-plus activities; removal of references to markets; and exclusions of offset mechanisms. Both options were included in the final draft. Sectoral approaches: This issue (Chapter 1, paragraphs 54-57, and Chapter 9) concerns approaches to mitigation within specific sectors, such as steel-making or transport and agriculture. Discussions focused primarily on bunker fuels (greenhouse gas emissions from international aviation and international maritime transport). Most of the discussion concerned the role of the International Civil Aviation Organization (ICAO) and the International Maritime Organization (IMO) in addressing bunker fuels, and their relationship with the UNFCCC, including on aspects such as the application of UNFCCC principles to ICAOs and IMOs climate change policies. Market mechanisms and other approaches to enhance cost effectiveness : This issue (Chapter 1, paragraph 58, and Chapter 8) concerns the use of emission trading. Some of the main contentions were: the nature of acceptable market mechanisms; the effectiveness of carbon markets in mitigating climate change; the creation of new market mechanisms in addition to those existing under the Kyoto Protocol; the continuity and fragmentation of the carbon market; the share of the revenues; the balance between international and domestic markets; the authority of the UNFCCC over carbon markets; and international trade provisions. Consequences of response measures: This issue (Chapter 1, paragraph 59, and Chapter 7) topic concerns the adverse impacts of measures taken to combat climate change, such as decreased revenues for oil-exporting countries in the eventual case that climate change policies would result in decreased oil revenue. The G-77/China made numerous proposals, including on the establishment of a forum under the COP to address, inter alia: insurance and financial risks management; modeling; economic diversification; and technology transfer. Parties also discussed possible impacts of response measures on international trade. Adaptation: (Chapter 2, paragraph 7). Discussions addressed: the need for more equal treatment of adaptation and mitigation in the Chairs text; finance; and expanding assistance on national adaptation programmes of action (NAPAs) from LDCs to include other parties; and addressing loss and damages associated with climate change impacts. The issue of loss and damages was also addressed by a developing country groups proposal to add a paragraph on the creation of an international climate insurance facility.

Throughout the week, the main dividing line between parties was whether or not the creation of a new adaptation institution was necessary, specifically an Adaptation Committee under the Convention. The G-77/China and AOSIS advocated the creation of a committee to appraise, provide technical support and advice, and approve technical aspects of adaptation projects based on COP guidelines. However, developed countries generally preferred using existing institutions after identifying and eliminating gaps in their functionality. The draft text reflects options for institutional arrangements for adaptation (paragraph 7) and addressing loss and damages associated with climate change impacts (paragraph 8). Both draft paragraphs provide two options: one expanding and strengthening the capacities of existing institutions and cooperation; and one proposing the creation of a new entity. Under paragraph 7, both options focus on provision of guidance to enhance action on adaptation but the first option would actually create a new institution functioning as the Technical Panel of the Financial Mechanism Board to receive, evaluate and recommend technical adjustments in applications for financial support, as well as review portfolios of adaptation projects to assess effectiveness. A new institution under paragraph 8 would be a mechanism addressing loss and damage through risk management, insurance, compensation and rehabilitation. Finance: (Chapter 1, paragraphs 60-64, and Chapter 3). A major focus of the discussions was the proposed fund on mitigation, adaptation, capacity building and technology transfer, and institutional linkages to thematic bodies that may have advice on funding (Chapter 1, paragraph 60, and Chapter 3, paragraphs 9-14). Although an agreement had been close in June at AWG-LCA 10, differences of opinion did emerge. For instance, some developing counties seemed to favor the creation of a new body to perform key overview and coordinating functions for the fund (paragraph 14). However, the EU, US and other developed countries tended to favor the use of existing institutions to perform these functions. The US expressed a concern about language on direct access to funds, which needs further clarification. There was also disagreement on the composition of the new funds board, how many and which members. Many suggestions were made to add to text on scaled up, new and additional funding (paragraph 2). Suggestions to increase annual developed country contributions to 6% of GNP, and an additional 2% for carbon capture and storage (CCS) activities in developing countries. Technology transfer: The drafting group briefly considered the Chairs text on technology transfer (Chapter 1, paragraph 65 and Chapter 4). Three unresolved issues were noted: the relationship between a technology mechanism and a financial mechanism; reporting functions of a technology executive committee; and intellectual property rights. Capacity building: (Chapter 1, paragraphs 66-67, and Chapter 5). There were many suggested additions, with discussions focusing on three issues: the need for a new technical panel; whether the Chairs text should be streamlined; and whether the Secretariat should be asked to compile information on fast-start financing. On the technical panel, the G-77/Chinas supported the idea both of a technical panel and of performance indicators to measure support for capacity building. However, developed countries argued that a new panel was not necessary and that existing institutions could undertake such work. Finally, there was a discussion on a proposal from the facilitator to authorize the Secretariat to compile information on its website on fast-start financing measures from parties for 2010-2012. While several parties initially indicated that they were open to the idea, the group ultimately decided that no compilation of fast-start funding should be undertaken by the Secretariat, because it was unclear what the value-added would be over information currently available. Form of the outcome: Delegates were presented with a non-paper by the Secretariat, which set out three possible types of outcomes: a legally-binding outcome (i.e., a treaty); COP decisions; or a combination of both. The EU preferred a single, legally-binding agreement, but added that it could be flexible on the form of the outcome, as long as it is legally binding. Developing countries generally advocated a legally-binding 7

