UN climate COP 26 delay is a blessing in disguise

Policy Pulse - George Anjaparidze - 2 April 2020

On 1 April 2020, the UN climate change agency announced its plans to postpone indefinitely the 26th Conference of the Parties (COP). In most years, such an announcement would be surprising or it might even be dismissed as an April fool’s joke of a computer hacker. But this year, given the raging COVID-19 pandemic, a decision to postpone the event was expected.

The Conference of the Parties (COP) is an annual meeting of signatories to the United Nations Framework Convention on Climate Change (UNFCCC), which has near universal membership (197 countries and territories are members). It is under the framework of this convention that governments negotiate climate deals like the Kyoto Protocol and Paris Agreement.

Put simply, the COP is the annual conference that brings together governments to negotiate and take decisions on how to address the climate challenge. However, the COP is much more than an intergovernmental negotiation. It is the premier global climate change event that gathers a wide range of stakeholders, including companies, international organizations, journalists, non-governmental organizations, activists and other concerned civil society stakeholders. Participants come from all corners of the world and can number in the range of 10 to 30 thousand.

There was also a postponement of the mid-year negotiations, usually held in June, now to be held 4-12 October of 2020.

The UN climate negotiations are extremely complex. Negotiations occur in different governing and subsidiary bodies across dozens of agenda items. At certain points in time, you can have as many as 5 bodies launched with over 50 items under negotiation. Each negotiator will attest that their item is the priority issue for the conference. To make matters even more complicated, there are interlinkages between items and a negotiations culture that prides itself on the moto “Nothing is agreed, until everything is agreed.”

That said, it is time to prioritize. For two consecutive years, UNFCCC negotiators have failed to agree on the rules for international cooperation on climate action (also known as Article 6 negotiations). These rules are a prerequisite for properly functioning international carbon trading. Not having these rules in places increases the cost of climate mitigation actions and hinders financial flows to developing countries. It also makes it likely that other actors, outside the UNFCCC, may try to define carbon trading standards, as was recently done by the International Civil Aviation Organization.

Patricia Espinosa, the UNFCCC Executive Secretary, is a masterful diplomat, with an almost magician like touch at finding political consensus. She was one of the key leaders that helped piece together the climate negotiations a decade ago and delivered the Cancun outcome, which paved the way for the Paris Agreement. However, to improve the chances of unlocking the stalemate on Article 6 negotiations, political astuteness may need to be combined with technical analysis of options under negotiation.

The postponement of COP 26 is a blessing in disguise. It allows time for technical analysis and further consultation on the options being discussed for rules on international cooperation on climate action. An interactive approach between technical analysis and consultation could be used to help unlock the stalemate. The leadership should consider using this pause in the UNFCCC calendar to focus more efforts on advancing the Article 6 negotiations.

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#climatechange #UNFCCC #COVID19 #coronavirus #COP26 #carbonmarkets #ParisAgreement

Greening airline bailouts?

Policy Pulse - George Anjaparidze - 2 April 2020

Governments plan to inject over $5 trillion into the global economy to counteract the social, economic and financial impacts of the coronavirus pandemic. This intervention is on an unprecedented scale.

In the United States, actions through the CARES Act represent a stimulus package of about $2.2 trillion, which amounts to over 10% of US GDP, multiples larger than the US government stimulus during the Global Financial Crisis. As part of this package, the US aviation sector is expected to receive a combination of grants and potential loans of about $60 billion.

Other countries have also enacted specific relief measures with targeted support for aviation. Singapore announced S$750 million in support of aviation, as have others, including Australia, China, Colombia, New Zealand, and Norway. As the impacts of COVID-19 rise, the list of governments channeling direct financial support is likely to grow.

Airline pleas for public finance have been echoed by efforts to link rescue packages to climate targets. In the US, eight Senate Democrats wanted to impose carbon emission requirements on companies benefiting from the rescue package. While this is an interesting idea, imposing company specific requirements is not appropriate in aviation when dealing with the climate challenge. An industry-wide approach is essential for ensuring financial sustainability of climate action.

In general, the airline industry is highly competitive. If one airline has a higher cost structure, all else equal, it will not be able to effectively compete against rivals. Therefore, imposing requirements that result in additional costs for an individual airline, will likely lead to financial ruin. Due to the competitive pressures from its rivals, the airline will struggle to pass on the higher cost to consumers and instead be forced to operate with a lower profit margin, which will eventual likely lead to market exit.[i]

In contrast, if the increase in cost is industry-wide, there will be no adverse impact on operating profit margin per passenger. If airlines are informed well in advance of the introduction of a policy change, they will be able to incorporate this consideration into their fleet planning and capacity deployment practices. For example, the airline industry could adopt the Delta Air Lines target of going fully net carbon neutral but with implementation starting in 2025. As illustrated in Table 1 and Table 2 below, this will not adversely impact operating profit margin per passenger. There will, however, be a small negative impact on air travel demand.

