Commission staff working document accompanying the communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - Towards a comprehensive climate change agreement in Copenhagen - Extensive background information and analysis –Part 1, part 2 {COM(2009) 39 final} {SEC(2009) 102} /* SEC/2009/0101 final */





EN (...PICT...)|COMMISSION OF THE EUROPEAN COMMUNITIES| Brussels, 28.1.2009 SEC(2009) 101 COMMISSION STAFF WORKING DOCUMENT accompanying the COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Towards a comprehensive climate change agreement in Copenhagen - Extensive background information and analysis -PART 1- {COM(2009) 39 final} {SEC(2009) 102} Table of content Executive summary Glossary 1. Procedural issues and consultation of interested parties 17 (...) 1.1. Organisation and timing 17 (...) 1.2. Stakeholder Consultation 18 (...) 2. Background 21 (...) 2.1. Global temperature increase needs to be limited 21 (...) 2.2. Urgent need for global action 22 (...) 2.3. The EU and Commission's role in the international negotiations 24 (...) 3. Problem definition: Reaching an agreement within the multilateral context of the UNFCCC, ensuring that average global temperature does not increase by more than 2 C 26 (...) 3.1. GHG reduction targets for developed countries 27 (...) 3.2. LULUCF accounting rules 28 (...) 3.3. Accounting rules for a surplus of Assigned Amount Units 29 (...) 3.4. Appropriate action by developing countries 30 (...) 3.5. The development of a global carbon market 30 (...) 3.6. Action to reduce emissions from deforestation and forest degradation 32 (...) 3.7. Addressing emissions from international maritime transport and aviation 32 (...) 3.8. Assistance through finance and technology 32 (...) 4. Objectives 34 (...) 4.1. General objectives 34 (...) 4.2. Specific objectives 34 (...) 4.3. Operational Objectives 34 (...) 5. Policy Options 35 (...) 5.1. Distribution of a 30% reduction target for developed countries 35 (...) 5.2. LULUCF accounting rules on the 30% reduction target for developed countries 38 (...) 5.3. Accounting rules for a surplus of Assigned Amount Units 39 (...) 5.4. Actions/technologies to achieve the reduction targets for developed countries and a substantial deviation from baseline in developing countries by 2020 and the development of the global carbon market to stimulate these actions 40 (...) 5.5. Action to reduce emissions from deforestation and forest degradation 42 (...) 5.6. Actions to address emissions from international aviation and maritime transport 42 (...) 5.7. Sources of financing complementing the carbon market 43 (...) 6. Analysing the impacts of the different policy options 45 (...) 6.1. Description of the baseline scenario and its assumptions 45 (...) 6.2. Assessment of the economic impacts of various allocation options in reaching a 30% reduction target for developed countries 48 (...) 6.3. Impact of different options for LULUCF accounting rules on the 30% reduction target of developed countries 54 (...) 6.4. Accounting rules for a surplus off Assigned Amount Units 59 (...) 6.5. Actions/technologies to achieve the reduction targets for developed countries and a substantial deviation from baseline in developing countries by 2020 and the development of the global carbon market to stimulate these actions 61 (...) 6.5.1. Actions to achieve the reduction targets for developed countries and a substantial deviation from baseline in developing countries by 2020 61 (...) 6.5.2. The role of the carbon market 72 (...) 6.6. Actions necessary in the forestry sector and agriculture sector to reduce emissions and associated costs 79 (...) 6.6.1. Actions for REDD, estimating costs 79 (...) 6.6.2. Actions for REDD and their relationship with emission reductions from the energy and industrial sectors 83 (...) 6.6.3. Impact REDD on agriculture 84 (...) 6.6.4. Mitigation action to reduce Non-CO2 greenhouse gases in agriculture: nitrous oxide and methane 84 (...) 6.7. Sources of financing complementing the carbon market 88 (...) 6.8. Impact of the financial crisis 89 (...) 6.9. Assessment of co-benefits of climate change policies 90 (...) 6.9.1. Air pollution 90 (...) 6.9.2. Energy supply security 94 (...) 6.10. Can the specific and operational objectives set by the EU meet the requirement to limit temperature increase to 2 C 94 (...) 7. List of references 97 (...) List of tables: Table 1 Baseline emissions, comparison POLES – GEM E3 48 (...) Table 2 Key indicators of the four options for allocating the mitigation efforts among developed countries 49 (...) Table 3 Example of targets for developed countries resulting from the four allocation options 50 (...) Table 4 Results for 4 indicators and the example of related targets for developed countries 51 (...) Table 5: Example of a distribution of targets for developed countries, example in GEM E3 using 4 indicators 53 (...) Table 6: Impacts resulting from targets based on a combination of indicators 54 (...) Table 7: Impact on growth over the period 2001-2020 54 (...) Table 8 Accounting options assessed 55 (...) Table 9 Impact of different LULUCF accounting options on developed countries’ targets 55 (...) Table 10 Potential annual surplus or deficit of AAUs over the period 2008 - 2012 59 (...) Table 11 Costs in developed and developing countries 71 (...) Table 12 Impact of gradual development of the carbon market, POLES 74 (...) Table 13 Reductions in developed and developing countries and trade in emissions rights 74 (...) Table 14 Costs in developed and developing countries and trade in emissions rights 75 (...) Table 15 Resulting allocation of mitigation efforts compared to baseline