Standard Carbon

By Celine Lim

Listen to Durban Debrief Part One

Listen to Durban Debrief Part Two

Listen Durban Debrief Part Three

Listen to Durban Debrief Part Four

Listen to Durban Debrief Part Five

It was standing room only at this week's DC Durban Debrief event, co-hosted by local carbon contemplators Ecosystem Marketplace, Climate Focus and McGuireWoods LLP. Over 75 DC market players turned up to get the first-hand scoop about the 17th Conference of Parties from those who staked out the COP in person.

The panel of three distinguished experts (Henry Derwent, President and CEO of the IETA; Bob O'Sullivan, Executive Director of Climate Focus; and David Antonioli, CEO of VCS) was moderated by Ecosystem Marketplace's very own Director, Kate Hamilton. There was a great showing of the DC carbon community, including financial institutions, multilaterals, the State Department, project developers and NGOs.

The audience heard a report from Durban punctuated with insights on COP 17's implications for the carbon marketplaces, and then had a chance to delve deeper into the practical challenges for the carbon community on the roadmap to 2020.

Derwent received nods from around the room when he explained that although it was heartening that politicians took steps forward, it did not shift actual demand for credits or project developers' ability to attract new investment.

"The price of any of the units which are bought and sold in the markets really didn't blink," Derwent noted.

Another update from Durban that drew interest from the market-savvy crowd was the new ground broken on REDD+ finance - where Durban saw agreement around the possibility of using market-based approaches to support "results-based action", but there remains a lack of clarity around what these approaches might look like.

Will sub-national activities also be supported by markets, and will bilateral financing be recognized under the UNFCCC? And how might these relate to the possibility of linking units generated through market mechanisms under the UNFCCC to future commitments under the Kyoto Protocol?

Our panelists reflected that very little thinking has probably gone into answering these questions. Ahem.

REDD finance's uncertain trajectory is perhaps deepened by the stark, long road toward a post-2020 Kyoto agreement. Before then, it's expected that many REDD countries will have already entered into the results-based payments phase - but without binding targets, there might not be demand for the credits generated. For many, the checkmate period between now and 2020 may appear to have left countries floundering at the mercy of a new Kyoto regime.

Yet, this abyss has spurred action amongst the emerging economies, Antonioli countered. He noted that countries that did not have strong positions pre-Durban--China, Brazil, South Africa, just to name a few--are beginning to have a growing presence in the carbon world.

These players are creating individual markets on local soil that, although fragmented and segregated at the moment, provide options for new projects in agriculture and forestry while international processes catch up.

Chile and Costa Rica are also starting to explore the voluntary market. The development of domestic markets is brand new, however, and some fear that domestic markets in emerging economies may not generate sufficient demand to support local or national programs. Still, Antonioli said, countries recognize the potential of the carbon marketplace, and are venturing into the possibilities as hopeful participants.

But can these segregated markets survive? Can domestic markets be integrated at the global scale and be allowed to flourish amongst the big boys of the global community? To avoid the dominance of a top-down arrangement that might drown out these markets, as the panel suggested, standardization is critical.

Having strong, common standards for projects across the board can offer the security that those from developing markets have the right structure for and compatibility with the larger carbon world. And for these markets to scale up, they have to be transparent and consistent in their program rules for topics like additionality.

Derwent brought all of these conversations home in his response to a question from the floor on what needs to happen in order for REDD to work: "Demand, demand, demand." Without global binding agreements, he explained, there will only be a slackened demand that will undoubtedly disappoint all market players - including the hopeful new kids on the block.

Panelists noted that even with Durban's positive news for the marketplace, sinking carbon prices did not flicker an inch - and that all eyes are now cast on 2020, with hopes that in the final hour negotiators will (hopefully) finally blink.

9 December 2011 | DURBAN | 2130 | The Ecosystem Marketplace team is calling a night in Durban. We will be in transit tomorrow but we hope to provide a wrap-up on Sunday.

9 December 2011 | DURBAN | 1940 GMT | The formal negotiations for these texts have wrapped for the night, but bilateral and ndabo talks continue.

9 December 2011 | DURBAN | 1830 GMT |
REDD: LCA Negotiators are still locked in a closed-door session that also considers elements of KP (the "ndabo"). The text reportedly pushes all major decisions to COP 18 and contains vague commitments beyond 2012. Our sources say it has the backing of developed countries, while developing countries are pushing for a more concrete proposal.

9 December 2011 | DURBAN | 1730 GMT |
REDD: The text that's almost on the table going into the home stretch here in Durban has been narrowed from more than five REDD finance options down to one - and Ecosystem Marketplace is privy to an under the table look at the results of some last minute compromise.

Results-based approaches are at the top of the list, a big sticking point for US and some other countries' support of REDD+.

