"Risks Surrounding the Kyoto Protocol"

Speech to Royal Institute of International Affairs Conference
"Implementing the Kyoto Protocol"
14-15 June 1999, London

Hon Simon Upton
Minister for the Environment
Associate Minister of Foreign Affairs and Trade
New Zealand

(....Part 2 of 2 - continues from previous story)

Evolution of the framework over time

Looking ahead to the evolution of the Kyoto framework over time, there are other conditions that will clearly have to be met if emissions are to be reduced further. Some countries are already very concerned at what they see as a division of the global atmospheric commons into property rights without the establishment of an agreed basis for the allocation of those rights. Given that there is, as yet, no agreement on the level at which we should be aiming to stabilise the atmospheric concentrations of greenhouse gases, it is scarcely surprising that a long term global emissions envelope has not been settled. At Kyoto we did nothing more than agree on a first step without any real idea of how fast or far to go subsequently.

In my view, the attempted debate on basic rights is still premature. The Kyoto agreement did not allocate rights. It simply established some first round responsibilities by laying down initial limitations on hitherto infinite rights, for some countries. The question of basic emission rights will be much riper for discussion when we get down to charting the trajectory necessary to ensure that long-term greenhouse gas concentrations are at safe levels.

I believe we need to take an evolutionary approach to the development of the Protocol. The greater the complexity of an international process, the more likely it is that we will only be able to proceed by incremental steps. The timing of those steps will be critical.

We cannot at this stage accurately estimate the costs of acting to reduce emissions. We would all like more complete knowledge about mitigation costs and opportunities, but these will not be known until action is started (ie we will learn by doing). One risk here is that the absence of longer term targets (or at least clear and consistent signals) could affect the nature of near term action which can be agreed.

It is important to bear in mind the time-frame over which action on climate change is required. This is not a short-run problem, but one we will have to work on over a generation or more. It also affects a large portion of our capital stock - that portion which depends on fossil fuel use, as well as other elements linked to other greenhouse gases. It thus affects many aspects of our economic and social lives. The eventual extension of a framework for action beyond the first commitment period demands progress on creating a fair, efficient and effective framework now - or at least over the period to COP6 - if we hope to have an international agreement and process that is sustainable over the longer term

Deferral or delay would ultimately increase the costs of meeting targets, since emissions in the interim may be higher than they would otherwise have been. We should also remember the sheer timeframe requirements for the development of technical frameworks. These are not built in a day, even once agreement on overall shape is achieved. Delay and deferral also threaten the integrity of the Protocol itself, and encourage people to think there may be other simpler solutions. This could prove to be a profound mistake, since any process will have to grapple with the same problems and history suggests that human beings are rather better at incremental progress than successfully thinking through grand plans on the basis of inadequate knowledge.

Is there a way forward?

By COP6, we will need to have resolved the unhelpful debate over trading restrictions under the Protocol. We will need to have developed a clear understanding of how each of the Kyoto mechanisms will operate in practice, ensuring that they work sensibly with the grain of the market while at the same time maintaining the environmental integrity of the Convention. We will also need to be engaging developing countries on how we can establish a clear timetable for future emission limitation commitments.

I also believe concerns about the 'hot air' available to the economies in transition (EIT) could be addressed more creatively. It would not be fair to EIT countries to relitigate their targets or their ability to trade. But, by being creative, we should be able to develop a 'win-win' idea - (which I know the Russians, for one, have in mind) - which ensures that payments for hot air under emissions trading are applied to environmental clean-up.

In terms of immediately pressing concerns, cleaning up the vast toxic legacy of the old communist regimes ranks near the top. The scale of the problem is such that the economies of Russia, Ukraine and others have no hope in the foreseeable future of making any headway at all. Purchasing the rights they currently possess to increase emissions, and thereby generating a fund for clean-up, would solve a major conundrum in current negotiations. It would also, by the way, probably do more than any other single measure to secure the future environmental security of the European land mass. European countries, as far as I am aware, have no plans to bankroll a clean-up on the scale required. It would be strange if they stood in the way of a solution that could achieve it and secure the ratification of the Kyoto Protocol at one stroke.

As far as carbon leakage to developing countries is concerned, the rich industrial economies should be focussed less on how they can invent protective mechanisms for their own industries and more on how, through CDM and other means, we can speed up the transition of developing economies to a less carbon intensive future. Rising per capita incomes will also enable developing countries to address environmental issues, both in an economic sense and in a political sense.

If progress is to be made on these and other issues the way forward is strewn with economic considerations. The single most important suggestion I can offer as a way forward is to take negotiations, at least for the time being, out of the hands of environment ministers and engage trade, finance and economic ministers. I have talked to environment and economic ministries around the world. I have to tell you that the dislocation between them is near-universal and in some cases breathtaking. The OECD, whose Round Table on Sustainable Development I chair, provides ample evidence of this pathology in its regular round of meetings. Despite impressive and well-resourced work programmes that span the agency's divisions, Ministers arrive at separate meetings and do not even cover the same agendas. I doubt whether trade or finance ministers at the OECD have even had a formal discussion on climate change.

The dislocation in developing countries is not, to my knowledge, a lot different although climate change negotiations are frequently in the hands of foreign ministries. There is little evidence to suggest that diplomats are any better than environmentalists at engaging their economist colleagues!

The upshot of all this is a sense of unreality about the sorts of debates we have at FCCC conferences of the parties. Environment ministers are left to practise their rhetoric on the possible disasters of run-away climate change while their negotiators are left to defend national economic interests on behalf of finance ministers who have in many cases only a passing acquaintance with the issues. Unless this changes we are going to see slow progress and poor policies.

Conclusion

With the exception of the very last point, there is nothing in this paper that will be particularly new for those of you who have followed the debate as I have over the last decade. That in itself is a source of worry. I have the feeling that - like many other old hands in this debate - I have been refining and re-refining an argument that is not necessarily engaging others in the same way that their arguments are engaging me. That suggests there are some large submerged reefs in this debate that we are all steering clear of. That sort of elegantly choreographed evasion will not take us anywhere.

The truth is that, at this point, it is as likely that the Kyoto Protocol will be still-born as it is that it will be brought into force. In saying that, I am acutely aware that there are those who, passively or actively, hope that it won't come into effect, because they dismiss the science. Others hope the protocol will founder because they believe the terms of the Convention are fundamentally flawed.

To the latter group I can say that trying to start all over again would be a hugely costly exercise in terms of political capital, time and lost opportunities. Ultimately the world will have to face up to the issue. Protracted delay will simply mean far greater pressure to reach solutions in short order, having squandered the opportunity to phase in the adjustment to new policies gradually.

We are, in terms of risk management and in terms of international negotiations, in completely uncharted waters. It will require an extraordinary amount of hard work and good will if we are to find our compass bearings.

ENDS

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