agreement respecting the two-track approach. Japan and the US position is that a legally-binding agreement should include all major emitters. 3. Outlines of the work of 13th Ad-hoc Working Group on further commitments for Annex I Parties under the Kyoto Protocol

An in-session workshop was held on the scale of emission reductions to be achieved by Annex I parties in aggregate and the contribution of Annex I Parties, individually or jointly to this scale. Held in three parts, it discussed how parties assess the current level of pledges and the scale of emission reductions by Annex I parties in aggregate; the quantitative implications of LULUCF, emission trading and projectbased mechanisms on the emission reductions by Annex I parties in aggregate; ensuring that efforts, achievements and national circumstances are taken into consideration; and their implications on emission reductions by Annex I Parties in aggregate and; on enhancing transparency of pledges for emission reductions of Annex I Parties under the Kyoto Protocol. A summary by the Chair indicated several recurring themes that had occurred including: the advantages of LULUCF rules and mechanisms but also uncertainties of impacts on individual countries; and the impacts of rules and mechanisms, including surplus AAUs, on markets. Many experts questioned on how these pretty good technical presentations to the workshop could facilitate the negotiation process as views expressed and argued by countries in many cases were completely diverge. As an example, the Russian Federation emphasized the importance of considering national circumstances and that range of GHG emission reductions will depend inter alia on appropriate accounting of the potential of Russias forestry that means: i) establishment of reference levels for C sinks from 1990 level; ii) avoiding additional caps/discount factors for C sinks; iii) possibility to exclude emissions caused by extreme natural events from accounting; iv) voluntary reporting for activities under Art. 3.4. She also called for allowing unlimited carryover of surplus AAUs and continued use and further development of KP market mechanisms. In contrast Grenada, member of AOSIS group, suggested removing the surplus built into 2020 pledges, to exclude LULUCF credits exceeding BAU; to removing AAU carry over from the first to the second commitment period; to remove LULUCF crediting; and to move to the top of parties pledged ranges. The Contact Group discussions in the AWG-KP were split into three main areas with the major discussions concerning the Annex I emission reduction commitments, other issues and an informal group on potential consequences. A legal issues group was also convened. In the emission reductions/numbers group, there were discussions on various aspects of the information and how to deal with the issues arising. These included: Surplus AAUs and carry over (range of estimated surplus AAUs is 0.3-0.6 Gt CO2/year in 2020, and carry over a total of 7-11 Gt CO2). Options include: using existing rules; demand or supply side measures; using a cap or restricting use; or levies. LULUCF (use of LULUCF credits ranges from 5-8%, or possibly lower, depending on selection of certain options). Options include: using existing rules; limiting use of, or removing, LULUCF credits from the system; removing the surplus where it includes LULUCF credits; or not using the LULUCF provisions of Protocol Article 3.7 (translating QELROs into AAUs). Mechanisms (estimated size of CDM CERs demand is 5-6 Gt CO2). Options include: using current rules and introducing new mechanisms, strengthening the additionality of CERs, or imposing a cap on mechanisms and supplementarity.

