The final scene

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“Although we are in Bali I don’t believe that anyone has seen the beach,” said Rachmat Witoelar, Indonesia’s environment minister and chairman of the UN climate talks in Bali in the closing stages of the conference on Saturday. That is about to change.

Long before the final press briefing was over the conference centre was emptying out. Once the gavel had fallen on the Bali roadmap, exhilaration turned quickly into relief, then exhaustion. Taxis may have been bound for bed rather than the beach.

Despite their obvious tiredness, Mr Witoelar and UNFCCC climate chief Yvo de Boer were upbeat when they faced the media at the end of the day. Mr de Boer told journalists he’d been waking up reciting “launch, agenda, end date” during the night for months.

“Today, all three have come out,” he happily concluded. Mr de Boer described the new agreement as “ambitious” – because it “very clearly” references the IPCC science – “transparent” – because it specifically asks business and civil society for input – and “flexible” – because it brings on board all developed and developing countries.

The EU joined in the all-round praise: “We consider this to be a historical day with a historical outcome, everything will be different in relation to climate change,” said Portugal’s environment minister Francisco Correia Nunes, speaking on behalf of the bloc.

Yes the text demands absolute emission reductions from all developed countries, insisted his junior counterpart Humberto Rosa. This wasn’t obvious to many journalists – including me – and one can’t help but wonder what the US take on it is. No getting hold of the Americans just then however.

Green groups were less enthused – not that that’s unusual – with WWF calling the deal “weak on substance” and Greenpeace lamenting the lack of reference to “crucial cuts” and the “relegation of science to a footnote”.

Carbon market insiders like Abyd Karmali at Merril Lynch said the agreement gave a “somewhat bullish” – i.e. positive – signal to the post-2012 carbon market. Mr Karmali welcomed the agreement on deforestation, a recognition that the Kyoto’s Clean development mechanism (CDM)  must be enhanced, and the 2009 deadline to finish talks on a new treaty. One of the text’s major disappointments, he added, was the absence of quantitative emission reduction targets.

Whether valid or not, I am starting to think perhaps these criticisms, in fact all criticisms are not so important right now. For a moment on Saturday the threat of no agreement at all suddenly became very real. It was an eerie, unsettling feeling.

The key turning point was the impassioned speech by Indonesia’s president followed by UN secretary general Ban Ki-Moon. “The mood of the room suddenly exploded,” says Mr de Boer wonderingly. A compromise became possible. And perhaps we should celebrate this, rather than ponder all that was left behind on the negotiating table.

Looking ahead, there are challenges, yes, the largest of which many say will be competition with the US major emitters’ initiative for resources in terms of staff and time for negotiations. Four Bali roadmap meetings are planned for 2008, versus one a month for the US initiative I am told.

But even this can wait for a moment. I’m still in Bali and must congratulate Mr de Boer on highlighting one other element that undoubtedly made much possible these last two weeks – the extremely friendly and respectful approach of the Indonesians themselves.

Of course what I’m going to say is I’d like to experience more of Indonesia, preferably on a Bali beach tomorrow, but at the same time it’s worth noting that if the atmosphere of mutual goals and respect that finally prevailed here can be upheld at future talks, the destination may yet become as real as the roadmap.

P.S. For those of you who want a concise overview of exactly what was agreed in Bali – including decisions on the Kyoto protocol – I recommend this European commission memo.

Deforestation agreement

Consensus on a draft deforestation text closes another controversial item on the Bali agenda. Parties reached agreement late last night, announced Greenpeace representative Marcelo Furtado on Friday morning.

EU environment commissioner Stavros Dimas confirmed the deal in his morning statement to the press, calling it a “good balance”.

Deforestation has been a key issue for several major developing countries here, including hosts Indonesia, India, and Brazil. It accounts for a fifth of all global greenhouse gas emissions. Like the technology transfer agreement, this deal moves the UN one step closer to a comprehensive road map for a post-2012 climate treaty.

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The agreement removes reference to considering deforestation and forest conservation under the wider theme of “land use”, said Mr Furtado. This term, pushed by the US, is very broad and would have introduced a host of fresh complexities . The text also introduces a clear separation between reducing emissions from deforestation and land degradation (REDD) on the one hand and promoting sustainable forest management and conservation on the other, he added.

The text recommends introducing specific policies and incentives to tackle the former, while subjecting the latter to further investigation. These incentives could include issuing carbon credits for REDD.

Carbon finance manager at the World Bank Joelle Chassard told ENDS she welcomed the agreement. Earlier this week the World Bank launched a forest carbon fund that will pilot financial incentive mechanisms to reduce deforestation and land degradation.

