International climate change negotiations concluded in mid-December in Lima, Peru at the 20th Conference of the Parties (COP 20) to the United Nations Framework Convention on Climate Change (UNFCCC or Convention).  DLA Piper lawyers from Europe and the United States participated in the negotiations, representing the country of Georgia at the climate conference. This is their report about the negotiations and what the conference means for business and governments.

At Lima, countries around the world agreed on the substance and procedure to submit their proposed measures to combat climate change for inclusion in a future agreement applicable to all countries.  The Parties also commenced work on a draft text to form the basis for the agreement to be decided in Paris in December 2015 and implemented by 2020.

Lima marks a turning point in many respects, steadily shifting international climate obligations under the UNFCCC away from bright-line differences between developed and developing countries.  Thus, it is becoming increasingly evident that a future agreement will leave it to each country to determine its appropriate and most ambitious level of climate action.  Although such a strategy may lack the force of an internationally legally binding agreement, it serves to broaden participation by all Parties in the hope that collective action and pressure can spur ambitious action by each country. 

Under this framework, the UNFCCC and international institutions such as the Green Climate Fund (GCF) would offer the collective ambition, framework and vehicles for international climate action, cooperation and coordination. But ultimately, individual country regulation, markets and subnational action will form the heart of the global response to climate change. 

With greater action at home and abroad to combat climate change, new markets will open in both the developed and developing world, while existing markets will expand.  Although compliance challenges are to be expected, a truly global agreement also means increased opportunities for cross-border investment, low-carbon technology development and lower compliance costs due to burgeoning carbon markets from California to China.

THE LEAD UP TO LIMA

In 1992, 192 nations signed the United Nations Framework Convention on Climate Change (UNFCCC), pledging to consider cooperative measures to limit average global temperature increases and the resulting climate change and to cope with its inevitable impacts. Five years later, the Parties to the UNFCCC adopted the Kyoto Protocol to the UNFCCC, which legally bound developed nations to reduce their greenhouse gas emissions by at least 5 percent from 1990 levels by 2008–2012. Today, there are 195 Parties to the UNFCCC and 192 signatories to the Kyoto Protocol. The United States has not ratified the Protocol. In 2012, the Parties to the Kyoto Protocol extended the Protocol until December 31, 2020.

In 2011, the Parties to the UNFCCC agreed to launch a process to develop a universal climate change agreement applicable to all Parties by 2015, and implemented by 2020. The Parties also sought to scale up countries’ commitments before 2020. 

Since then, the Parties have agreed to some of the processes used to guide these efforts but have by and large deferred many of the tougher decisions regarding developed and developing country obligations.  For example, at Doha in 2012, the Parties agreed that a draft negotiating text would be considered by the Parties in Lima in 2014.  Likewise, at Warsaw in 2013, the Parties agreed to a pathway for countries to announce national plans to reduce GHG emissions (aka “Intended Nationally Determined Contributions” or INDCs) well in advance of the next climate conference in December 2015 (and by the first quarter of 2015 for those countries able to do so).  Details on the nature of those contributions, however, were left to be worked out in Lima.

In addition to the enormous task at hand to develop a draft future climate agreement, the Parties at Lima sought to build and operationalize the institutional support mechanisms to facilitate the free flow of climate finance from developed nations to the developing world, integrate global carbon markets, compensate developing nations for measures to Reduce Emissions from Deforestation and Forest Degradation (REDD+), and commence operation of a mechanism to help countries cope with loss and damage associated with climate change.

Hopes were high at the start of this year’s climate change conference following the surprise joint announcement of a United States–China climate accord.   In November 2014, the US announced its intent to set an economy-wide target of reducing CO2 emissions by 26–28 percent below 2005 levels by 2025, while China for the first time ever stated its intent to peak its CO2 emissions around 2030 (if not sooner), and also increase non-fossil-fuel energy to 20 percent of its national portfolio by 2030. The agreement by the two largest emitting countries — responsible for 45 percent of global emissions — gave a much needed boost to negotiations.

The 2014 Climate Change Conference began on December 1 and concluded on December 14. 

INDIVIDUAL COUNTRY ACTION AT THE HEART OF A FUTURE AGREEMENT

Buoyed by the US–China accord, the Conference started off on an optimistic note.  But it was clear by the end of the two-week negotiating period that stark differences remained between the developed and developing world, and significant gaps would need to be closed to reach a comprehensive agreement by 2015. 

On the second-to-last day, several developing nations felt slighted by the proposed Lima decision and the 2015 draft negotiating text, charging that it skewed in favor of developed nations’ interests and lacked sufficient ambition, throwing a concrete resolution of COP20 into doubt.

Ultimately, however, at 2 am Sunday − nearly 36 hours after the COP’s intended conclusion − the Parties reached an agreement lacking many mandatory provisions but providing a roadmap and draft for a 2015 agreement.

