Reed Smith Client Alerts

Authors: Craig R. Enochs Jennifer A. Smokelin Michael J. Fosh Nicholas Rock Peter Zaman Richard Webb

Type: Client Alerts

Introduction The 20th Conference of the Parties (the COP) to the United Nations Framework Convention on Climate Change (the UNFCCC) and the 10th Conference serving as the Meeting of the Parties to the Kyoto Protocol (the CMP) concluded in Lima, Peru, on Sunday 14 December 2014 with a prevailing sense of déjà vu.

This Lima COP was the penultimate COP meeting before the Paris meeting in November 2015, which is the deadline for reaching a new International Climate Change Agreement (the 2015 Agreement).1 As such, just like in the COPs leading up to the last big attempt for a new international agreement at Copenhagen in 2009, there was a need to make significant progress in Lima to ensure the mountain to climb in Paris does not become too steep.

It is fair to say that notwithstanding a number of significant and positive developments leading up to the Lima COP – the UN Climate Finance Summit in New York, the recent U.S./China joint agreement on climate change, the achievement of the targeted capitalisation of U.S.$10 billion for the Green Climate Fund (the GCF) – the amount of progress achieved in Lima was disappointing.

Does this increase the risk of the Paris COP, like Copenhagen, collapsing under the weight of its own expectation? The answer is that it could, if the next six months are not put to good use and if negotiators continue to play brinkmanship on every possible issue in the various meetings and events set for the next few months (see the ‘Next Steps’ below). That said, much has changed since Copenhagen in 2009 and those differences may help make the 2015 Agreement in Paris more achievable despite the limited progress in Lima. We consider some of these changes in the context of the Lima COP below.

From Copenhagen to Paris The road from Copenhagen to Paris is now littered with international climate statements such as the “Copenhagen Accords”, the “Cancun Agreements”, the "Durban Platform for Enhanced Action", the “Doha Climate Gateway”, the “Warsaw Outcomes”, and the latest to join the list is the “Lima Call for Climate Action” (which includes the draft negotiating text for the 2015 Agreement annexed thereto (the Negotiating Text)2. Although commentators have called these documents “international agreements”, they are better thought of as declaratory “stepping stones” inching towards a potential 2015 Agreement. Such stepping stones are not new; even before Copenhagen there were similar agreements such as the Bali Road Map, which, as we all know, did not ultimately deliver.

However, one of the key aspects differentiating the previous attempt in Copenhagen at an international agreement, to the current hopes for the 2015 Agreement, is the active participation in combating climate change by all country parties, and not just by the few OECD and other developed countries. Unlike in 2009, the debate on capping greenhouse gases has moved on from “why should this commitment go beyond developed countries alone?” to each party having “intended nationally determined contributions towards achieving the objective” of stabilisation of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. However, for reasons discussed below, this level may not actually be enough to prevent temperature rise exceeding 2 degrees Celsius.

If Copenhagen (and Kyoto before that), aspired towards a global legally binding agreement in cutting greenhouse gas emissions, then the aim of the 2015 Agreement is to have every party offer up what it can in a less prescriptive form. Everyone therefore gets to do its part in a “bottom-up” approach, which contrasts significantly with the approach in Copenhagen. Although having to corral 192 countries to make individualised pledges on a contentious subject such as climate change is a challenging proposition, if successful this is ultimately, in the longer term, more likely to lead to an effective outcome than the previous “developed versus developing country” approach. A successful 2015 Agreement must have countries such China, India and Brazil carrying a share of the actions towards achieving the aim of reducing greenhouse gases, along with the US and other developed countries. The lofty titles of the above listed climate statements, are collective reflections of this progressive shift away from the “top-down”, rigid and legally binding form pursued in Copenhagen.

INDCs Building on the pledging system developed in the Warsaw COP, the Lima COP enshrines the latest component of that shift by refining those emission reduction pledges or – to use the latest COP jargon – intended nationally determined contributions (INDCs). In Lima, the battle lines were drawn on the meaning, nature and scope of such INDCs and, to add to that debate, whether the INDCs should further recognise and differentiate between the respective responsibilities of the richer parties and poorer parties who are more dependent on cheaper fossil fuels for their future growth and further development. This led to the importation into the Lima Call for Climate Action, of the existing controversial Kyoto concept of common but differentiated responsibilities and respective capabilities (CBDR), together with a new qualifying phrase – “in light of different national circumstances” – to support that differentiation. While some hail this as a significant victory for some parties such as India, it should be noted that it nearly exactly copies the words of the landmark agreement in November between the United States and China that states similarly that targets should "reflect the principle of common but differentiated responsibilities and respective capabilities in light of different national circumstances." Thus we have to ask, is this a victory at all, or simply moving along the path always intended by the United States?