Ms Chassard said the World Bank recognises forest conservation may be something that should be rewarded. “It’s something we want to look at,” she said. She also said it makes sense to first focus on deforestation and degradation, since the accounting methodology for conservation-type activities is much more complicated.

Progress!

A draft text on technology transfer has been agreed. After desperately gloomy prospects on Tuesday night, when talks broke down over the words “facility” and “programme”, negotiators have managed to settle on a text without brackets. This means none of it is still under dispute.

The text must still be rubber-stamped by ministers, but no problems are foreseen since it has been agreed by officials representing all parties.

This is a milestone on the road to a post-2012 agreement.

Privately, European delegates were jubilant, if surprised at the breakthrough. It was inconceivable that developing countries would come on board a Bali roadmap that did not address technology transfer. The deal also puts industrialised nations on firmer ground for the remaining negotiations.

On the very first day of the Bali conference, the G77 loudly accused the developed world of neglecting its technology transfer commitments. It demanded the subject be discussed not only in a subsidiary body dedicated to technology but also in one dedicated to financing and implementation. This duly happened and it was in the latter committee that discussions stalled on Tuesday night.

The final draft abandons both “facility” and “programme” in favour of “strategic programme”, which lies somewhere between the two I’m told. The term refers to a new entity to be set up under the Global Environment Facility (note the word!) (GEF), dedicated to technology transfer. GEF funds environmental programmes (note the word!) in developing countries.

It is not clear whether funding will come from elsewhere in GEF or from outside.

This “strategic programme” is the technology leveraging facility UN climate chief Yvo de Boer has been talking about. It is not however, the multilateral fund proposed by developing countries I wrote about earlier today. Yet the G77 are reportedly happy – sources say some were under pressure to obtain immediate results here in Bali and this qualifies.

More importantly for the long-term however, is that the draft text takes the developing world’s multilateral fund wish list and agrees to analyse current and potential funding sources with a view to filling gaps. An expert group will do this and must report back by 2010 “with a view to consider the role of new financing mechanisms and tools for scaling up development and transfer of technologies.”

These new tools could be anything from an enhanced carbon market to public-private partnerships.

The expert group is also requested to develop a set of performance indicators to monitor technology transfer implementation, another clear developing country demand.

EU sources said they were particularly happy with the text because it undertakes to review existing funds. Many of these could be better targeted, they say, and in any case the UNFCCC predicts it is private capital rather than public money that will hugely dominate future investment flows into clean energy. Thus it is more important to leverage the private sector than establish new public funds.

The bottom line

All the talk here appears to be focusing on targets, guidelines, or whatever you want to call them for long-term emission reduction commitments from developed countries. What will be the wording of our climate ambitions in the roadmap to a post-2012 agreement we expect in Saturday’s early hours?

Representatives from the US to the EU to the G77 and China are happily dedicating much of their press conferences to this topic. Journalists are lapping it up and feeding the fervour. But is this really the sole issue on which so much hinges? It feels like much of the talk on targets may be posturing rather than a reflection of the true terms of the debate.

UNFCCC spokesperson John Hay confirmed as much when he said, in his personal opinion, much of the target talk is indeed intended for domestic consumption back home. Politicians want to look good in front of their electorate.

Behind the scenes, technology transfer is the most substantive issue still under debate. “Developing countries want to go home with something in their pocket,” says Mr Hay. Daily conference newsletter Eco, produced by NGO Climate action network, has started highlighting technology transfer as a fundamental element in the negotiations.

The official line is not quite the same. The major issue that would deliver a “really meaningful result” at Bali is major new commitments from all industrialised countries to cut their emissions in line with the latest science, said Munir Akram, Pakistan’s ambassador to the UN and chairman of the G77 and China group yesterday.

But it makes more sense that the key priority for developing countries is financial and technological assistance to set them on a low-carbon development path and help them cope with the impacts of climate change. This is what they have been calling for all along.

An adaptation fund was finalised in the pre-ministerial talks at Bali. But, as I wrote yesterday, technology transfer talks broke down in the early hours of Wednesday morning. They have been picked up by ministers, but, at lunchtime on Thursday, no agreement had been reached yet, said the Indonesian delegation.

Technology transfer is as much a financing as a technology issue. The key sticking point is what financial commitments developed countries are prepared to make and how quickly this money would be available to developing countries.