The Lima decision, called the “Lima Call for Climate Action,”i contains the outlines of a future agreement and represents a significant departure from over 20 years of international climate legal norms.  Historically, the UNFCCC and, most prominently, the Kyoto Protocol have largely obligated developed nations (Annex I Parties) to the exclusion of developing nations (Non-Annex I Parties).ii  Parties moved away from this model slightly in Copenhagen in 2009, when most Annex I nations made voluntary pledges to further reduce economy-wide emissions by 2020 and many developing countries made voluntary pledges to take Nationally Appropriate Mitigation Actions (NAMAs) to reduce or slow the growth of their GHG emissions, with and without the support of developed nations.

At Lima, the Parties agreed for the first time ever to a process whereby nearly every nation in the world would undertake measures to combat climate change.  Unlike Kyoto, the new agreement would not require countries to adopt specific emissions-reductions targets for subsequent ratification at home.  Instead, each country will promulgate domestic policies to reduce GHG emissions and communicate its intended plans to combat climate change by no later than June 2015. 

The hope is that Parties can collectively push one another to take ambitious action and, through international pressure, ratchet up weaker proposals.  Thus, to a large degree, unilateral action − like the US and China announcements − may be the new norm, supplemented by international climate finance, market, and non-market mechanisms.

The nature of each country’s proposed contribution

The Lima Call for Climate Action outlines the information each country may submit as part of its proposed measures to combat climate change (i.e. INDCs).  First, it enshrines the principle of “anti-backsliding,” providing that all INDCs “will represent a progression beyond the current undertaking of that Party.”iii  Further, it invites all Parties to communicate their INDCs well in advance of COP 21 (by the first quarter of 2015 for Parties ready to do so) in a manner that facilitates clarity, transparency and understanding of each Party’s contribution. 

As to content, the decision envisions that Parties focus their INDCs on mitigation efforts (i.e., GHG reductions), but also invites Parties to consider a component to address adaptation to climate change.  In a concession to developing countries, the decision does specify the minimum information that must be included in all countries’ INDCs.  Instead, the decision merely provides that the information provided in support of a country’s INDC may include, as appropriate, the following: a base year for emissions reductions; time frames or periods for implementation; scope and coverage; assumptions and approaches for measuring GHGs; and how the country considers its INDC to be fair and ambitious and how the INDC contributes to the ultimate goal of the UNFCCC to prevent dangerous interference with the climate system.iv  To promote clarity, transparency and understanding of each country’s INDC, the UNFCCC Secretariat will publish all INDCs on its website and prepare by November 1, 2015, a synthesis report on the aggregate effect of the INDCs.v   

A Draft 2015 agreement − a move away from differentiation?

Notably, the Lima Call for Climate Action does not provide for explicit differences in obligations between historically developed (Annex I) and developing (Non-Annex I) parties.  This signifies a subtle shift away from a world where climate obligations are divided based on a country’s historical status as an industrialized nation as of 1992.  Instead, the Lima Call for Climate Action ultimately lets each country decide what actions are appropriate

Although the Lima Call for Climate Action still recognizes that a future agreement will reflect the “principle of common but differentiated responsibilities and respective capabilities” (CBDR-RC) of each party, the decision also qualifies the phrase by adding the words “in light of different national circumstances.”  This marks the first time the COP has agreed to modify the basis of CBDR-RC in any way, further weakening the bright-line distinction between developed and developing countries.  

These developments are significant in several respects.  First, they serve to shift the global responsibility for combatting climate change from the developed world to a shared responsibility for every nation.  Although Least Developed Countries (LDCs) and Small Island Developing States (SIDS) may not be expected to significantly reduce their GHGs or rate of emissions growth, the same can no longer be said for developing countries like China or Brazil. 

Second, while risking a weak agreement by setting a low minimum threshold for action, the decision serves to include as many countries as possible, making it flexible to accommodate varying countries’ climate ambitions.  Of course, there are inherent risks in such an approach, but its spirit of inclusiveness may foster a stronger response than one dividing the world into two Annexes.

Third, the agreement’s legal form and lack of internationally binding commitments through emphasis onintended contributions actually serves to broaden participation among all Parties.  Likewise, the agreement offers flexibility to each nation by accepting without prejudice the legal nature of each country’s INDCs.  Thus, instead of requiring ratification of prior agreed-upon targets as under Kyoto, the future agreement will accept a country’s domestic measures as legally satisfactory.  For the United States, this means that a 2015 agreement does not need Senate ratification and thereby empowers an active Executive Branch.

The shape of things to come

The Lima Call for Climate Action also sets forth the principles to be incorporated into a future agreement, and it includes a draft negotiating text for the 2015 agreement. vi  Principally, it provides that a future agreement “shall address in a balanced manner, inter alia, mitigation, adaptation, finance, technology development and transfer, and capacity-building, and transparency of action and support.”vii  Unlike the Lima Call for Climate Action, the draft negotiating text leaves open for further negotiation the question of whether and how the new agreement will differentiate between developing and developed countries.

Noticeably missing, to the disappointment of developing countries, is any reference to compensation for loss and damage associated with climate change.  Nonetheless, the draft text covers all the above issues considered essential to the final agreement, including potential “cycle of commitments / contributions,” whereby Parties may periodically update their contributions.