Regarding compromise language, unconfirmed countries put forth the text "...market based approaches could be developed by the COP," to which Australia and Japan added the word "...including" ("...market based approaches could be developed, [including] by the COP").

The word "including" is one a few words still bracketed - so is the question of the level of MRV accountability ("...ensuring environmental integrity, requirements for robust [national] measurement, reporting and verification are met...").

Observers speculate as to whether the addition of "including" opens up finance to market based approaches outside of the COP or just more firmly reiterates its restriction to the COP. Considering the source of the addition - Japan, which has already bilaterally supported REDD+ feasibility-stage projects outside of the COP - it's highly likely that the former is the case.

Despite NGOs' continued concerns about social and environmental safeguards in the near-term text, one observer says that "despite this, countries still feel it is appropriate to give a signal that carbon markets could be suitable funding for REDD in the future."

Indeed, the text makes reference to a wide range of funding options, including market to non-market (fund-) based, bilateral and multilateral and alternative sources. As a caveat, though, you can reasonably expect some minor changes to the above text before it's all said and done.

9 December 2011 | DURBAN | 1700 GMT |
LULUCF: The text that is prospectively going to ministers (still unseen outside of closed door sessions) leaves a few issues unresolved - issues that will likely be retained as bargaining chips for broader Kyoto Protocol debates.

Will Annex I countries set their reference levels according to projected scenarios or decide to revert back to rules for the first commitment period? The latter option would continue to allow countries to "opt in" to accounting for emissions from managed forests and crop and grazing land.

The former could enable them to establish scenarios that allow for large emissions increases in national inventories with potentially little consequence.

Another question is whether or not they will require Annex I countries to account for both wetlands drainage and rewetting. There's been discussion around allowing countries to only report wetlands draining but not include it in national inventories - meaning that they may have incentive to restore wetlands, but not to avoid draining them in the first place if they opt to not account for these emissions.

Wetlands and managed forest sectors account for around 1 billion tCO2e annually.

With the midnight hour approaching, negotiators seem to adding to the current REDD text rather than refining it. The document has now expanded to a heavily bracketed four pages.

REDD: Fearing that the LCA process will come to an end without chance to conclude REDD, the SBSTA REDD facilitator Tony La Viña implored delegates to come up with a work program that could keep the process going should LCA fail. That mean agreeing on four core elements: one defining potential sources of finance, one dealing with the content of the technical paper identifying effective sources of finance, one hosting an expert meeting and one mandating SBSTA to continue the process.

When talk turned to a topic list for the technical paper, several parties - scores by one count - began loading it with their own pet projects, at which point chaos ensued.

Though a heavily bracketed REDD text was expected in the morning, no text had yet been released at 1830 Durban time.

LULUCF: Expect a text tomorrow - when it's in, also expect to hear observer responses to the big issues: will the text opt for projected or historical baselines? Will accounting be consistent with other sectors under the Kyoto Protocol (several organizations say Option 3 - out of four available options - is the only one that passes this test).

All of this depends, of course, on the presence of a Kyoto successor - and parties comment that there's no obvious choice emerging among the existing proposals. Members of the French delegation and others report to Ecosystem Marketplace that right now it seems unlikely that a "gap" solution can be agreed upon in Durban that would prevent Kyoto from expiring without a replacement.

Members of the AWG-KP are currently reviewing provisional fixes in case there's no timely comprehensive solution.

REDD: For REDD to work, the market needs clear guidance on how to establish reference levels, but the UN text is often incomprehensible to those outside the process -- and even to those of us who are tangential to it, not to mention negotiators themselves. That's why the Meridian Institute published "2011 Guidelines for REDD+ Reference Levels: Principles and Recommendations" in November. On Monday, they held a side event to shed light on the debate over reference levels and on the decisions we highlighted in yesterday's blog.

Commissioned by the Norwegian government, the report is part of a collection of reports that is meant to "support and inform UNFCCC negotiators and other stakeholders in the process of building an international REDD+ mechanism," according to Hans Brattskar, the Ambassador of Norway's Climate and Forest Initiative.

It certainly seemed to, from the author's comments as well as Tony La Viña's assessment. "I think the report and its previous earlier versions contributed to unpack all of this for the negotiators such that by the time we were actually in Durban, many of the negotiators had actually mastered or knew how to talk about this," says Levina, the facilitator of the SBSTA REDD+ Contact group, referring to the technical issues of reference levels.

The report was developed by expert authors that the Meridian Institute convened; these authors then went through a consultation process with other experts. As the project leader Dan Zarin said in the side event, these reports were meant to aid SBSTA in responding to the request embedded in Annex 2 of the Cancun agreements to develop modalities for REDD+ reference levels and reference emission levels at COP17.

