New Paradigm of Low Carbon Development

1. New Paradigm of Low Carbon Development Rae kwon Chung Climate Change Ambassador Republic of Korea

2. Climate Action (CA): Bad for Economy Target: only way for Emission Reduction Not Enough Money/Technology for CA Climate Action: Good for Economy E R: Possible without Target Enough Money/Technology for CA Story of Three Myths Story of Low Carbon Parad

3. Low Energy Efficien Vul To high oil price Economivulner- ability Cheap Fossil Fuel MDG in danger Unsustainable Growth High Fossil Fuel Depend Vul to Climate Change Ecologic vulner ability High Carbon Paradigm:Energy, Growth, Climate Nexus

4. Low Carbon Paradigm • High Energy Efficiency Saving Energy Costs  Energy Security against High Oil Price  Improve Industrial Performance  Sustain Economic Growth • Low Fossil Fuel Dependency Reducing GHG Emissions  Reducing vulnerability to Climate Change  Improving Ecological Sustainability • Economic Growth + Ecological Sustainability  Green Growth • Turn Vicious Cycle to Virtuous Cycle

5. Paradigm Shift from High to Low Carbon Paradigm

6. Climate Action = Energy Security • Especially When Oil is 130 USD per Barrel • Climate Action  Improving Energy Efficiency  Improving Energy Security • High Oil Price is making Climate Action not only Ecological action but Economic Action

7. CA Bad for Economy ? • Internalize Ecological Costs  Improves Energy Efficiency  Strengthen Competitiveness  Encourage R&D, Create New Market, Employment, Growth • Countries with High Energy Price High Energy Efficiency

8. Then Why Resist ? • Positive Results: Long-Term • Afraid of Short-Term Burden/Costs • Key: How to close Long-term/Short-Term Gap ? • Need Policy Support  to Minimize Short-Term Burden to Maximize Long-Term Gains

9. Because We do not know yet • Whether decoupling could happen in DCs • Low Carbon Development: still vision, • Decoupling only happens in rich countries • Korea: 75-06, GDP increased 7.5 times Energy Consumption 7.4 times • We need Low Carbon Economics: • that can make decoupling happen in DCs.

10. A/P Can not repeat Quantity of Growth Grow First, Clean Up Later Market Cost Efficiency

11. A/P 새로운 성장 패턴 Quality of Growth Green Growth Eco-efficiency

12. Asia & Pacific • High Growth • 2/3 of world poor • 1.5 times population density • 34% of global GHG emission • Lowest ecological carrying capacity

13. Ecological Status of Global Economy • Deepening Ecological Deficit • Footprint is surpassing Biocapacity

14. Unmet basic needs… need for further economic growth • 600 million without safe drinking water • 1.9 without sanitation • 800 million without electricity • Still need rapid economic growth

15. Asia-Pacific situation Unmet Basic Needs Ahhhhh! Limited Carrying capacity

16. A/P has to change “Growth Pattern” • To attain • MDG 1 (poverty reduction) • MDG 7 (environmental sustainability) at the same time

17. Paradigm Shiftfrom Quantity of GDP to Quality of GDP Ecological Quality Economic Quality Social Quality

18. Current Paradigm: MCE • Market Cost Efficiency: market price • Market Price < Ecological Price • Market Cost Efficiency (MCE) < Ecological Cost Efficiency (ECE) • Gap between MCE & ECE has to be closed

19. Need to shift from MCE to Ecological Efficiency (EE) • EE: Key Concept of  Green Growth • EE is • Internalize Ecological Cost • Maximize Resource Efficiency • Minimize Pollution Impact

20. EE of Economic Growth • Different Pattern of Growth • Japan> EU > US • In Asia: Singapore

21. Different Patterns of Growth (global hectares per capita, 2003)

22. Examples of Eco-Efficiency • Japan: rail based transport system • Singapore: private car control • London: congestion charge • Norway: Road Pricing, ban shopping mall • Failure of EE: Traffic Congestion Costs Japan 0.79%, US 0.65%, UK 1.25%, Bangkok 6%, Korea 3%

23. Basis for Eco-Efficiency 1. Price-structure: close gap between market Price & Ecological Price * Invisible Infra of society 2.Infra-structure: Frame of Economic Performance * Visible Infra of society

24. Policy Tool for Eco-Efficiency • Eco-Tax Reform: Tax Base, Income  Carbon • Sustainable Infra: Transport • Demand-side Management • Green Business Promotion • Climate Action

25. Eco-Tax Reform TaxBase:Income Tax Base: Carbon Income Tax Income Tax Carbon Tax Carbon Tax Changing Tax Base

26. Double Dividend • 1 stone 2 birds • Reducing GHG Emissions • Promoting Growth

27. Demand-side Management • As Income level rises, consumption will place major pressure on CO₂emission • Deteriorating EE of Consumption • Consumer Acceptance: Key • Congestion charge, Road Pricing

28. Climate Change • Market Failure (MF): Stern Review • Need invest 1-2% of Global GDP • If not, global GDP will be lower 5-20% • From GG perspective: EE Failure • GG  Ultimate answer to Climate Change • Low Carbon Paradigm: • one of the tools for GG/EE

29. EE & Carbon Intensity Ecological Efficiency  GG Low Carbon Intensity (LCI)  LC Dev. EE: improving efficiency of Power plants LCI: switching Coal-fired power station to Gas-fired one LCS GG / EE United Nations Economic and Social Commission for Asia and the Pacific