for key developing countries (in % compared to baseline) 77 (...) Table 16 Impact of gradual development of the carbon market, GEM E3 78 (...) Table 17 GHG emissions/removals from land-use change involving forests in baseline 80 (...) Table 18 Deforestation and afforestation in baseline 80 (...) Table 19 GHG emissions/removals from land-use change involving forests in baseline 81 (...) Table 20 Deforestation and afforestation in baseline 81 (...) Table 21 Costs to the energy system and industry if there is no action on REDD 83 (...) Table 22 Possible distribution keys for countries' contributions to finance 88 (...) Table 23 Average annual cost of reductions in CO2 from energy and Non CO2 emissions from industry in 2020, for the case with and without financial crisis 90 (...) Table 24 Benefits in terms of reduction in life years lost compared to baseline in 2030 without additional air pollution policies in place (scenario 1) 92 (...) Table 25. Reduction in emissions and in air pollution control costs in India, China and the EU27 due to climate mitigation measures 93 (...) Table 26 Oil and gas consumption expenditures 94 (...) List of figures: Figure 1 Key impacts as a function of increasing global average temperature change 21 (...) Figure 2 Diversity in GHG intensity, per capita income, population and emission trends in developed countries 37 (...) Figure 3 Carbon price developments over time in the global carbon market (€/ton CO 2 ) 41 (...) Figure 4 Baseline emissions all sectors 46 (...) Figure 5 Developed/developing countries GHG emissions in POLES baseline & appropriate global action scenario 61 (...) Figure 6 Contribution of different technologies to reduce CO2 emissions 63 (...) Figure 7 Power Generation by fuel type 65 (...) Figure 8 Share of power sector emissions captured through Carbon Capture and Storage 67 (...) Figure 9 Annual Power Generation Investments 67 (...) Figure 10 Changes in the mix of power generation 68 (...) Figure 11 Additional, new capacity in Power generation compared to 2000 69 (...) Figure 12 GHG reductions per sector, World Regions 70 (...) Figure 13 Global Non-CO2 GHG emission from agriculture 85 (...) Figure 14 Emissions for all sectors in the appropriate global action scenario 95 (...) Figure 15 Global temperature increase for different emission profiles up to 2050 96 (...) Executive summary This staff working document assesses different policy options for main issues under negotiation for a new international climate change agreement to be reached in Copenhagen in December 2009. It builds on earlier analysis been undertaken for two earlier Commission communications on international climate change policies Winning the battle against global climate change (COM(2005) 35 final), and Limiting Global Climate Change to 2 degrees Celsius - The way ahead for 2020 and beyond (COM(2007) 2 final). and especially on then Spring Council conclusions 2007 setting the overall objectives for the EU’s climate policy.[1] Winning the battle against global climate change (COM(2005) 35 final), and Limiting Global Climate Change to 2 degrees Celsius - The way ahead for 2020 and beyond (COM(2007) 2 final). In this working paper the following key issues have been assessed: – Comparability of individual GHG emission reduction targets for developed countries; – LULUCF accounting rules; – Surpluses of Assigned Amount Units from the 1 st commitment period (2008-2012) and the implications for future targets; – Appropriate action to be undertaken by developed countries to achieve their target and by developing countries to deviate substantially from baseline; – Further development of the global carbon market ; – Reduction in emissions from deforestation and forest degradation in developing countries; – Addressing international maritime transport and aviation; – Assistance for appropriate mitigation and adaptation by developing countries through finance and technology; Individual GHG emission reduction targets for developed countries A selected number of key criteria which are currently under international discussion for setting comparable and effective reduction targets for developed countries for the period after 2012 have been analysed, i.e. GDP/capita, GHG/GDP, GHG emission trends since 1990 and Population trends. The analysis clearly shows that using a single indicator for the allocation of individual country efforts leads often to disproportional costs or gains for single countries. Using GDP per capita as the sole criterion can lead to very high costs in countries with high incomes that are relatively efficient. At the same time, using GHG intensity of the economy or population trends for those economies that have a high GHG intensity or a decreasing population trend, respectively, while their GDP per capita is relatively small, leads to high costs for those economies. Therefore, it is unlikely that an allocation option based on a single criterion will gain political consensus. Using a combination of criteria in order to define a target instead of a single indicator will lead to a fair outcome in terms of cost per unit of GDP. LULUCF accounting rules The current accounting rules for Land-Use, Land-Use Change and Forestry (LULUCF) for developed countries are temporary and will have to be decided on for the period after 2012. The working document analyses the impact of various accounting options for the accounting of LULUCF that are currently under international discussion on the amount of removals and emissions that can be reported. In fact, four options have been assessed next to the existing accounting rules: 1. No changes to the current accounting rules. Existing arbitrary caps would be continued. 