Damian Meadows, European Commission, explained how the EU Emissions Trading Directive applies to five major energy-intensive sectors, and said it will begin with a three-year mandatory start-up phase from 2005-2007, followed by five-year allocation periods. He outlined linkages between the EU Emissions Trading Scheme (EU ETS) and the international climate agenda, explaining that Article 25 of the Directive allows trading with other emissions trading systems, while the Linking Directive incorporates Joint Implementation (JI) and CDM credits in the EU scheme.

Chris McDermott, Environment Canada, noted that Canada has a relatively small carbon market, and identified the need for a more liquid emissions trading market and an enabling environment for multinational participation. Indicating that the Kyoto Protocol provides 95% of the institutional framework for linking emissions trading markets, he stressed that bilateral agreements should be limited to filling the gaps. He said differences in emissions trading systems across countries should not impede linking.

Hiroshi Yamagata, Japan’s Ministry of Economy Trade, and Industry, indicated that Japan’s Climate Change Program adopted in 2002 aims to achieve a 6% reduction from the 1990 base year, through cooperation between government and business sectors.
 

Hugh Porteous, Alcan, noted that Alcan expects to be a net purchaser of allowances in both Canada and the EU, and stressed the value of international sectoral commitments to mitigating climate change, such as investment in best available technologies, and research and development. He noted that linking emissions trading systems is essential, but inadequate in that it sustains the inequities and distortions inherent in the Kyoto Protocol.

Bill Kyte, UK Emissions Trading Group, indicated that emissions trading systems can be either formally linked, entailing direct bidirectional transfer, mutual recognition, equivalency and simplicity, or informally linked, entailing indirect unidirectional transfer, no mutual recognition, inequivalency and complexity. Noting that there is no such thing as a closed system, he stressed the need to keep links simple in order to facilitate business participation and avoid “back door” commercial linkages.

Thomas Jacob, DuPont, stressed that linking the EU ETS with the CDM process is crucial to ensuring that the CDM delivers. Noting that the EU is evolving as the hub of emissions trading systems initiatives, he anticipated that all major players will be involved in the long term, including the US.

Thomas Loster, Munich Re, noted that losses from climate change are increasing, highlighted the key role of the financial sector as a service provider in the CDM process, and stressed the role of public-private partnerships in engaging all actors.

Sascha Lafeld, 3C climate change consulting, said many Annex I countries will face serious compliance problems during the first commitment period, which will create a high demand for certified emissions reductions (CERs). He noted that investment is deterred by the complexity of the CDM process, the long timeframe for developing CDM projects, and the lack of institutional capacity in both host and buyer countries. He stressed the need to rethink additionality, and recommended simplification and standardization of the CDM process and the provision of clear guidance on the CDM regulation beyond 2012.

Charles Cormier, World Bank, explained that his organization seeks to catalyze the CDM market, primarily by securing underlying funding. He outlined a number of obstacles to attracting investors, including regulatory uncertainty, high transaction costs, and sovereign risks. He indicated that the World Bank seeks to improve the bankability of projects, provide a revenue stream, and manage regulatory and financial risks.

Rodrigo Sales, Baker and McKenzie, outlined key elements of early CDM contract negotiation, including establishing the product to be sold, legal titles over CERs, warranties and indemnities, and provisions dealing with breach of contract and termination. He stressed the need to assign risk in contracts, including political and sovereign risks particular to the host country.

María Szauer, Andean Corporation of Promotion (CAF), identified substantial growth in the carbon market over the last two years, noting that in 2003 and 2004, 51% of CERs came from Asia and 27% from Latin America and the Caribbean.

Hernan Carlino, Argentina’s Secretariat of Environment and Sustainable Development, outlined plans to establish an Argentine Carbon Fund to finance small and medium CDM projects, noting that the aim is to attract national and international public and private funding. He stressed that the fund would help to reduce risk associated with CDM project activities and reduce transaction costs.

Klaus Töpfer, UNEP Executive Director, stressed that increased carbon dioxide concentrations have international environmental impacts, and indicated that this represents a valuable opportunity to employ international market instruments in controling emissions. 

Kiyo Akasaka, OECD, said various regions are already experiencing climate change impacts, and stressed that vulnerability is growing in both OECD and developing countries.

Shardul Agrawala, OECD, reviewed OECD’s work on assessing the benefits of climate policies and mainstreaming adaptation in development planning. He said while climate impacts have implications for development on multiple time-scales, they currently receive little attention in development planning.

