New Paradigm of Low Carbon Development

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					New Paradigm of Low
Carbon Development

       Rae kwon Chung
  Climate Change Ambassador

      Republic of Korea
     Story of Three Myths
Climate Action (CA): Bad for Economy
Target: only way for Emission Reduction
Not Enough Money/Technology for CA

Story of Low Carbon Parad
Climate Action: Good for Economy
E R: Possible without Target
Enough Money/Technology for CA
     High Carbon Paradigm:
  Energy, Growth, Climate Nexus

         Low        Vul To     Economi
         Energy     high oil   vulner-
         Efficien   price      ability     MDG in
Fossil   High       Vul to     Ecologic Unsustainable
Fuel     Fossil     Climate    vulner      Growth
         Fuel       Change     ability
     Low Carbon Paradigm
• High Energy Efficiency  Saving Energy Costs 
  Energy Security against High Oil Price  Improve
  Industrial Performance  Sustain Economic
• Low Fossil Fuel Dependency  Reducing GHG
   Reducing vulnerability to Climate Change 
  Improving Ecological Sustainability
• Economic Growth + Ecological Sustainability
   Green Growth
• Turn Vicious Cycle to Virtuous Cycle
Paradigm Shift from High to
  Low Carbon Paradigm
   Climate Action = Energy Security

• Especially When Oil is 130 USD per Barrel
• Climate Action  Improving Energy Efficiency
   Improving Energy Security
• High Oil Price is making Climate Action not
  only Ecological action but Economic Action
  CA Bad for Economy ?
• Internalize Ecological Costs 
  Improves Energy Efficiency 
  Strengthen Competitiveness 
  Encourage R&D, Create New Market,
  Employment, Growth
• Countries with High Energy Price 
    High Energy Efficiency
      Then Why Resist ?

• Positive Results: Long-Term
• Afraid of Short-Term Burden/Costs
• Key: How to close Long-term/Short-
  Term Gap ?
• Need Policy Support
    to Minimize Short-Term Burden
     to Maximize Long-Term Gains
    Because We do not know yet

• Whether decoupling could happen in DCs
• Low Carbon Development: still vision,
• Decoupling only happens in rich countries
• Korea: 75-06, GDP increased 7.5 times
         Energy Consumption 7.4 times
• We need Low Carbon Economics:
 that can make decoupling happen in DCs.
        A/P Can not repeat

                                       Grow First,
Quantity of   Market Cost Efficiency
                                       Clean Up
  Growth                                 Later
A/P 새로운 성장 패턴

Quality of   Eco-efficiency   Green
 Growth                       Growth
               Asia & Pacific

•   High Growth
•   2/3 of world poor
•   1.5 times population density
•   34% of global GHG emission
•   Lowest ecological carrying capacity
Ecological Status of Global Economy

• Deepening Ecological Deficit
  – Footprint is surpassing Biocapacity
     Unmet basic needs… need for
       further economic growth

•   600 million without safe drinking water
•   1.9 without sanitation
•   800 million without electricity
•   Still need rapid economic growth
Asia-Pacific situation

Limited Carrying capacity
A/P has to change “Growth Pattern”

 • To attain
 • MDG 1 (poverty reduction)
 • MDG 7 (environmental sustainability)
   at the same time
Paradigm Shift from

 • Quantity of GDP to
   Quality of GDP
     •   Ecological Quality
     •   Economic Quality
     •   Social Quality
 Current Paradigm: MCE

• Market Cost Efficiency: market price
• Market Price < Ecological Price
• Market Cost Efficiency (MCE)
  < Ecological Cost Efficiency (ECE)
• Gap between MCE & ECE has to
  be closed
Need to shift from MCE to
Ecological Efficiency (EE)
 • EE: Key Concept of
                Green Growth
 • EE is
 Internalize Ecological Cost
 Maximize Resource Efficiency
 Minimize Pollution Impact
   EE of Economic Growth

• Different Pattern of Growth
• Japan> EU > US
• In Asia: Singapore
Different Patterns of Growth
   (global hectares per capita, 2003)
    Examples of Eco-Efficiency

•   Japan: rail based transport system
•   Singapore: private car control
•   London: congestion charge
•   Norway: Road Pricing, ban shopping mall
•   Failure of EE: Traffic Congestion Costs
    Japan 0.79%, US 0.65%,
    UK 1.25%, Bangkok 6%,
    Korea 3%
    Basis for Eco-Efficiency

1. Price-structure: close gap between market
                  Price & Ecological Price
      * Invisible Infra of society
2. Infra-structure: Frame of Economic
      * Visible Infra of society
 Policy Tool for Eco-Efficiency

