Looking beyond Kyoto

The jury is still out on whether Russia will ratify the Kyoto Protocol. But Moscow’s prevarication has focused attention on life after Kyoto. Mark Nicholls reports

The nightmare scenario: Moscow, July 2004. In a terse statement, President Vladimir Putin confirms claims made in recent weeks by his economic adviser, Andrei Illarionov, that Russia has categorically decided not to ratify the Kyoto Protocol. Citing its potential to slow Russia’s booming economy, Putin’s announcement kills the landmark international climate change treaty stone dead.

The European Union quickly repeats its long-stated intention to meet its greenhouse gas (GHG) reduction target under the Protocol. But European business leaders demand to know why they should carry the burden of cutting GHGs, when their overseas competitors face no such requirements.

Eileen Claussen, Pew Center: a new approach is needed – whether Russia ratifies or not

They are emboldened by decidedly ambiguous comments from the Japanese and Canadian governments, who show signs of backing away from earlier support for the treaty. And the United States – whose rejection of Kyoto in 2001 ultimately gave Russia the casting vote on the Protocol’s entry into force – offers to work with “all interested parties” in developing the technological solutions it has since touted as a more economically rational approach to tackling climate change.

A nightmare scenario for supporters of the Protocol – but one that came much closer to reality at the end of last year, when Illarionov claimed that the Protocol could not be ratified by Russia in its present form.

The good news for Kyoto advocates is that most analysts still believe the Kremlin will, ultimately, ratify. The bad news is that Moscow is in no hurry. Even worse, if Russia does decide to turn its back on the Protocol, it is unlikely actually to announce its decision.

“It doesn’t make sense for Russia to make such a statement – they’ve got nothing to gain, and they don’t want to start a new process,” says Jonathan Pershing, climate change programme director at the World Resources Institute, an environmental think-tank in Washington DC. “The most likely outcome is just to let it hang. It’s very hard to deal with that case.”

So where does this leave business? How should it approach what are likely to be months – if not years – of continuing uncertainty over the fate of the planned international climate change regime? And what would happen if Kyoto collapses?

The European Commission, the EU’s executive arm, has made it perfectly clear that the EU’s planned emissions trading scheme (EU ETS), which comes into force in 2005, is going ahead regardless of the entry into force of Kyoto.

And a leading climate change official at the Commission notes that, in 1998, EU member states signed up to the legally-binding ‘burden-sharing agreement’, which translated their Protocol commitments into national law.

But shortly after Illarionov’s comments, which coincided with COP 9, the latest UN climate change meeting held in December, EU energy commissioner Loyola de Palacio expressed doubts as to whether the EU could go it alone on Kyoto. She was quickly slapped down by Commission president Romano Prodi, but doubts remain as to whether the EU would hold fast to its targets for the second phase of the EU ETS, which covers the first Kyoto Protocol ‘commitment period’ of 2008–12.

“The big question is over the second set of allocations,” agrees Lee Solsbery, the director of climate change at environmental consultancy ERM. “My prediction is that the EU will stay with its scheme, and deal with the practical aspects of Kyoto not entering into force.

“We’re telling our clients that we expect a compliance-driven scheme to go ahead. To assume not is too big a risk.”

Canada’s position is more ambiguous. Outgoing prime minister Jean Chrétien announced the country’s ratification of Kyoto in December 2002, in the teeth of fierce opposition from the oil-rich province of Alberta, and disquiet from much of industry over perceived harm to its competitiveness vis á vis America.

Since taking over late last year, Chrétien’s replacement Paul Martin has yet to show his hand. Canadian officials are working on a domestic climate change programme – including an emissions trading regime – but analysts note that the country is likely to fall far short of its target to reduce its emissions to 6% below 1990 levels between 2008 and 2012.

“[Environment minister] David Anderson has said that, if Russia doesn’t ratify, Canada will proceed,” says Bob Page, vice president of sustainable development at Canadian energy giant TransAlta. “But the difficulty is that Canada is dependent upon international credits [from overseas Kyoto Protocol projects] to meet its target. They may not be available."

“The thing that’s really important in Canada is strong public support for action on climate change,” he continues. “The key issue is timing, not targets. The assumption is that, with time, the targets can be met. But if Russia holds off for another year, it seriously complicates getting parties to table a Kyoto implementation plan.”

Japan’s position is equally ambiguous. This year will see the government carry out an assessment of the efficacy of its existing climate change policies. If, as most experts expect, Japan’s GHG emissions trajectory is not on the downward path required for it to meet its 6% reduction target, the government has pledged to introduce new policies – possibly including a domestic emissions trading scheme and an energy tax – in 2005.

“This year, nothing will change if Russia fails to ratify,” says Ken Yamaguchi, a senior consultant and climate change specialist at the Mitsubishi Research Institute. “But if Russia shows no sign of ratifying by 2005, factions in and out of the government that don’t support Kyoto will become more vocal.”