Judy Lawrence, New Zealand’s Ministry of the Environment, reviewed New Zealand’s adaptation-related legislation and policies, and described a policy cycle involving data generation, risk assessment, mainstreaming adaptation, monitoring and evaluation, awareness raising, and capacity building.

Marc Gillet, France’s Ministry of Ecology and Sustainable Development, gave examples of climate change effects in France, and listed his country’s adaptation research activities and policy measures.

 
Heikki Granholm, Finland’s Ministry of Agriculture and Forestry, said Finland’s national adaptation strategy relies on modeling socioeconomic scenarios and trends in natural systems, and predicting climate change impacts on macroeconomic variables for the 2005-2080 period. He stressed the need for more research, long-term investments, short-term measures to address variability, and win-win solutions.

Andrew Deacon, UK Department for Environment, Food and Rural Affairs, said the UK approach embraces the precautionary principle and makes good business sense, since it avoids future costs by reducing vulnerability. He listed policy examples, including allowances for climate change in coastal management, 25-year water management plans, and programs on awareness raising regarding summer health problems.

Greg Picker, Australia’s Greenhouse Office, discussed Australia’s vulnerability to climate impacts, listed national policies on water management, and described Australia’s efforts to develop regional impact scenarios and vulnerability assessments.

Discussion: Lawrence suggested that differences in national circumstances may preclude standardization of adaptation strategies. Granholm noted the absence of reliable methodologies for estimating the cost adaptation. Picker said OECD and other organizations have a role in capacity building for data generation and economic planning.

Klaus Töpfer, UNEP Executive Director, emphasized that the Arctic represents an early warning system for global environmental problems such as global warming and pollution from persistent organic pollutants, and said developments in the Arctic must be carefully examined. He noted that the Inuit and other Arctic indigenous peoples play an important role in stimulating action on environmental problems. He said adaptation to climate change is important, but stressed that mitigation should be prioritized.

Sheila Watt-Cloutier, Inuit Circumpolar Conference, said warming in the Arctic is predicted to increase at twice the global average rate, and indicated that the threshold of dangerous anthropogenic interference defined in UNFCCC Article 2 (Objective) has already been reached in the Arctic. She recounted changes already experienced in the Arctic, including permafrost melting, erosion, infrastructure damage, longer ice-free seasons, new species, and deteriorating animal health. She said accidents are increasing as fast-melting glaciers make sea ice unpredictable. She explained that these changes result in destructive social behavior in Inuit communities, and urged radical thinking within the UNFCCC framework to preserve the Inuit culture. Watt-Cloutier called for a comprehensive Arctic monitoring program within the UNFCCC to gather information from the Arctic early warning system. She stressed the urgent need for action, and said countries must exceed their Kyoto Protocol commitments. She noted that the Inter-American Commission on Human Rights has recognized indigenous peoples’ right to a healthy and safe environment as integral to their right to life, and indicated that the Inuit will petition the Commission concerning the impacts of climate change.

Masayuki Sasanouchi, Keidanren industry association, described Japanese industry’s objectives for a future global climate framework, including fundamental reform of the CDM, development and diffusion of technologies, and adoption of a sector-specific approach.

Nick Campbell, ICC and European Employers’ Federation, described industry support in Europe for the region’s leadership role in the climate regime, and noted industry’s apprehension regarding adoption of new targets by the EU.

Discussion: Participants noted the need to clarify market signals on externalities, including adaptation costs, and governments’ role in underwriting risks associated with breakthrough technologies for the private sector, including the US Government’s disputed role in covering the nuclear industry. Participants also considered: competitiveness and equity; involvement of US multinational corporations in the current climate regime, including emissions trading; carbon intensity targets; and the participation of developing countries in a future regime.

Akio Morishima, IGES Chair, noted close collaboration between IGES, OECC and GEC regarding the Clean Development Mechanism (CDM), and expressed hope that the side event would allow an exchange of information and experiences on CDM as a way to identify and develop next steps.

Osamu Mizuno, Japan’s Office of International Strategy on Climate Change, presented an overview of Japan’s work on capacity-building activities for the CDM and Joint Implementation (JI). He reported that 12 CDM/JI projects had been approved, and identified the need for further consideration of relevant information, capacity building and next steps.

