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Policy Pulse

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Policy Pulse - George Anjaparidze - 21 January 2020

Global 2019 surface temperatures were second warmest on record. Only 2016 was hotter, according to estimates from NASA and the National Oceanic Atmospheric Administration. The planet continues to be on a warming trend. The past five years have been the warmest of the last 140. While we don’t know if 2020 will break new temperature records, we can say with certainty that current policy action falls short of what science tell us is needed to limit the rise of average global temperatures to within 1.5°C to 2°C. A temperature increase above this range is considered to have catastrophic consequences.


The December 2019 UN Conference in Madrid failed to deliver clear rules for implementing the Paris Agreement. Climate negotiations in 2020 will culminate with the annual UN climate conference being held from 9 – 20 November in Glasgow. To get the Paris climate agreement back on track, the Glasgow conference needs to make progress across three key policy areas:

  1. All governments need to agree on clear rules for international cooperation on mitigating climate change – known as Article 6 negotiations. These rules are a prerequisite for properly functioning international carbon trading.

  2. All governments need to scale-up the level of their nationally determined contributions to climate action. The current emission trajectory sets the world on about a 3°C warming, well short of the collective ambition of the Paris Agreement.

  3. Developed countries need to drastically scale-up their financial support to enable more climate action on mitigation and adaptation in developing countries.

The most urgent climate policy priority is to have clear rules on international cooperation for mitigating climate change. But in absence of greater leadership, success in reaching agreement on these rules is unlikely. However, a positive outcome can be secured if financial resources are made available to address unresolved issues in the negotiations (for example, through buy back schemes for some of the Certified Emission Reductions issued through the Clean Development Mechanism). Furthermore, political leadership from the European Union and the United Kingdom, as the incoming Presidency of the UNFCCC talks, will be essential in securing a positive outcome.


Failure to agree on rules for international cooperation on mitigating climate change will have implications for international aviation climate policy. It will delay the implementation of the aviation climate agreement or worse, lead to partly “nationalize” the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). In 2020, the International Civil Aviation Organization will develop its own rules and criteria for determining eligible carbon credits for its scheme, but this will not provide sufficient clarity for CORSIA to function properly. To clear up all uncertainty, CORSIA needs clear rules on international cooperation to also be set through the UNFCCC.


The 2020 US presidential election is a wildcard. The election is scheduled one week before the start of the Glasgow climate talks. The US is the only major economy not part of the Paris Agreement, which is the bedrock of existing international climate policy. The decision to withdraw the US from this agreement was taken by the Trump administration. All leading political opponents of President Trump have indicated that, if they win, they will bring the US back into the Paris Agreement. If the US rejoins the Paris Agreement, due to change in administration or policy, it would be a major boost to international cooperation for addressing climate change issues. As long as the US stays on the sidelines, other countries, especially in Europe, need to play a bigger role in supporting international cooperation on climate change.


Other key climate trends to watch in 2020

  • Increasing calls from the public for climate action will lead some countries, especially in Europe, to put in place costly domestic climate policies.

  • Aviation will continue to come under pressure from the “no fly movement” led by Greta and others. In response, policy makers will target aviation with taxes.

  • The Task Force on Climate-related Financial Disclosures (TCFD), chaired by Michael Bloomberg, will increase in visibility. Investors will disclose more information about climate change related liabilities of their investments.

  • Companies will incorporate sustainability into their reporting practices.


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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


 
 
 

Policy Pulse - 16 December 2019 - George Anjaparidze


Veteran negotiators say that more time is rarely a recipe for better outcomes. That is certainly true for this year’s annual UN climate talks, which concluded in Madrid on 15 December 2019. The negotiations ran 2 days into overtime, setting a new record for the longest session since the start of the UN climate convention 25 years ago. Despite the extra time, the talks delivered very little in terms of tangible outcomes.


Most disappointing was failure to agree on the rules for international cooperation on mitigating climate change – known as Article 6 negotiations. These rules are a prerequisite for properly functioning international carbon trading. Not having these rules will impact the climate agreement on international aviation – known as the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), which addresses CO2 emissions above 2020 levels. The absence of clear rules will likely delay implementation of the aviation climate agreement or worse partly “nationalize” CORSIA. Both developments would have negative consequences for the airline industry.


A delay in implementation of CORSIA will erode confidence in the scheme’s ability to stabilize net CO2 emissions from international aviation. This may prompt some ambitious states to impose measures not envisioned under CORSIA. Another danger is that in the absence of international offsetting rules, states may require airlines to purchase national carbon offsets. Requirements for sourcing offsets nationally will hinder the development of a global carbon market and lead to competitive distortions in the airline industry.