2. Based on the current regime except replacing the cap on sinks from forest management by a discount factor. 3. Accounting for the difference in annual absorptions/emissions compared to the absorption/emissions of a base year, the so called net-net approach. 4. Eliminating the impact of natural disturbance, age-class effect and indirect human-induced effects in the sector by comparing annual net absorption/emissions with the projected net absorption/emissions, using a forward looking baseline. Such a baseline is adapted over time to take into account the natural disturbance that do occur and have an impact on the absorption/emissions. 5. Full land based accounting as done at present under the UNFCCC inventories with a net-net accounting approach for all LULUCF land use categories reported under the Convention inventories. The analysis clearly points out that the risk of large sinks credits coming into the system, potentially overwhelming the reductions needed in the other sectors, is limited for most of the options as long as absorptions from forest management are accounted for through an approach (options 2 and 4) or constrained gross-net approach through a cap or discount factor (option 0 and 1). However, from a qualitative point of view and not a mere quantitative point of view the current rules are not satisfactory because the simple capping of forest management does not stimulate and reward real additional action in this sector but merely rewards business as usual action. The preferred option should meet criteria such as simplification, comprehensiveness in the accounting of emissions and removals in the LULUCF sectors in order to avoid leaving substantial greenhouse gases sources of emissions outside of the accounting while at the same time crediting potentially large (ensuring environmental integrity), broader coverage of managed land, and encouragement of national policies to deliver the full contribution of agriculture and forestry to climate change mitigation. Option 4 seems the one that delivers on most of these criteria. However, this approach is likely to require additional reporting efforts by Parties, especially to estimate emissions and removals from agricultural soils. Issues of compliance risks, due among other to natural disturbances, inclusion of harvested wood products, and national circumstances also need to be considered in this option. Surplus of Assigned Amount Units and the impact on future targets When setting targets for the 1st commitment period under the Kyoto Protocol it was assumed that the US would become a full Party to the Protocol. Targets were set in a way that a reduction of a little more than 5 % would have been achieved. However, with the US not being a Party, these reductions will not be realised. Instead, there might be significant surplus of national emission budgets (so called Assigned Amount Units or AAU). This working paper assesses the potential implications for the -30% target for the group of developed countries as surplus AAUs are allowed to be banked into the period after 2012. Surplus AAUs from the period 2008-2012 constitute a significant risk for the environmental effectiveness of the reduction targets for the period after 2012. Should this not be taken into account when setting the overall ambition level, the -30% reduction target compared to 1990 by 2020 might result in real emission reduction of only -26% or even less compared to 1990 by 2020 depending on the number of actual surplus AAUs. Appropriate global action to be undertaken Actions in the energy system and industrial sector on a truly global scale are crucial to ensure that the 2 C limit can still be met. In developing countries, around two third of the reduction potential compared to baseline in the energy system and in the industrial sectors comes from measures typically related to efficiency improvements, that can be realised at no or low cost in the short and mid term because of the significant energy savings. On a global level energy efficiency improvements represent around 50% of the actions until 2020. They might require substantial upfront investments which might pose a cash flow problem to those countries where private sector does not have the necessary financial/loan capacity. Energy efficiency improvements are by far the single most important action until 2020. But there is no single silver bullet technology. Next to energy efficiency improvements, there are other cost efficient opportunities of using low-carbon energy sources (renewables & nuclear), to switch to lower carbon content fossil fuels, and gradually develop and implement CCS for all large remaining point sources on a global scale, especially those newly build after 2020. Further development of the global carbon market Three options for the further development of the carbon market have been assessed: i) a gradual expansion of the global carbon market; ii) no global carbon market and iii) a perfect global carbon market. The analysis shows that a gradually developing global carbon market decreases costs significantly to reduce GHG emissions, also if targets are 'fairly' allocated. Without a gradual development economic costs to fight climate change could become very high. The gradual expansion can be supported by using offsetting mechanisms that are environmentally effective. In future, these should only compensate costs for reductions that are over and above low cost mitigation options. Offsetting mechanisms can as such provide an incentive for reductions that are not credited. These new types of offsetting mechanisms