However, as Zarin quickly pointed out, there is no official definition of reference level or reference emission level in an adopted UNFCCC text. For the report, reference emission level refers to levels of deforestation and degradation whereas the term reference level refers to these as well as sustainable management of forests, conservation and enhancement of carbon stocks.

There were many similarities between the decision and the report;s ideas on reference levels. For example, Doug Boucher said that both documents use the same basic definition for REDD+ Reference Levels: they are business as usual baselines, developed using historic data and adjusted for national circumstances, against which emissions are compared.

To develop these reference levels, the report recommended that SBSTA take a cue from IPCC and use their basic reporting principles. SBSTA listened, and included 4 out of 5: transparency, completeness, consistency and accuracy. Though they left out comparability, it was not for lack of discussion says Boucher.

La Viña seconded that, saying that a longer discussion was needed around that issue in the next SBSTA meeting.

One area that remains open for interpretation is the decision's recommendation on the scope of REDD+ Reference Levels. The report recommended that SBSTA use IPCC's basic categories of land use transitions: Conversion of forests to other lands; Emissions from and removals by forests remaining as forests and other lands that are converted to forests. However, Boucher says the negotiations did not clarify whether these would be used as the different categories for reference levels.

Boucher thinks that SBSTA should agree to use these IPCC categories because they are simple and straight-forward. In addition, the IPCC has extensive guidance on how to estimate emissions and removals for these categories, he says.

Beyond recommendations, the report also included guidelines for how governments should develop reference levels. Both the SBSTA decision and the report emphasized that definitions were a key step for developing reference levels. These would include, according to Sandra Brown, what percentage of canopy cover is considered a forest, the scope of activities and the pools included, the time frame for historic levels, and whether it will initially be within a national or subnational scope.

Within the SBSTA decision, it is clear that countries need to have clear definitions of pools including explanations for pools they were excluding. However, the time frame for historic levels was not mentioned.

Definitions are especially important because many countries transitioning to a national REDD+ system will have to integrate various sub-national strategies. This means, as Valerie Merckx pointed out, these sub-national strategies must follow the same steps as reference levels at the national level.

Regardless of what type of reference level they are creating, Brown thinks that countries should determine the type of data needed and then look to see if any existing data can be used - rather than simply trying to harmonize that existing data to create a reference level. Though countries might be skeptical of this approach, Brown thinks it will help for the future. "Eventually you are going to have to collect this kind of data as you move forward under a monitoring plan, therefore why not learn by doing it on the historical period?," says Brown. "This is an opportunity to actually develop the capacity while you are learning how to do it."

Another key part of reference level discussion is the need for adjusting according to national circumstances. "We concluded that case-by-case adjustments should be supported by robust and verifiable empirical data," says Brown. "Basically if you look at the SBSTA decision, that is basically what it is more or less suggesting. It is done on a country by country basis where they have to make the case for what their adjustments would be--they have to be credible, they have to be justifiable and they have to be transparent."

The adoption of a reference level and any adjustments will be approved through an outside technical assessment. The report and the SBSTA decision are in agreement that the procedure for reference levels adoption is that countries will submit preliminary reference levels and issues will be discussed after a preliminary review, according to Merckx.

There is still plenty in the report that SBSTA will need to talk about at their next meeting.

For example, Merckx says that there will be a need to focus on the criteria of the technical assessment.

Though he sees the hook for later discussion, Boucher also sees the need for SBSTA to continue to work on how the technical assessment is going to work: who will do it? What information will they consider? How will it be reported? To whom? And what happens next?

REDD:
Over the weekend, we saw the creation of two key documents: the SBSTA decision on reference levels and the formulation of that decision as an agenda item for this week's high-level talks. Several delegates said the text provided enough guidance on reference levels for developing countries to begin moving forward, even though it fell short of the most optimistic expectations.

A wave of optimism rolled through Forest Day on Sunday in Durban, as Tony La Viña, facilitator of the SBSTA REDD+ Contact group, offered an optimistic assessment of the SBSTA decision - one that several agreed.

"This is the best REDD+ decision to come out of this process since the Bali Action Plan, albeit in a world of much lower expectations," says John-O Niles, Director of the Tropical Forest Group.

Others, however, say the text offers more of the same.

"The new text fails to do what it is supposed to do," says Joerg Seifert-Granzin, an economist who advises the Katoomba Incubator. "It was supposed to provide guidance on how to establish emission levels, but it only repeats things that have already been agreed on."

He points out that a previous text, issued on December 1, offered precise guidance on a range of technical issues, including a clear definition of which national circumstances would be considered for establishing emission levels, and which would not. The current draft merely states that different approaches can be used.

The decision also calls for consultations and expert meetings, but Seifert-Granzin points out that expert meetings were held last month, and they resulted in draft conclusions which were supposed to feed into this month's talks. Instead, they were simply alluded to but not considered.