Shinichi Iioka, IGES, reported on the CDM/JI Integrated Capacity Strengthening Programme undertaken by Japan’s Ministry of Environment. He highlighted issues and barriers identified, including weaknesses in local institutional arrangements, a lack of consensus on national approval procedures, insufficient accountability and transparency, and the absence of national sustainable development criteria and indicators in some countries.

Joyceline Goco, Environmental Management Bureau of the Philippines, reported on the Integrated Capacity Strengthening Programme for CDM in her country. Outlining the program, she said expected outcomes include training on CDM project development and documentation, capacity building for local stakeholders, identification of specific projects for CDM development, and a CDM country guide.

Masako Ogawa, GEC, introduced GEC’s work on CDM/JI, including feasibility studies on landfill gas and biomass projects. Identifying lessons learnt, she highlighted the need to develop the capacity of project developers and host countries.

Kazuhito Yamada, Pacific Consultants, presented a CDM Manual for project developers and policy makers. Noting that the manual seeks to explain complicated CDM procedures, he said an updated version may be published at COP-11.

Naoki Matsuo, Climate Experts, discussed how to develop quality CDM methodologies. Noting “bottlenecks” in the CDM process due to low quality methodologies and limited understanding even within the CDM Executive Board’s Methodologies Panel, he drew attention to a Methodologies Guidebook for the CDM.

Makoto Kato, OECC, described the Kyoto Mechanism Information Platform, which assists CDM/JI stakeholders with their information needs. He explained that this initiative provides a useful helpdesk for Japanese and stakeholders from host countries.

Ernesto De Micheli, Patagoni CO2, expressed appreciation for the Information Platform, argued that local financial institutions should play an active role in CDM, and drew attention to technology transfer.

Jan van Heeswijk, Asian Development Bank, described the Bank’s CDM Facility, noting that it was established with the aim of assisting developing countries in accessing financial and technical opportunities under the Kyoto Protocol. On lessons learnt to date, he highlighted, inter alia, an overemphasis on technical issues, the lack of focus on institutional and financial aspects, and high transaction costs.

IGES Board Member Taka Hiraishi closed the event by noting that there would be a post-meeting follow-up by email, and that a further event would likely be convened at COP-11. 

Akio Morishima, IGES, presented an IGES publication on the Kyoto Protocol and future arrangements. He said the Kyoto Protocol is a good basis for a future policy regime, but identified shortcomings, including its short-term focus, low emissions reduction targets, and lack of global coverage. Morishima highlighted recommendations on the need to: provide incentives for universal participation, such as resources for adaptation and technology transfer; revise the CDM; develop low-carbon technologies; establish “unilateral CDM” projects and South-South CDM mechanisms; introduce cost caps and carbon intensity commitments; and create non-binding targets for developing countries.

Rajendra Pauchari, IPCC, emphasized the need to provide compelling evidence that the cost of inaction would exceed the cost of action, and noted major challenges in assessing the geophysical and socioeconomic aspects of climate change.

Osamu Mizuno, Japan’s Ministry of the Environment, introduced Japan’s Environmental Council’s interim report on the climate regime beyond 2012. He stressed the need for a balance between GHG emissions and sink capacity, achieve a downward emissions trend between 2020-2030, adopt a precautionary approach to environmental risk management, and address equity issues. Mizuno said climate change presents a valuable opportunity to create a mutually beneficial cycle between the environment and the economy.

Chandrashekhar Dasgupta, Teri, advocated a two-track strategy to preserve the basic structure of the Kyoto Protocol, while adding an “optional protocol” based on non-negotiated and non-binding commitments. He called for providing incentives for developing country participation, ensuring that CDM measures comply with host government regulations, developing “unilateral” and sectoral CDM projects, and simplifying CDM methodology.

Cédric Philibert, International Energy Agency, advocated transforming the Kyoto Protocol by retaining its emissions trading system and replacing set binding targets with non-binding ones, integrating targets with indices related to economic development, and renegotiating the CDM before 2012.

Jaycee Jai-chul Choi, Korea’s Ministry of Foreign Affairs and Trade, called for combining top-down and bottom-up approaches, creating a global regime on technology transfer, providing incentives for participation and flexibility to accommodate national circumstances, and developing an “open-structure” CDM.

Yang Hongwei, China’s Energy Research Institute, said socioeconomic development should be the basis for mitigation policies, and stressed the need to promote the development, transfer, diffusion and application of new climate-friendly technologies.