30. 3 myths of Climate Regime • Target is Good. No Target is Bad. • “Binding” is better than “Voluntary” • “Binding Target” is the only option to reduce Global Emission. - placing a far greater role on Government over Market (Finance, TT)

31. 2 Cases of Target • When BAU (ANNEX 1) • When BAU (Non-Annex1)

32. Fixed/Absolute/Binding Target • When BAU : Feasible • When BAU : Not Feasible - Uncertainty of Projection - Difficulty of Agreement • Hot Air / Growth Capping

33. Flexible/Relative/Voluntary Target • Target: Indicative Goal, Political Will • Driver of Short Term Action • Pledge & Review: adjustable to changing circumstances

34. When target has limited role? MRV (Measurable, Reportable and Verifiable) actions of NA-1: Need Incentives Market Mechanism could play key role in providing Incentives.

35. In designing Post-2012 Need Market and Private Sector Dynamism Improve Commercial Viability of Investment What is lacking is not money and technology In fact we have too much money and enough technology. Once we can design a mechanism which can improve commercial viability of mitigation investment  money & tech will flow to Mitigation

36. DC: “Unilateral Actions” China & DCs: already takingsignificant mitigation actions China: 20% energy efficiency target, has to be recognized& incentivized It is not fair to say that China does not have a target. It already has. Nicklaus Stern: Key Elements for Global Deal for CC, incentive for DCs as Carbon Credit for mitigation

37. Unilateral Developing Country Actions Compared to US and EU Reductions from BAU (CCAP)

38. Cost of 1 ton CO₂Reduction CO2 ER per ton (USD): 234 Japan, 153 USA, 198 Europe. a few dollars to 20 or 30 $ per ton in developing countries (less than 20 $ in China) Asia-Pacific Integrated Model (AIM), Japan Cost Differential: can make ER investment in DC commercially viable: drive market mechanism

39. Barrier for Market Mechanism • Political Ideology: Supplementarity Principle  Reduce in your country  Is it necessary ? To what extent ??? • Additional Burden on Annex 1 ???  it depends on design of Climate Regime • If Supplementarity Principle is relaxed, reduces burden on Annex1 & enables Deeper Cut/Deeper Global Net Reduction

40. Original CDM Design Annex 1 Compliance Mechanism Political (Not Market) Mechanism Supplementarity Principle: CDM: loophole of A-1 Compliance Restrict CDM As Much As Possible Impose Additionality Criteria: Technical, Project, Financial Additionality CDM has to be redesigned as market incentive mechanism

41. Evolution of CDM Design From Compliance to Market Mechanism Bilateral to Unilateral CDM: A-1: Investing in NA-1 to generate CER (B/CDM) A-1: Buying CER from NA-1 (U/CDM) Proposed in 2000 at COP 6, Approved in 2005 Strong opposition: G-77(China,India), EU U/CDM: incentive for investment in mitigation projects in NA-1, about 70% U/CDM

42. Still Half Way: Original Bilateral CDM: Political Mechanism U/CDM: Hybrid of Political / Market Mechanism Still Same Additionality Criteria: restricting project scope CDM: yet very limited incentive for investment in mitigation in NA-1 Need to remove project & financial additionality criteria, but maintain Technical Baseline strict

43. Key Issues for Post-2012 For Developing Country: How to design finance & technology transfer mechanism? Current Debate focusing on the role of Governments of Annex 1: Not Realistic For Investor: How to improve commercial viability of investment for mitigation?

44. What is NAMA ? • Nationally Appropriate Mitigation Actions (NAMA) by developing country parties, supported and enabled by technology, financing and capacity-building, in a MRV (Measurable, Reportable, Verifiable) manner - Bali Action Plan Decision 1/COP 13, Para. 1.(b).(ii)

45. If Credit is awarded to NAMA • Mitigation initiated even without Finance & Technology (e.g. Unilateral CDM) • Commercial Viability will be improved  Fin & Tech flow will be scaled-up • Global Mitigation Cost could be reduced • Annex 1 could take deeper target • Mitigation will be driven by market dynamism/ Private Sector.

46. With credit for NAMA • Global Carbon Market will function as Fin & Tech Transfer Mechanism • DCs can initiate mitigation while pursuing Low Carbon Development (GG) • Certain share of proceeds can be allocated to Adaptation Fund, then 4 key issues of Bali Roadmap positively addressed

47. How to Operationalize NAMA? • Demand Side:need buyer of credit • Annex 1: deeper target • Supply Side:Wholesale approach for CDM, programmatic and sectoral CDM • Can build on existing rules of CDM • Total cost of Global Mitigation: reduced

48. Carbon Intensity (CI) • Can be applied sector by sector • Power Sector, Transport Sector etc. • Ex. Reduce CI by 20% in 3 years: • NAMA: actions lowering CI • CI: Key concept in calculating Carbon Credit • Basis for Wholesale CDM: Nicklaus Stern

49. Related Issues • Additional Deeper Cut: Additional Financial burden? • Better than Fund or Bond • Carbon Trade: only carbon offsetting? No. • How to balance supply and demand? • Needs study (price differentiation, CER Discounting etc.)

50. How to negotiate NAMA? • Agree on principle by 2009Work out details after 2009 as was CDM • Scope and Extent of Credit & Modality is open to negotiation • Carbon Intensity of Sectors: can be applied to sectoral approach