But some policy experts believe that Russian prevarication simply brings into sharper focus the real question: what happens next, with or without Kyoto?

“If they don’t ratify, we need a new approach,” says Eileen Claussen, president of the influential US think-tank, the Pew Center on Climate Change. “But even if they do, we need something beyond the first Kyoto budget period – and it will look very different to the first period.”

At the COP 9 meeting in Milan, a number of think-tanks, pressure groups and industry bodies – including the Pew Center – presented their options for the next steps in international climate change policy. While most were couched in terms of “what happens after 2012”, many argue that this thinking may need to be accelerated.

Joke Waller-Hunter, the head of the United Nations Framework Convention on Climate Change secretariat, is surprisingly frank on the difficult decisions governments need to face regarding the Protocol, and how soon those decisions need to be made.

“At a certain stage, parties have to sit back and think what they want to do,” she says. “Do we continue what we’re doing, or take things in hand and take further action within or without the Protocol? Demonstrable progress [towards the Kyoto targets] must be considered in 2005. 2004 will be a crucial year to consider how we want to move forward.”

For Waller-Hunter, the Kyoto Protocol is simply one vehicle – albeit the most important – for achieving the objectives of the Framework Convention. The Convention, signed in 1992, is the Protocol’s parent agreement, and one to which the US – as well as Russia – remains committed. Rejection of the Protocol by Russia “would be a blow if nothing else had been put in place by parties to ensure progress towards the long-term objectives of the Convention,” she says.

In common with many analysts, Waller-Hunter points to articles of the Convention that could form the basis of alternative types of action to address climate change – without the prescriptive emission reduction targets and timetables that form the basis of the Protocol.

Pershing at the WRI suggests two broad sets of possibilities – either within the Convention Framework, or outside it. “The argument could be made that Kyoto is the right structure, but with the wrong numbers – on targets, dates and countries.”

However, developing countries are unlikely to be enthusiastic about taking on their own reduction targets – a key US criticism of the Protocol. And environmentalists already consider its overall target – originally an average 5.2% reduction across the industrialised world – to be merely a baby-step towards the deeper GHG reductions needed to stave off catastrophic climate change. Weaker or longer-term targets would have little support from Kyoto advocates.

Alternatively, the Convention could be redirected towards technology-based objectives. Pershing notes that both the Protocol and Convention already contain provisions for the transfer of low-emission technologies to developing countries. He adds that the highly successful Montreal Protocol on ozone-depleting substances also had a strong technology component.

The international community could even turn to a completely different approach within the Convention framework, he says. “This could make clean development the priority, with climate benefits as ancillary outcomes.”

However, it is also possible that post-Kyoto efforts could be concentrated outside the Framework Convention, Pershing says. “We could well see a series of local and regional initiatives between like-minded players,” he says, citing the EU scheme, or possible regimes centring on NAFTA, or ASEAN, countries. Canada, for example, could well pursue such a North American initiative, given its close trading ties with the US, he adds.

Another possibility would be for a series of approaches based on industry sectors, such as manufacturing or aviation. Such sectoral initiatives could overcome competitiveness concerns felt by companies covered by national or regional reduction regimes. However, given that they would most likely rely on voluntary membership, some analysts doubt whether they could lead to sufficiently aggressive reduction commitments.

Clearly, a wide range of options are on the tablel. And, as Claussen argues, creative thinking is required. “What is clear to us is that, if you can’t find a way to make people’s [climate] commitments align with their national interests, they either won’t join up, or won’t implement properly.

“We need further discussion about national interests, and an acknowledgment that interests aren’t all the same. We need a more flexible infrastructure.”

But, in the meantime, any further slowing of the Kyoto process will send worrying signals – both to governments and business. “The key question is, how long will concerted action be sustained in the absence of a Kyoto Protocol that has entered into force?” says the UNFCCC’s Waller-Hunter.

Claussen believes that any failure of Kyoto to enter into force will send a worrying signal to industry. “There are companies who have set targets, and are working with us [as part of the Pew Center’s Business Environmental Leadership Council] on how the process will evolve. They won’t change the way they behave. But we may not be able to attract others into this group if there’s continuing uncertainty.”

And what of those companies that are ahead of the pack? Most argue that the experience they are accumulating will stand them in good stead – delays notwithstanding. “We see an increase in the quantity of climate-related legislation, not a decrease,” says David Hone, group climate change adviser to Royal Dutch/Shell. “This will happen independently of Kyoto.”

“We assume we’re heading for a carbon-constrained future,” agrees Page at TransAlta. “We’re on a learning curve that we believe is relevant for our competitive advantage … we feel that to invest today in offsets, clean coal, and renewable energy will position the company well for the future.” EF