In response to these risks, the aviation industry should:

  1. Deepen collaboration with leading institutions that have policy expertise in designing carbon markets. The aim should be to pilot approaches that will demonstrate how CORSIA compliant offsets could be generated under prevailing policy uncertainty. Existing carbon market catalyst programs, such as the one managed by the Asian Development Bank, can be used to support such initiatives with technical assistance.

  2. Scale-up climate action within the sector. About 20% of CO2 reductions, needed to achieve net carbon neutral growth from 2020, can be generated cost-effectively from within the aviation sector. However, these opportunities are not being realized because of “non-price barriers” or non-financial factors. Industry needs to support interventions that target the barriers that are preventing the implementation of these measures (See op-ed: Change of CORSIA).

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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


 
 
 

Policy Pulse - 16 December 2019 - George Anjaparidze

The latest policy brief from the Harvard Project on Climate Agreements provides rare insight into the inner workings of the airline industry. The extraordinary agreement on international aviation explains the key role played by the airline industry in the design of the Carbon Offset and Reduction Scheme for International Aviation (CORSIA). The scheme addresses the growth in total CO2 emissions from international aviation above 2020 levels. CORSIA will save the aviation industry tens of billions of US dollars each year by avoiding a costly patchwork of overlapping and distortive measures.


In the short-to-medium term, carbon offsets sourced from other sectors and sustainable aviation fuels will make the largest contributions to achieve carbon neutral growth from 2020 (CNG 2020). However, it is wrong to think that the climate issue has somehow been outsourced through the use of offsets or sustainable aviation fuels.


Measures within the sector can also make an important contribution. Beyond fleet renewal and load factor performance, improvements in infrastructure and airline operations can deliver about 20 per cent of the cost-effective CO2 emission reductions needed to achieve the CNG2020 target over the next decade. About 60 per cent of the within sector abatement opportunities can be realised from undertaking infrastructure improvements (mostly at air navigation system providers). Airline operations, in the air and on the ground, make up the remaining share (see chart).


Chart: Cost-effective CO2 reductions within aviation in 2030

Source: Veritas Global using data from IATA March 2016 presentation (McKinsey & Company, IATA); Note: Jet fuel price assumption $90 per barrel, the size of each rectangle is in proportion to the share of CO2 abatement potential of the labeled measure.


Cost-effective CO2 emission reduction opportunities within aviation are not being realised because of “non-price barriers.” Meaning there are non-financial factors that prevent the realisation of these opportunities. One example is a restriction on the use of airspace leading to longer flights. Another example is a corporate culture that ignores unneeded extra weight to be carried on flights leading to more fuel burn. These issues can be overcome only through additional interventions that target the specific barriers.


If the within sector abatement measures (see chart) are fully implemented, annual cost saving of US$37 billion in 2030 will be achieved by the aviation industry. For comparison, IATA forecasts global airline profits in 2019 at $28 billion. In contrast to generating cost savings, purchasing offsets will impose additional costs to industry. To meet CNG2020, industry will spend over $7 billion in 2030 on offsets (assuming a global carbon price of $20). Given the options, the priority needs to be to target the cost-effective abatement opportunities within the sector.


To deliver on the opportunities within the sector, the industry needs to introduce interventions that target the barriers that are preventing the implementation of these measures. For infrastructure, a new advocacy initiative needs to be launched that mobilises industry stakeholders and the climate community to get governments to prioritize reforms at air navigation system providers. For airline operations, a targeted capacity building initiative is needed that will first diagnose problematic practices and subsequently offer trainings on how to implement solutions. A broader focus on addressing barriers is also warranted, for example helping remove political barriers in markets where access to the latest environmentally friendly aviation technologies is hindered.


Crucially, these initiatives would need to complement and go well beyond existing efforts.

In addition, the industry needs to become more proactive on the climate issue. Just as consumers have placed new demands on airlines, airlines as consumers need to also be more vigilant of their supply chain performance. In many cases, the on the ground supply chain CO2 emissions will fall outside the scope of CORSIA. Nevertheless, as stakeholders in addressing the climate crisis, airlines need to demand better performance of their supply chain. By developing a globally harmonized set of performance metrics for its supply chain, in a way that incorporates climate issues, can help benchmark performance and drive better business outcomes in the aviation industry.


It is shareholders, not Greta Thunberg, that should be most demanding of the aviation industry on performance against climate metrics. Realising cost-effective opportunities within the sector and taking a proactive stance on the climate issue is good for business. Collective industry leadership is needed to propel this change and address the climate crisis.


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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



 
 
 
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