There are several proposals on the table. Developing countries for example have suggested a new, multilateral fund to finance a whole wish list of items from technology needs assessments to purchasing licences. Industrialised countries have yet to articulate a response, says one observer.

Carbon finance is also part of this picture. Through the Kyoto protocol’s Clean development mechanism (CDM), developed countries are financing emission reduction projects in developing countries. This is helping drive the development of a clean energy infrastructure there.

But a carbon market requires mandatory emission caps, otherwise there can be no carbon price. And this brings us full circle, back to targets, and to exactly where the negotiations are right now.

“In a way, we’re in an all-or-nothing situation,” climate chief Yvo de Boer told journalists this morning. All four building blocks of the Bali roadmap – emission reductions, adaptation, technology transfer and financing – are inextricably linked.  A decision on one must be a decision on all.

Where things stand

Wednesday morning at 10am the high level segment of the Bali talks kicks off. Over the next three days, ministers from about 155 countries will take over from the more junior officials who have been negotiating so far. This is crunch time.

Between now and Friday night we will find out whether governments will agree to launch negotiations on a post-2012 climate treaty, to finish these by 2009, and to agree a detailed work plan for the next two years.

What can we expect? Whoever you ask will tell you the most significant questions won’t be resolved until the early hours of Saturday morning.

Nonetheless, certain things can be said now. Before I say them, a warning: because this post attempts to provide a full update on where things are at, it’s unusually long. Hopefully the sub-headings will help.

Everyone agrees that negotiations must be launched on a post-2012 climate treaty. For the US, this is an about-turn from its stance only a year ago, when George Bush was still questioning the science behind climate change.

Virtually everyone agrees that negotiations must end by 2009 – China has been the sole exception, advocating a 2010 deadline, but I wonder whether it will stick to its guns in the face of broad consensus. There are more important things for it to spend its bargaining chips on.

The really tricky issue is the work plan. This is the most controversial element of the talks. How much detail should it include and what should it say? Yesterday US chief negotiator Harlan Watson said he favoured something “short, to-the-point, and balanced”.

“We want the essential building blocks [of a post-2012 climate agreement] identified… mitigation, adaptation, technology and financing,” he said, “there has to be a little specification below that level but without prejudging what might come out at the end.”

Reduction ambitions

Any concrete numbers suggesting what emission reductions developed countries should commit to, or what we should try to limit a temperature rise to, could prejudice the final outcome of an agreement, according to Dr Watson. The US has received support from Japan, Australia and Canada.

The EU and UN climate chief Yvo de Boer have consistently maintained these specifics must be included. A draft text that emerged on Saturday said developed countries must commit to cut emissions by 25-40 per cent by 2020, relative to 1990 levels, global emissions must peak in the next 10-15 years, and global emissions must be cut by at least half by 2050.

It’s the 25-40 per cent that has attracted most media attention. The latest rumours are that it’s been cut from the draft text, but this could change again. Whatever version officials settle on tonight, it will be passed on to ministers for debate tomorrow. And I can guarantee this is one of those questions they will debate until 4am on Saturday.

Yet I think we can say that even on this seemingly impossible question, consensus may yet be reached. The EU and UNFCCC appear to be making an unprecedented effort to reach out to the US.

EU environment commissioner Stavros Dimas today again set forth his clear support for the commitments detailed above. But other EU sources described the 25-40 per cent as “preferable” rather than “essential”.

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When asked whether he would consider a Bali roadmap without the 25-40 per cent wording a failure, Yvo de Boer said, “No, specific targets you should discuss at the end”. This comes remarkably close to Dr Watson’s position. Mr de Boer emphasised too that the 25-40 figures were intended in any case as “guidance” not “targets”.

There are a million ways in which ministers can phrase the level of ambition in the Bali roadmap they sign off – which they choose will also depend on how other building blocks are written into the plan. For example, perhaps the EU would be prepared to change the wording on ambition in return for more explicit support for the carbon market.

Targets and mitigation are issues that concern primarily the developed world. What about the developing world? We reported earlier this week that emission caps for developing countries seemed about to fall off the table and indeed there has been no further mention of them. Sectoral commitments by industry sector look like the most likely commitment we can expect from developing countries. Details of these too will have to be worked out by ministers.

Adaptation

Adaptation, deforestation, technology, and financing are the main priorities for developing nations. And they scored victories today on the first two. The final structure and operation of an adaptation fund was finally agreed by officials. This is therefore one item ministers will not have to debate but can simply rubber-stamp.