The text also includes provisions governing the agreement’s overarching “objective,” i.e., whether to merely limit GHG emissions to prevent a 1.5 / 2 ºC increase in global temperatures above preindustrial levels by 2050, or set a global goal of reducing emissions by specific percentages by set dates. 

When COP 20 opened, the draft negotiating text was 23 pages long. Over the course of the two-week conference, the draft had ballooned to 58 pages after countries sought to insert their preferred language. Ultimately, the draft was whittled down to 37 pages of heavily bracketed text, indicating areas of known divergence among the Parties. Several commentators complained, however, that the draft lacked ambition and that it failed to address developing countries’ concerns.

The Lima Call for Climate Action was the key outcome of COP 20, and it sets the stage for the UNFCCC’s Ad Hoc Working Group on the Durban Platform for Enhanced Action (ADP) to continue developing the negotiating text, which it will make available by May 2015 for the Parties’ consideration at COP 21. Several contentious issues remain unsettled. These include the scope and legal nature of the Parties’ commitments to act; how to achieve transparency of actions and support; whether to include provisions governing loss & damage associated with climate change; and the operational details of a proposed compliance mechanism. The Parties have their work cut out for them in the coming year.

Inching forward with climate finance

COP 19 in Warsaw made significant strides toward mobilizing climate finance under the Convention. That progress stalled somewhat in Lima. COP 20 largely re-emphasized the importance of continued financial support for developing-country Parties, both from developed countries and from climate-finance entities under the Convention. These include the Global Environment Facility, the Green Climate Fund (GCF), and the Adaptation Fund. The Parties declined to take more dramatic action this year and instead decided to continue along the path charted in Warsaw.

Notably, in the first half of 2015, the GCF’s authority to commit funds to projects will become effective, and the GCF anticipates reviewing funding proposals before the end of 2015. Several developed countries have pledged contributions of roughly $10 billion to that effort, and half of all GCF funding is to be used for adaptation finance. These developments, along with the expected launch of the GCF’s Private Sector Facility, are especially important because the GCF is the primary instrument under the Convention for distributing climate financing to developing countries. The GCF’s capitalization and operationalization are expected to present opportunities for governments (and by extension private contractors) seeking GCF funding for mitigation and adaptation projects in developing countries.

Other finance news showed less promise. Specifically, developing countries were disappointed in the progress toward achieving the goals of Long-Term Financing (LTF). Developed countries had pledged to collectively provide $100 billion per year by 2020. But developed countries have thus far declined an interim target (beyond a previously agreed $30 billion annually in 2012) and have generally been slow to ramp up funding approaching such levels.

Other developments

With most of the focus on a final agreement in 2015, the Parties made very little progress on market mechanisms. These measures, if approved, would serve to link or reform local, national, regional and international carbon markets (such as California’s or the Regional Greenhouse Gas Initiative), while offering new climate mitigation opportunities for developed countries.

Discussions were tabled until June 2015 on the Framework for Various Approaches and a New Market-Based Mechanism. Similarly, all negotiations regarding the review of the modalities and procedures for the Clean Development Mechanism (CDM) were tabled until June 2015. The Parties made minimal progress in the preparation of guidance relating to the CDM; for example, the Parties further defined what constitutes an operational entity and asked the CDM Executive Board to analyze options that will simplify the project registration process .viii The Parties discussed the use of CDM as a means to achieve mitigation action, including using CERs for voluntary cancellation, but could not come to a consensus.

Following up on the progress made at COP 19, the Parties agreed that the information hub established under the Warsaw REDD+ Framework shall be known as the Lima Information Hub for REDD.

Finally, the Parties agreed upon the composition and rules governing the Executive Board for the Warsaw International Mechanism for Loss and Damage.ix  This will allow the Executive Board to begin implementing measures to address loss and damage associated with climate change.  

A GLOBAL DEAL PRESENTING GLOBAL CHALLENGES AND OPPORTUNITIES

While a 2015 agreement will certainly impose compliance costs on many, it will also open up new opportunities for enhanced climate mitigation, adaptation, finance, and technology transfer across the world.  As the United States implements its own climate regulations under the Clean Air Act and seeks to keep pace with its ambitious 2025 target, new opportunities will arise domestically.  Likewise, the developing world’s assumption of greater climate responsibilities opens up new markets for carbon trading, low-carbon technology, climate finance investments, and increased support for vulnerable nations to adapt to or cope with the effects of climate change.  While the COP in Lima was unable to formalize many of the supporting mechanisms to enhance international climate mitigation, future rounds of negotiations (particularly after 2015) will be critical to creating the UNFCCC infrastructure to facilitate compliance with climate regulations.

FUTURE DEVELOPMENTS: UPCOMING MEETINGS

The Parties will meet again at ADP negotiations in February and June 2015 to continue their work to develop the negotiating text for COP 21 to consider. The spotlight, however, will be on COP 21 in Paris, which is expected to produce the next legally binding climate-change agreement under the Convention.  Parties will meet in Paris from November 30 to December 11, 2015. 

For the following year, Morocco has offered to host COP 22 from November 7–18, 2016, where the Parties will begin work on the critical post-2015 agenda, likely to focus on many of the supporting mechanisms to enhance climate mitigation and cooperation between countries and regulated entities.