would only credit reductions that go beyond a reference emission level that reflects own appropriate mitigation actions in developing countries. Reduction in emissions from deforestation and forest degradation (REDD) in developing countries The EU’s policy objective is to halve emissions from gross deforestation by 2020. By 2030 net forest loss has to be reversed, reducing to zero the emissions from net deforestation. It has been assessed at what costs this objective can be met and what the impact will be on other land uses, most importantly agriculture. The analysis shows that it is essential and cost efficient to reduce gross tropical deforestation by at least 50 % by 2020 compared to current levels, and that it is feasible and affordable as well. Not reducing emissions from deforestation would lead to a significant cost increase for additional action required in the energy and industry sectors amounting to an increase of costs of around three times the cost of action on REDD. The analysis shows that increased demand for bio-energy may turn out to be an important driver for afforestation and reforestation. However, in the short term, reducing emissions from deforestation is more cost efficient than increased afforestation or reforestation. Thus, the deforestation of areas for the purposes of biomass extraction for bio-energy production needs to be minimised. If crediting of REDD actions would be fully allowed for offsetting purposes, then targets for developed countries would need to be made much more stringent. In the above assessment they would need to be cut further from -30% to -38% compared to 1990 by 2020. To achieve the REDD objectives through providing a performance-based financial incentive, an estimated € 18 billion in 2020 (2005 prices) will be necessary, if leakage can be limited to a regional scale. Leakage is an important cost factor for the efficiency of REDD policies. In addition to the expected population growth, it will be crucial to address pressures on agriculture stemming from climate policies, i.e. REDD and increased demand for bio-energy, through increasing agricultural productivity in a sustainable way. Agriculture itself offers a substantial mitigation potential, often through intensification of the agricultural production. Such practices will need to take into account local ecosystem characteristics and respect water, soils, biodiversity. They could include shifting from traditional grassland based livestock production systems to landless ones, progressive switch from low input and rain-fed agricultural practices towards higher input and sustainable irrigation systems as well as improving soil management practices in croplands and grazing lands areas. I ncreasing agricultural productivity in a sustainable manner will require support for capacity building and rural development in developing countries. Addressing international maritime transport and aviation Since 1990, emissions growth from these sectors has been high and is expected to continue to rise, even when action on GHG emissions is undertaken. So despite the need for global emissions to peak by 2020, reductions from these sectors to below 1990 levels by 2020, as discussed for developed countries, are unrealistic. Due to the internationally mobile nature of emissions from these two sectors, and risks of profound carbon leakage, it is preferable to address these emissions globally. Therefore, meaningful global goals should be set to limit the further growth of emissions from these sectors and those goals should be achieved by implementing an appropriate global sectoral approach. However, if such approach can not be agreed within ICAO and IMO by the end of 2010, those emissions should be counted towards national totals under the Copenhagen agreement. The latter should ensure comparable action in all developed countries. Incremental costs related to a global pathway to meet the EU's 2ºC objective Additional costs in the energy system are estimated at € 152 billion in 2020 (2005 prices) of which € 81 billion can be attributed to mitigation costs in developed countries. € 71 billion comes from mitigation costs in developing countries, of which, however, € 38 billion are compensated through carbon credit trades in the carbon market. In practice this means that significant shifts in investment flows need to be realised, with some sectors/technologies receiving much higher investments compared to baseline (e.g. energy efficiency) and some much lower (e.g. primary energy production). To achieve the REDD objectives through an incentive-based approach, an estimated € 18 billion in 2020 (2005 prices) will be necessary, if leakage can be limited to a regional scale. Not taking this action would see a little more than twofold increase in costs in the energy and industry sectors because of additional action to be taken in these sectors. Global net incremental investments to reduce global emissions in the energy, industry and deforestation sectors need to increase gradually to around € 170 billion per year in 2020. While this represents only a small fraction of global GDP, it remains a significant injection of additional finance into the global economy, requiring significant larger investments in growth areas such as energy efficiency and renewables and reducing carbon intensive investments. It is estimated that more than half of the additional net investments (around € 90 billion in 2020) will have to be realised in developing countries. Costs for mitigation to reduce emissions from agriculture, are estimated at an € 6.5 billion in 2020, of which developing countries represent € 5.0 