Although a variety of approaches to differentiation are currently advocated by parties, one approach backed by Brazil3 may ultimately be the one that is likely to be adopted as a compromise approach at the Paris COP in November 2015. The Brazilian “concentric differentiation” approach envisages developed countries in the middle with absolute economy-wide emissions targets; better-off developing countries in the next circle with other types of economy-wide targets; and least developed countries in the outer circle with non-economy-wide actions. All countries would move to the center over time. The debate on differentiation also flowed into the negotiations on adaptation to climate change and climate finance.

As for the INDCs, agreement was reached in Lima on the following:

  • Parties providing INDCs “may” (not “must”) include quantifiable information regarding the reference point of emissions reductions, time frames and/or periods for implementation, the scope and coverage, assumptions etc.
  • There is no formal review mechanism for INDCs to be assessed against the party’s obligations (reinforcing their voluntary nature).
  • The INDCs provided must be beyond what the parties are currently undertaking (i.e. INDCs should be new and higher than current pledges).
  • The INDCs should be submitted by Q1 2015, but only by those parties “ready to do so”, and the INDCs submitted will be “without prejudice” as to the INDCs ultimately contained in the 2015 Agreement.
  • The INDCs submitted as of 1 October 2015 will be compiled by the UNFCCC secretariat in a synthesis report on their aggregate effect by 1 November 2015, just in time for the start of the Paris meeting on 30 November 2015.

The challenge of having a less prescriptive and more open-ended process for developing INDCs is that it will make it harder to work out their relative impact towards achievement of the 2 degree Celsius target. It remains uncertain whether the INDCs should apply beyond mitigation actions or extend to adaptation and finance too. It also makes it easier for parties to provide their own interpretation on the information requirement, leading to the potential for uncertainty of the combined effect of the respective INDCs until the UNFCCC publishes the synthesis report in the immediacy of the Paris meeting. The fact that the pledges are “indicative” implies that they are not going to be binding on the parties and are therefore, “soft” targets.

Other developments Separate to INDCs, a number of other items discussed but not necessarily progressed in Lima include:

  • The legal form of the 2015 Agreement – the 2015 Agreement could take one of three legal forms,4 each having its own implications for the extent to which the 2015 Agreement will be binding on the parties (i.e. whether all or only some aspects of it are binding), and the procedure for enacting the 2015 Agreement (i.e. via majority voting on a binding amendment of the Convention, or voluntary ratification of a protocol to the Convention, for instance). Although the Lima Call for Climate Action did not include a decision on this issue, it is clear that the Negotiating Text must be circulated six months in advance of the Paris COP, if the 2015 Agreement is to have any legal force, whatever its ultimate form.
  • Climate Finance and the Green Climate Fund (the GCF) – the Lima Call for Climate Action did not include any deadlines by which developed countries must illustrate how they plan to achieve the target of $100 billion worth of contributions to the GCF by 2020, an obligation to provide evidence of potential sources for the funds to be pledged or an indication of the political viability of such pledges.
  • The role of carbon markets – these took a knock in that the Lima Call for Climate Action does not include a single reference to carbon markets. Still, the Negotiating Text retains a number of references to carbon markets,5 meaning that these are not completely off the table for Paris. Also, talks on Nationally Appropriate Mitigation Actions (the NAMAs), the framework for various approaches (the FVA) and a new market mechanism (the NMM)6 were suspended until the Subsidiary Body for Implementation (the SBI) meeting in June 2015, as disagreement arose on whether market-related issues fall within the mandate of the Ad Hoc Working Group for the Durban Platform for Enhanced Action (the ADP).
  • Clean Development Mechanism (the CDM) – the review of the CDM’s modalities has been postponed until the SBI’s meeting in June 2015. The lack of progress reflects a number of factors, including the uncertainty of the role of CDM in a 2015 Agreement. The depressed prices and lack of demand for CERs does not invite any urgency for the CDM reform agenda.
  • Reducing emissions from deforestation and degradation (REDD+) – negotiations at the Lima COP in relation to REDD+ focused predominantly on safeguards7 but failed to bear fruit due to concerns expressed by parties who are more likely to be the beneficiaries of such safeguards (e.g. Brazil and other rainforest-rich countries), that such safeguards should only be discussed after certain fundamental elements, such as compliance and enforcement mechanisms, are agreed upon.