• Eco-Tax Reform: Tax Base,
            Income  Carbon
• Sustainable Infra: Transport
• Demand-side Management
• Green Business Promotion
• Climate Action
       Eco-Tax Reform
Tax Base: Income Tax Base: Carbon
                    Income Tax

Income Tax

                    Carbon Tax
Carbon Tax
       Changing Tax Base
        Double Dividend

• 1 stone 2 birds

• Reducing GHG Emissions
• Promoting Growth
Demand-side Management

• As Income level rises,
  consumption will place major
  pressure on CO₂emission
• Deteriorating EE of Consumption
• Consumer Acceptance: Key
• Congestion charge, Road Pricing
         Climate Change

• Market Failure (MF): Stern Review
Need invest 1-2% of Global GDP
If not, global GDP will be lower 5-20%
• From GG perspective: EE Failure
• GG  Ultimate answer to Climate Change
• Low Carbon Paradigm:
one of the tools for GG/EE
      EE & Carbon Intensity
•   Ecological Efficiency  GG
•   Low Carbon Intensity (LCI)  LC Dev.
•   EE: improving efficiency of Power plants
•   LCI: switching Coal-fired power station to
                   Gas-fired one

         United Nations Economic and Social Commission for Asia and the Pacific
3 myths of Climate Regime
• Target is Good. No Target is Bad.
• “Binding” is better than “Voluntary”
• “Binding Target” is the only option
  to reduce Global Emission.
  - placing a far greater role on
    Government over Market
    (Finance, TT)
   2 Cases of Target

• When BAU

                 (ANNEX 1)
• When BAU

 Fixed/Absolute/Binding Target

• When BAU          : Feasible

• When BAU           : Not Feasible
   - Uncertainty of Projection
   - Difficulty of Agreement
• Hot Air / Growth Capping

• Target: Indicative Goal,
  Political Will
• Driver of Short Term Action
• Pledge & Review: adjustable to
  changing circumstances
When target has limited role?

• MRV (Measurable, Reportable
  and Verifiable) actions of NA-1:
  Need Incentives
• Market Mechanism could play
  key role in providing Incentives.
      In designing Post-2012
• Need Market and Private Sector Dynamism
• Improve Commercial Viability of Investment
• What is lacking is not money and technology
  In fact we have too much money and enough
• Once we can design a mechanism which can
  improve commercial viability of mitigation
  investment  money & tech will flow
                 to Mitigation
    DC: “Unilateral Actions”
• China & DCs: already taking
  significant mitigation actions
• China: 20% energy efficiency target,
  has to be recognized & incentivized
  It is not fair to say that China does not
   have a target. It already has.
• Nicklaus Stern: Key Elements for
  Global Deal for CC, incentive for DCs
  as Carbon Credit for mitigation
Unilateral Developing Country Act
 ions Compared to US and EU



                   Lieberman-                 EU 30%     U        China, Brazil,          Lieberman-
                  Warner (2015)                target    3          & Mexico             Warner (2020)

                US Lieberman-Warner in 2015                      EU-27 -30% Target in 2020
                China, Brazil, and Mexico's Unilateral Actions   US Lieberman-Warner in 2020

               • Reductions from BAU (CCAP)
     Cost of 1 ton CO₂Reduction
• CO2 ER per ton (USD): 234 Japan, 153 USA,
  198 Europe.
• a few dollars to 20 or 30 $ per ton in developi
  ng countries (less than 20 $ in China) Asia-Pacific
  Integrated Model (AIM), Japan

• Cost Differential: can make ER investment in
  DC commercially viable: drive market
Barrier for Market Mechanism

• Political Ideology: Supplementarity
  Principle  Reduce in your country
   Is it necessary ? To what extent ???
• Additional Burden on Annex 1 ???
   it depends on design of Climate Regime
• If Supplementarity Principle is relaxed,
  reduces burden on Annex1 &
  enables Deeper Cut/Deeper Global Net
       Original CDM Design
• Annex 1 Compliance Mechanism
 – Political (Not Market) Mechanism
 – Supplementarity Principle:
 – CDM: loophole of A-1 Compliance
    Restrict CDM As Much As Possible
    Impose Additionality Criteria:
   Technical, Project, Financial Additionality
 CDM has to be redesigned as
 market incentive mechanism
        Evolution of CDM Design
• From Compliance to Market Mechanism
• Bilateral to Unilateral CDM:
  –   A-1: Investing in NA-1 to generate CER (B/CDM)
  –   A-1: Buying CER from NA-1 (U/CDM)
  –   Proposed in 2000 at COP 6, Approved in 2005
  –   Strong opposition: G-77(China,India), EU
• U/CDM: incentive for investment in mitigation
  projects in NA-1, about 70% U/CDM
              Still Half Way:
• Original Bilateral CDM: Political
• U/CDM: Hybrid of Political / Market
  – Still Same Additionality Criteria: restricting
    project scope
• CDM: yet very limited incentive for
  investment in mitigation in NA-1
  – Need to remove project & financial
    additionality criteria, but maintain Technical
    Baseline strict
Key Issues for Post-2012

• For Developing Country: How to
  design finance & technology
  transfer mechanism?
 – Current Debate focusing on the role
   of Governments of Annex 1:
 Not Realistic
• For Investor: How to improve
  commercial viability of
  investment for mitigation?
          What is NAMA ?