I had wondered how important the set up of the fund was when recent reports have suggested the fundamental problem with adaptation is that rich nations aren’t paying up. Only about 15 per cent of US$1.2bn  (€0.81bn) promised to the developing world by the EU and other states in 2001 has materialised, said UK newspaper the Guardian just before Bali.

All the money in this particular fund however, will come from a two per cent levy on transactions under Kyoto’s Clean development mechanism (CDM), rather than donations. If operational tomorrow, it would contain about US$36m, hardly the US$50bn the World Bank forecasts is needed, but Mr de Boer notes there is a huge CDM pipeline.

Deforestation

On deforestation, World Bank president Robert Zoellick today in Bali launched a new fund to help developing countries reduce emissions from deforestation and land degradation. The fund, which is expected to be worth US$300m, will among other things offer countries carbon credits in return for reducing deforestation.

Not everyone applauded the fund. NGO Friends of the Earth said it would not help combat change because it simply offered industrialised countries another way to avoid reducing their own emissions. The US has not decided whether to support it, reports Bloomberg, but it notes President Bush opposes putting a price on carbon.

Negotiators came close to finalising a draft text on deforestation, which begins to set out accounting standards for forestry carbon reduction projects and doubles the size limit for forestry projects that qualify as “small-scale” under the CDM. Such projects face simplified requirements. Mr de Boer said the move would not only expand the geographical scope of the carbon market, but also help countries without strong energy sectors profit more from the CDM.

The only outstanding controversial element in the deforestation text, which will therefore have to be taken up by ministers tomorrow, is how forest conservation fits into the picture.

Technology transfer

On the other two issues of concern to developing countries, technology and financing, the latter is a horizontal issue that cuts across everything from the carbon market to the adaptation fund. Subject to a dedicated international finance ministers’ meeting here in Bali today, I’ll report on that separately.

Technology transfer continues to generate heated discussion and will undoubtedly go to ministers for debate.

One proposal on the table is to monitor technology transfer – as for adaptation, the developing world does not feel it has benefited as it should from this mechanism. Also under consideration is a technology leveraging facility that would help turn a country’s assessment of its technology needs into project proposals that meet the criteria of international financial institutions. The idea is to combine soft loans with much larger commercial investments to bring technologies to new markets.

Other issues

On other issues, UN officials agreed for the first time to consider carbon capture and storage projects for inclusion in the CDM. But they could not agree on how to tackle a potentially perverse incentive to up production of the greenhouse gas HFC-22 to earn carbon credits from reducing its by-product HFC-23. Support for including aviation and maritime emissions in a post-2012 agreement continues to look very iffy.

The aim at these UN meetings has always been to get as much as possible sorted before the ministers arrive so they can devote themselves to the tricky stuff. Despite progress in some areas, there is quite a plateful awaiting them after breakfast tomorrow. The language on and mix of ambition, emission reduction commitments, technology transfer and deforestation will somehow have to please them all.

Some facts

After wading through pools of diplomatic guff, it was a relief to sit down and be presented with numbers. Better yet, tables and charts.

This evening I attended a presentation by consultants McKinsey on their work on calculating the costs and potential to cut greenhouse gas emissions in different countries.

Germany was used as the example – indeed we wrote up this study not long ago – but the company has carried out similar studies for the US (only just completed last week!) the UK and the Netherlands. Others are underway, such as for Sweden, or planned, such as for Italy. Not all are made public.

Curious insights are emerging from this work. One is the minimal impact expected from the EU emission trading scheme, at least in Germany and the UK. In the former, McKinsey predicts this will only cut emissions by 14m tonnes by 2020, a mere sliver of what other measures are forecast to offer.

It assumes a carbon price of €20 per tonne, although upping this to €30 would have little impact a consultant told me.

By far the biggest potential to cut emissions lies in opportunities with so-called negative cost, meaning the emission cuts would pay for themselves over a product’s lifetime, for example 30-40 years for a power station.

McKinsey says on average 35-45 per cent of abatement opportunities are of this type. Why is no one acting on them? The reason is a range of non-economic barriers – the decision may make macroeconomic sense but other considerations preclude it.

For example, why would a landlord invest in housing insulation if it is his tenant who benefits through a lower energy bill? Pass on the costs in rent you might say, but in Germany there are rent ceilings. Similarly, a lady of 80 may decide against an investment that comes with a 15-year payback period. A young couple may wish to invest but lack the upfront cash. Or, people may simply be unaware.

McKinsey calculates that Germany could cut its emissions by 127m tonnes or 25 per cent by 2020, relative to 1990 levels, purely by tackling these barriers. This would be tremendous. It is up to policymakers to make it happen.