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06 Dec 2019

COP25 02: Chile in Madrid? Yes, but it’s hotting up

By Brendan Bateman

The decisions being made at COP25 will have major ramifications on international and domestic frameworks to drive emissions reduction and other mitigation efforts, as well as adaptation to the “new normal” of increasing climate-related impacts.

Despite the late change in venue from Santiago, Chile to Madrid, the much maligned bureaucracy that is the United Nations, together with the Spanish and Madrid Governments, have achieved a major logistical feat in organising and hosting COP25 which got underway this week.

Still under the presidency of the Chilean Government, the negotiators got down to work to try and resolve as many of the technical issues that remain outstanding across the various work streams of negotiations in advance of Ministerial week.  Progress has been made in bridging the gaps on some issues or refining text in advance of submitting reports and formal recommendations at upcoming plenary meetings. One of the features of week 1 has been the use of informal party consultations outside of meetings to at least agree a way forward on some of the more difficult issues.  While this may be a case of not wanting to air the dirty laundry, there have still been enough moments of public posturing by parties in forums to give a sense of the key battlelines.

The work program to get through across the various bodies is significant, with work expected to continue late into the nights and over the weekend to get to a landing, or as close to one as possible, before the political meetings begin next week.  Here is a snapshot of some of the issues that have featured during the first week of negotiations:

Finance at the core of it all

It would not be a COP without arguments over money. It is the big “who” issue: who has it, who wants it, who controls it and who determines what it is used for.  Developing countries (and in particular the Association of Small Island States, which represents many of the highly vulnerable Pacific island nations) were very vocal in the various meetings when issues connected with the Green Climate Fund, the Global Environment Fund and the Adaptation Fund were discussed.  This is because the availability of, and facilities developed to deploy, finance are seen as critical to supporting developing countries prepare and implement their Nationally Determined Contributions (NDCs). 

Finance is also an issue that cuts across numerous work streams, including the work of the COP itself, the meeting of the Parties to the Paris Agreement (CMA) and even the technical bodies including the Subsidiary Body for Scientific and Technological Advice (SBSTA). Accordingly there are plenty of opportunities for money to bring out the best and worst from parties.  This is what we have seen so far:

  • the parties unable to reach a consensus on fundamental questions around eligibility for membership of the board of the Adaptation Fund.  The Adaptation Fund is a key financial platform to provide assistance to developing countries to become more resilient to climate change impacts;
  • the parties struggling to reach a consensus on how best to implement the Warsaw International Mechanism for Loss and Damage (WIM), including whether to establish specialist arms to assist in developing tailored financial products to meet the needs of users at regional, national and local levels.  There was a recognition of an opportunity however for the WIM to work with bodies outside the UN, such as humanitarian and disaster risk bodies, to better assist countries facing loss from climate-related events;
  • a general consensus that, with finance featuring in so many work streams, there was a significant risk not only of duplication of effort but also inconsistent outcomes.  On numerous occasions across the various meetings, parties cautioned against groups working independently of each other on issues of finance and seeking ways to ensure that finance issues were dealt with by the most appropriate body.

Agriculture: more important than you think

It may not sound sexy but agriculture is an important issue at these negotiations, not only in the sense of dealing with emissions from this sector but also in facilitating sustainable agriculture and with it opportunities for sequestration.  The world did get its act together with the development of the Koronivia Joint Work on Agriculture (KJWA), focusing on improving nutrient use as a way of developing more sustainable and resilient agriculture systems.  There were also numerous workshops earlier this year which have informed discussions about agricultural adaptation and opportunities for co-benefits in the form of improved soil carbon, soil health and fertility, as well opportunities for integration of water management systems. 

One of the important developments this week during the KJWA workshop was the discussion around opportunities to improve fundability of nutrient management projects (yes, finance again), including how countries could include such projects as part of their NDCs.

Article 6 rules OK

As we noted before COP25 kicked off, finalising the rules around the mechanisms in Article 6 of the Paris Agreement is critical to achieving the goal of that agreement: to limit the increase in temperature to well below 2 degrees with an aim of 1.5 degrees.  Article 6 also happens to be one of the more contentious issues in the negotiations and the only substantive section of the Paris Rulebook that was not agreed at COP24.

Most of the work on Article 6 this week took place in the technical advisory body, SBSTA, and in informal meetings exploring unresolved issues in particular the rules around the sustainable development mechanism (SDM) in Article 6.4.  To progress refinement of draft text, negotiations have been taking place on specific themes, including:

  • the responsibilities of participants, with some developing countries querying text purporting to provide guidance on what is “sustainable” development, countering that this was a national prerogative;
  • setting emissions baselines for calculating emission reductions from activities proposed to be developed under the mechanism;
  • transitioning from the Kyoto Protocol, including how to avoid a gap between the end of the Protocol and the SDM becoming fully operational, as well as the eligibility of Kyoto Protocol methodologies and units to transition to the SDM; and
  • the text of the cover decision to be submitted to the CMA, and how it will deal with issues such as overall mitigation in global emissions (resulting in yet another acronym, OMGE).

So why is Article 6 critical again?  Put simply, the mechanisms identified in that article, especially the market based mechanisms in 6.2 and 6.4, provide the parties with the means by which they can significantly increase emission reduction ambitions consistent with the goal of getting to net-zero emissions as soon as possible.

The importance of getting the rules for Article 6 right was highlighted by a study released in September 2019 by the International Emissions Trading Association, the University of Maryland and the Carbon Pricing Leadership Coalition, "The Economic Potential of Article 6 of the Paris Agreement and Implementation Challenges", which found that subject to the design choices being negotiated at COP25, Article 6 had the potential to:

  • reduce the total cost to countries of implementing their NDCs by more than half by 2030 – saving roughly US$250bn – compared to parties implementing their NDCs independently.  This was because the market mechanisms permitted economic efficiency to be achieved in delivering lowest cost abatement; or
  • if the parties invested this saving into enhanced ambition, it could facilitate the removal of 50% more emissions by 2030 at no additional cost.

If effectively designed, the study shows that mechanisms in Article 6 will enable parties to commit to greater levels of ambition with each review of their NDC, consistent with the framework of the Paris Agreement.

Australian support for the development of efficient market mechanisms for the reduction of emissions appeared recently in a joint statement issued by the Australian Industry Group, APPEA, the  Carbon Market Institute and the Australian Business Council for Sustainable Development.

Conclusion

It is easy to think that the negotiations in Madrid have little relevance to Australia or Australian businesses – nothing could be further from the truth.  The decisions being made at COP25 will have major ramifications on international and domestic frameworks to drive emissions reduction and other mitigation efforts, as well as adaptation to the “new normal” of increasing climate-related impacts.

These will be felt in the immediate short term but in particular in the longer-term drive to net zero emissions economies.  All this will change the environment in which businesses operate creating risks and opportunities.  This was no better illustrated than by the EU’s recent statement that any free trade agreement with Australia will be subject to Australia increasing its commitment to emissions reduction. 

Brendan Bateman is attending COP25; stay tuned for further reports on its progress.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.