• Nationally Appropriate Mitigation Actions
  by developing country parties, supported
  and enabled by technology, financing and
  capacity-building, in a MRV (Measurable,
  Reportable, Verifiable) manner
  - Bali Action Plan Decision 1/COP 13,
    Para. 1.(b).(ii)
If Credit is awarded to NAMA

• Mitigation initiated even without Finance
  & Technology (e.g. Unilateral CDM)
• Commercial Viability will be improved
   Fin & Tech flow will be scaled-up
• Global Mitigation Cost could be reduced
• Annex 1 could take deeper target
• Mitigation will be driven by market
  dynamism/ Private Sector.
    With credit for NAMA
• Global Carbon Market will function as Fin &
  Tech Transfer Mechanism
• DCs can initiate mitigation while pursuing
  Low Carbon Development (GG)
• Certain share of proceeds can be allocated
  to Adaptation Fund,
  then 4 key issues of Bali Roadmap
  positively addressed
 How to Operationalize NAMA?

• Demand Side: need buyer of credit
Annex 1: deeper target
• Supply Side: Wholesale approach for CDM,
  programmatic and sectoral CDM
Can build on existing rules of CDM
Total cost of Global Mitigation: reduced
     Carbon Intensity (CI)

• Can be applied sector by sector
 Power Sector, Transport Sector etc.
 Ex. Reduce CI by 20% in 3 years:
• NAMA: actions lowering CI
• CI: Key concept in calculating Carbon Credit
• Basis for Wholesale CDM: Nicklaus Stern
         Related Issues

• Additional Deeper Cut: Additional
  Financial burden?
Better than Fund or Bond
• Carbon Trade: only carbon offsetting?
• How to balance supply and demand?
Needs study (price differentiation,
  CER Discounting etc.)
  How to negotiate NAMA?

• Agree on principle by 2009
  Work out details after 2009 as
  was CDM
• Scope and Extent of Credit &
  Modality is open to negotiation
• Carbon Intensity of Sectors: can
  be applied to sectoral approach
Another Idea of Market Mechanism

 • Reform & Expand CDM Scope:
   removing Project & Financial
   Additionality but maintain
   Technical Additionality
 • Enhance and Wholesale CDM:
   Lord Nicklaus Stern
 • Multiply CER for Solar & Wind
Climate Regime after 2012
 • A-1: Deeper Target       (more than potential
  domestic reduction) to create demand for
  carbon credit from NA-1,
 Fin & Tech Transfer
 • NA-1: Incentive Mechanism       through
  Carbon Market Mechanism (NAMA Credit)
 Mixed with Soft Target (Vol, Pldge
  & Review)
  Net Global Reduction ?
• CDM: Emission Shifting (Carbon Offset)
  Mechanism Not Global Emission Reduction
• But if we Discount CER:
Then CDM can function as Mechanism for
  Net Global Reduction Mechanism without
  imposing target on NA-1
• CER Discount: CER price stabilization &
  Net Global Reduction
    UER/CER Discounting

Carbon                No

 Credit                Net Global
     How About Korea ?
• Early Mover/Bridging Role
• Set Mid-term Target for 2020:
  to be announced by next year
• Pledge & Review: Adjustable/
  /relative/ voluntary target
• Post-2012: Recognize vol target/
  Incentive for Mitigation Action
• East Asia Climate Partnership:
 East Asia Climate Partnership

• Vision: Low Carbon Development Strategy
          Common Challenge of
          Harmonizing Growth & Climate
• 200 Million USD for 5 years
• Policy Forum: launching early next year
• Technology & Finance Cooperation
• Pilot Projects
       Climate Change
• Need “Beyond GDP Paradigm”
• “Low Carbon Paradigm” Need to
   change the way we live/new value:
 Happiness/Quality of life/
  Motainai (Japan)
  Sufficiency Economy (Thailand)
       Climate Change
• Not just an ecological issue
• Issue of changing lifestyle
• If we just try to maximize GDP, we
  will end up with shrinking GDP
  (Stern Review)
• If we focus on quality of GDP, then
  actual GDP will be even bigger
       Happiness Equation

                          New Asian
                GDP      Consumerism

                         New Western
                Desire   Consumerism


Lingjuan Ma Lingjuan Ma MS
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