The usual discussions on the length and number of commitment periods and base year continued: (G77/China 5 year; developed countries 8 year), however emerging consensus on one commitment period; transforming pledges into QELROs, the G-77/CHINA proposed a mixed approach, with QELROs for countries that had exceeded their first commitment period objective using the QELROs from the first commitment period as the basis for the calculation, and countries which had reduced their emissions below their objective using their current level of emissions to translate their pledges. Developed countries: QELROs are subject to negotiation rather than to a decision on methods to calculate them. The term EITs (economies in transition) was debated given its origin about 20 years ago. The EU bracketed the star above the names of the EITs countries, opposed by Russian Federation, Ukraine, Belarus and Croatia. New texts were prepared for further discussions in Tianjin. The other issues group worked through the papers on LULUCF (FCCC/KP/AWG/2010/6/Add.2), flexibility mechanisms (FCCC/KP/AWG/2010/6/Add.3), and the basket of methodological issues including new gases and metrics (FCCC/KP/AWG/2010/6/Add.4). LULUCF: force majeure, including definition, relation with reference levels, and time out for land recovering from human induced or non-human-induced events; reference levels and forest management activities. As before, constructing reference levels were discussed, highlighting definition, establishment, the review process, accounting gaps and baseline years (The workshop held prior to AWG-KP 13 on forest management accounting was reported back). Further new text was added to the draft negotiating document. Mechanisms: strengthening the share of proceeds (including by extending it to other mechanisms and increasing the amount deducted); supplementarity; the use of Certified Emission Reductions (CERs) from projects in certain host countries; new market-based mechanisms; the inclusion of carbon capture and storage (CCS) under the CDM; nuclear energy under the CDM; standardized baselines; co-benefits of CDM; discount factors; joint implementation (JI); co-benefits of JI; carry over and; emissions trading. No consensus was reached on any of the options and the new negotiating text will include all the options. The potential consequences group discussed whether to establish a permanent forum to address potential consequences or to use existing channels, including national communications. There is also debate as to whether this issue applies only to developing countries. No agreement on this issue was reached. A Legal Issues group focused on the Secretariats paper on the legal considerations relating to a possible gap between the first and subsequent commitment periods (FCCC/KP/AWG/2010/10). During the groups discussions, a representative of the Secretariat emphasized that the text should not be viewed as a plan B by the UN or the Secretariat and that it is the parties that will determine how to apply and implement the provisions of the Kyoto Protocol. This paper outlines several legal options for addressing the commitment gap, including: changing the amendment procedures to allow for expedited entry into force such as an opt-out or tacit agreement or a lower threshold of instruments of acceptance; provisional application of amendments as provided for in the Vienna Convention on the Law of Treaties; or extension of the first commitment period. The Secretariat noted that all elements of the Kyoto Protocol other than commitments under Article 3.1 (QELROs) were created for an indefinite period. However, the paper states that if mechanisms or institutions are characterized as assisting parties in meeting their obligations under Article 3.1, then it is doubtful they would continue to exist but if they are characterized as having a broader objective to promote clean development consistent with the ultimate objective of the Convention, then the gap would not interrupt these institutions. 9

A number of developing countries noted that any discussion of the gap did not imply that they accepted such a fact and that focus should be on reaching agreement on a second commitment period. Australia opinion is that a gap would not prevent the continuation of key elements of the Protocol, such as the CDM and JI. The EU informed that 80% of global emissions trading is based on the EUs emissions trading scheme, which will continue operating regardless of a gap. Switzerland, in line with the messages from Business, proposed a positive signal to be sent to reassure stakeholders that the consequences of a gap would not be as bad as some may fear. Outcome document: Draft proposal by the Chair: The AWG-KP Chair John Ashe distributed a draft proposal on the consideration of further commitments for Annex I parties under the Kyoto Protocol (FCCC/KP/AWG/2010/CRP.2). The text contains five chapters with draft decision text on: amendments to the Kyoto Protocol pursuant to Article 3.9 (further commitments for Annex I Parties); LULUCF; flexibility mechanisms; the basket of methodological issues; and potential consequences. Some parties noted that the draft decision texts closely reflect the Notes by the Chair prepared to facilitate negotiations on these issues (FCCC/KP/AWG/2010/6 and Adds. 1-5) and the proposals and textual refinements made during negotiations throughout AWG-KP 13. Revisions to text in the Chairs notes made following the release of the Chairs proposal, particularly those on basket of methodological issues (FCCC/KP/AWG/2010/6/Add.4) and co-facilitators non-paper on LULUCF, will be revised and reissued prior to AWG-KP 14 in October. Chapter 1 - contains a draft decision on amendments to the Kyoto Protocol pursuant to its Article 3.9, including options to amend Annex B of the Kyoto Protocol, which lists Annex I parties QELROs. In addition, it contains two options to amend elements of Article 3 and 4 to establish a second commitment period. The second alternative also contains options to amend other articles, including on: review of the provisions of the protocol in light of the long-term goal for emission reductions; share of proceeds; accountability of emissions trading; compliance; new market mechanisms; as well as proposed changes to the list of greenhouse gases listed in Annex A. Chapter 2 - contains a draft decision on LULUCF including options on: relevant definitions; accounting for forest management; CDM eligibility; force majeure; HWPs; and reference levels. Chapter 3 - contains a draft decision on emissions trading and the project-based mechanisms (flexibility mechanisms) including options on: CCS under the CDM; nuclear facilities under the CDM and JI; standardized baselines; use of CERs from project activities in certain host parties; discount factors under the CDM; co-benefits under the CDM and JI; share of proceeds; and additional market-based mechanisms. Chapter 4 - includes a draft decision containing options for new greenhouse gases, sectors and source categories, common metrics to calculate the carbon dioxide equivalence of anthropogenic emissions by sources and removals by sinks, and other methodological issues (basket of methodological issues). Chapter 5 - contains a draft decision on consideration of information on potential environmental, economic and social consequences, including spillover effects of tools, policies, measures and methodologies available to Annex I parties (potential consequences). The sole outstanding issue in the text is a set of options on either establishing a permanent forum or use of existing channels, including national communications and SBI, to address potential consequences.

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