Niles concedes the shortcomings, but says it's the best we could hope for under the circumstances.

"Basically, as a result of this, SBSTA, through a COP decision, will establish a process with fairly specific information about what the UNFCCC is looking for," he says. "They have established a review process but need guidance, and that will be done at SBSTA 37. We couldn't get any more here."

He says that the level of specificity is good enough that developing countries can begin moving forward.

"We have been asking developing countries to submit information on baselines and reference levels for years," he says. "Do you know how many reference levels have been submitted? Zero, because countries, up until now, didn't know what to submit to the UNFCCC . And up until this draft decision, they didn't know if the UNFCCC would do anything with the submitted reference levels."

"Now they have substantial and specific guidance on what information to submit. Data sets, methods, models, and assumptions should form reference level submissions and this information should be transparent, complete, and consistent because it will go through an independent technical assessment. And importantly, they know that their reference levels at that point are only proposed - they are not yet codified. This will encourage countries to submit reference levels that can pass a transparent review process."

We came in this morning expecting to top off a fairly optimistic curtain-raiser, but several other delegates are throwing a wrench into that assessment.

LULUCF:
Turning to the Kyoto Protocol track, LULUCF draft revisions are still ongoing. Of course, at this end of the ICC corridors, the biggest elephant in the room is the extension of the Kyoto Protocol.

Most conversations around LULUCF are taking place as if an extension can be achieved or - as one party points out - are assuming that most decisions made here will hold even if there is no extension or a gap in binding agreements.

"We've received legal opinions that everything about Kyoto except the legally binding targets can remain in force after 2012." But most observers we've spoken with expect that there will be an extension or stop-gap solution of some kind - albeit Europe-sized. Three options for a successor of some kind are emerging in the AWG-KP, though IISD says there's currently no consensus around any one option.

So what to watch coming out of LULUCF talks today (Monday)?

The spin off group looking at LULUCF under the Kyoto Protocol for developed countries meets this afternoon. As of Friday, no progress had been made regarding the Annex I "logging loopholes" that include allowing developed countries to "opt in" to accounting for forest management emissions and removals.

Currently, around half of EU countries have chosen to report managed forest emissions under Kyoto Protocol Article 3.4 - in most cases, coming from those countries that stand to benefit from reporting.

Convincing Annex I countries to account for all of their forestry activities region-wide and on a mandatory basis isn't an easy task. It's clear to observers that they will only capitulate if allowed to utilize projected reference levels as opposed to historical levels (ca. 1990).

In a nutshell, this means that rather than determine business as usual (BAU) according to historical or even current levels, some parties want to include future projected emissions in their calculation of BAU.

Because they also anticipate increasing their forest harvesting rates for the supply of bioenergy and other uses, setting BAU according to future levels accommodates an increasing rate of emissions. And if increasing emissions levels become BAU, this allows for increased emissions without consequence.

"The point of this conversation was to bring all those managed forest emissions onto the books," mused one observer. "However, the rules that developed countries have been developing would make forest management accounting mandatory while not bringing those emissions onto the books."

Right now, a few countries (mostly developing countries) are working to produce alternative text that does not include projected reference levels. Unfortunately, observers report that the issue has become a trading card in the larger discussion about the fate of the CDM and Protocol - i.e. let us have projected baselines or we'll just bow out of a second commitment period.

Observers expect that the "logging loophole" text will likely remain intact until it's passed onto ministers later this week.

Grab Bag: Highlights from Tony La Viña's Forest Day Update:
"I would have preferred a much more detailed guidance from the outset, but when I started looking at the content, the possible content and making it more detailed, I realized that we are flying blind into this. That there is very little experience of safeguards in the world that is directly related to REDD. And it is actually better if you have that experience first, before we detail the guidance. So I actually welcome this pace for a year, maybe even more, so that there is real experience on the ground so we know what kind of information really is needed to enforce the safeguards."

"I welcome this decision of SBSTA which actually says 'We will review what we have on the basis of consistency, comprehensiveness, effectiveness and transparency in the way the information around safeguards is provided. The work is cut out for is the next year to do that, but it is all in the spirit of advancing implementation."

"The real breakthrough, I think, as well in the SBSTA decision is the decision on reference levels. For a while there yesterday afternoon, we actually thought that there would be no agreement, simply because it is so technical, there is so much to be dealt with. We had a very big political issue around adjustment according to national circumstances which some of us are concerned about and can have impacts on environmental integrity. But we were able to sort it out and I feel quite happy with the results. At least it gives guidance in fact in how they will now construct reference levels. The more important thing for environmental integrity is that countries agree that they will be assessed, that their offer of what their forest reference levels or forest emission levels will be will undergo an assessment process..."