If industry fails to further scale-up global climate action, it will face a backlash of unprecedented proportions. Even before the outbreak of COVID-19, a paradigm shift in consumer sentiment could be observed. As government bailouts come under public scrutiny, there will be renewed pressure to take climate action against aviation.

A wave of new green taxes, operating restrictions and other local and national initiatives will again threaten to impose a patchwork of overlapping environmental measures on the sector. A proactive industry-wide approach to scaling-up climate action, can put at bay environmental activists without compromising financial sustainability.

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[i] Airline specific price elasticity is widely recognized to be more sensitive to changes in price compared to market level elasticities as well as national, supra-national and global elasticities. Market level (also referred to as route level) elasticities are those where price changes impact all carriers serving a route. As evidenced by the IATA Air Travel Demand study, market level price elasticities range between -1.3 and -2 within and across major aviation regions of Asia, Europe, North America and South America. The airline specific price elasticities are considerably higher compared to market level price elasticities. Meaning that if an airline tried to pass on the higher carrier specific costs, it would lead to a significant drop in passengers.

About Veritas Global: Our vision is to have a positive impact on the world through truthful advice informed by robust analysis. We are a premier provider of tailored solutions on climate change, international conflict economics and infrastructure.

#Airports #Airlines #aviation #climatechange #sustainability #coronavirus #bailout #CARESact

COVID-19 impact on climate change and UN negotiations

Policy Pulse - George Anjaparidze - 26 March 2020

COVID-19 has succeeded where UN climate talks have failed. Heat trapping greenhouse gas emissions across several sectors have drastically fallen as governments have imposed travel restrictions and social distancing measures in response to the virus. For example, travel by air is expected to decrease by 38% in 2020 compared to 2019.

Despite leading to lower greenhouse gas emissions, COVID-19 is not a solution for dealing with the climate challenge. It has devastated communities, robbed people of livelihoods and taken the lives of over 21 thousand people (as of March 26th).

Our current circumstances can offer valuable learnings on how we can work smarter and live more sustainably, even after COVID-19 is under control. However, we also need to be realistic. These learnings alone will not be enough to overcome the scale of the climate challenge.

Therefore, it is critical that international efforts continue to focus on finding solutions to the current impasse in international climate negotiations. For two consecutive years, UNFCCC negotiators have failed to agree on the rules for international cooperation on climate action (also known as Article 6 negotiations). These rules are a prerequisite for properly functioning international carbon trading.

The stakes are high. The lack of agreement on rules for international cooperation on climate mitigation leads to higher cost and hinders financial flows to developing countries. The World Bank estimates that in a 2°C scenario, international collaboration will lower mitigation costs by 32% in 2030 and 54% by 2050. Between 2020 and 2050, $24 trillion in global cost can be avoided through voluntary international cooperation on climate mitigation.

Delays in setting up these rules have likely already resulted in lost opportunities. $30 - $50 billion of the 2020 annual financial flows from developed to developing countries was expected (by the 2010 report of the UN Secretary-General’s Advisory Group on Climate Change Financing) to flow via carbon markets. The inability to operationalize mechanisms for international cooperation at the multilateral level has contributed to the emergence of a significant gap in achieving the $100 bn of climate finance flows from developed to developing countries

Not having rules for international cooperation under the Paris Agreement erodes confidence in the agreement and dilutes relevance of the UNFCCC. The lack of standard rules introduces uncertainty and greatly complicates the process of assessing performance against collective climate goals. It also makes it likely that other actors may try to define these standards and fill the void left by negotiators. An example is the recent decision by the International Civil Aviation Organization to approve six carbon offset mechanisms for use under the pilot phase of the airline industry climate agreement.

COVID-19 has led to the postponement of many meetings of the UNFCCC. This "cleaner" agenda of the climate community and its leadership should create an opportunity to focus efforts where they are needed most. Finalizing the rules for international cooperation, under the Paris Agreement needs to be a top priority. The world can not afford a repeated failure at the next UNFCCC Conference of the Parties (COP 26).

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About Veritas Global: Our vision is to have a positive impact on the world through truthful advice informed by robust analysis. We are a premier provider of tailored solutions on climate change, international conflict economics and infrastructure. 

#climatechange #UNFCCC #COVID19 #coronavirus