Next Steps Between now and the Paris COP in November 2015, there are several key milestones that will continue to shape the 2015 Agreement. These are set out in the timeline below.

Conclusion The limited success of the Lima COP must be viewed in the context of the road to Paris. There were breakthroughs in further overcoming the traditional Kyoto “developed versus developing country” divide through the willingness expressed by all parties to set out their respective INDCs (albeit voluntarily and only if possible within the timeframe). Currently, almost every section of the Negotiating Text has three or four alternative forms proposed. These options will need to be whittled down in advance of June 2015 when a shorter version of the Negotiating Text would have to be presented to the COP. A number of meetings between now and December 2015 will be the key to further reducing the 43-page Negotiating Text down to a more manageable 20-25.

However, expectations of what a meaningful 2015 Agreement will look like may ultimately turn on any particular stakeholder’s expectations for Paris. The trend of the 2015 Agreement is clear; this process will not deliver the 2 degrees Celsius target. Some parties to the process, such as the small island states, will no doubt have grave concerns in this regard, but may be able to take small measures of comfort from the “loss and damage” concept introduced in the Warsaw COP. Furthermore, the 2015 Agreement may not be a formal legally binding treaty and a party’s compliance will potentially lack international scrutiny and oversight. However, given the history of climate change negotiations, this outcome is more realistic. In any event, it may be questioned how much more chance of success the theoretically “binding” nature of an agreement really creates. Enforcement of international agreements is extremely difficult in practice, whereas political will, and the desire to avoid international naming and shaming of recalcitrant states are likely to be equally if not more effective drivers of success.

The 2015 Agreement is likely to lead to a more fragmented and regional carbon market. Unlike the Kyoto Protocol, which created a common accounting framework and trading units for international carbon credits which were recognised by all of the parties to the Kyoto Protocol, it is likely that the 2015 Agreement will have a plethora of such units which won’t be easily convertible across the various local markets in which they will be created. This localisation of carbon markets will make it more challenging to set a single international price for the cost of carbon abatement. Logically and over time, it is more likely that bi-lateral or multilateral arrangements between parties to the 2015 Agreement will lead to such fragmented markets being joined up, partially through economic necessity but also to overcome the limitations of the negotiating parties to the 2015 Agreement.

Even a watered-down 2015 Agreement will be hard fought, as the arguments in Lima have hinted, given that this would be the first truly global – albeit differentiated – attempt to address the challenge of climate change. As to whether the 2015 Agreement is ultimately reached, this will depend on the willingness of the main greenhouse gas emitting countries – the U.S., China, India and the EU – to use the limited time given to them constructively until August 20158 to reach a deal, in principle, on the key components of the 2015 Agreement.

  1. This deadline was imposed by the decision adopted at the Durban COP in 2012.
  2. The Negotiating Text is available as an Annex to the Lima Call for Climate Action at
  3. Views of Brazil on the elements of the new agreement under the Convention applicable to all parties (6 November 2014), available at .
  4. (a) A fully-fledged amendment to the UNFCCC pursuant to Article 15 of the same; (b) an Annex pursuant to Article 16; or (c) a protocol pursuant to Article 17.
  5. In excess of 20 references to markets remain, although many such references appear in square bracketed options of the Negotiating Text.
  6. NAMAs refer to a similar mechanism to the CDM, whereby participating countries can take their own respective approaches toward mitigation (e.g. through a national project-based crediting system) that would be recognised on an international level. The FVA refers to an umbrella policy framework bringing together mechanisms for facilitating emission reductions, and within this, the NMM refers to the way in which these mechanisms can ultimately be consolidated in practice (most likely in the form of a pan-regional or global emissions trading scheme).
  7. REDD+ refers to the policy framework which provides financial incentives to developing countries to achieve emission reductions through remedial action taken to reduce rates of deforestation and forest degradation. Safeguards in the context of REDD+ refer to measures designed to protect against potential social and environmental harms that could result from the implementation of REDD+ activities (for example, a scenario whereby indigenous people are driven off their land to pave the way for a emission reduction-achieving forestry project).
  8. Although not formally scheduled, it is almost inevitable that an additional ADP meeting in August will be needed.


Client Alert 2014-346