billion. Significant increases in agricultural productivity will require support for capacity building and rural development in developing countries. Assistance for appropriate own action by developing countries through finance and technology As stated in the problem definition, further support by developed countries for developing countries action on mitigation and adaptation will be necessary. Several options have been assessed as to how such new contributions could be generated and how to determine the relative shares for the financial contribution of different countries, including i) actual contributions for Official Development Assistance; ii) actual scale of assessment for the UN budget, iii) polluters pays principle, i.e. emitted GHG emissions, which could be applied only on developed countries or on a global scale; and iv) share of total GDP. Depending on the distribution key, the EU's contribution could range between 15 – 60 % of total funding. Again, building a composite index that reflects responsibility and capability might be the most suitable and political acceptable way forward. Furthermore, there is no doubt, that the larger the number of contributors, the higher the amounts that will be able to be mobilised, especially in view of the current economic recession. Glossary For a more extensive glossary on climate change acronyms used in the UNFCCC, see: http://unfccc.int/essential_background/glossary/items/3666.php[2] For a more extensive glossary on climate change acronyms used in the UNFCCC, see: http://unfccc.int/essential_background/glossary/items/3666.php – Assigned Amount Units (AAU) - Under the Kyoto Protocol, developed countries reduction – The Kyoto protocol sets an absolute emission cap at country level for developed countries (QELRO or Quantified Emission Limitation and Reduction Objective). This absolute cap get translated into a total absolute amount of allowed emissions over the entire commitment period (2008-2012), called a country's Assigned Amount. This Assigned Amount is issued into a country's registry in individual Assigned Amount Units (AAUs), each representing 1 ton of CO2-equivalent emissions. These are the emission rights that can be transferred under the Kyoto Protocol's emission trading mechanism and these are also used to demonstrate compliance with a country's Kyoto Protocol target. – Adaptation - Adjustment in natural or human systems in response to actual or expected climatic stimuli or their effects, which moderates harm or exploits beneficial opportunities. – Adaptation Fund - was established to finance concrete adaptation projects and programmes in developing countries that are Parties to the Kyoto Protocol. The Fund is to be financed with a share of proceeds from clean development mechanism (CDM) project activities and receive funds from other sources. – Afforestation - Planting of new forests on lands that historically have not contained forests. – Annex I Parties - The industrialized countries listed in this annex to the Convention which were committed return their greenhouse-gas emissions to 1990 levels by the year 2000 as per Article 4.2 (a) and (b). They have also accepted emissions targets for the period 2008-12 as per Article 3 and Annex B of the Kyoto Protocol. They include the 24 original OECD members, the European Union, and 14 countries with economies in transition. – AWG-KP - Ad hoc Working Group on further commitments for Annex I Parties under the Kyoto Protocol. The AWG-KP was established by Parties to the Protocol in Montreal in 2005 to consider further commitments of industrialized countries under the Kyoto Protocol for the period beyond 2012, and is set to complete its work in Copenhagen in 2009. – AWG-LCA - Ad hoc Working Group on Long-term Cooperative Action. The AWG-LCA was established in Bali in 2007 to conduct negotiations on a strengthened international deal on climate change, set to be concluded in Copenhagen in 2009. – Capacity building - In the context of climate change, the process of developing the technical skills and institutional capability in developing countries and economies in transition to enable them to address effectively the causes and results of climate change. – Cap and trade - Mechanisms that set a cap on emissions and allocated a number of emission rights to entities to cover for their emissions. Those entities can use the emission rights to demonstrate compliance and can trade these emission rights among them. Examples of cap and trade system are the one set up by the Kyoto Protocol for countries with a reduction target (Annex I countries) via the creation of Assigned Amount Units and possibility to trade them via the "Emissions Trading" mechanisms. The largest private sector example is the EU Emission trading system (EU ETS) – Carbon Leakage - That portion of cuts in greenhouse-gas emissions by developed countries (countries trying to meet mandatory limits under the Kyoto Protocol) that may reappear in other countries not bound by such limits. For example, multinational corporations may shift factories from developed countries to developing countries to escape restrictions on emissions. – CDM - Clean Development Mechanism: a mechanism under the Kyoto Protocol through which developed countries may finance greenhouse-gas emission reduction or removal projects in developing countries, and receive credits for doing so which they may apply towards meeting mandatory limits on their own emissions. – COP - Conference of the Parties: the supreme body of the UNFCC Convention. It currently meets once a year to review the Convention's progress. The word "conference" is not used here in the sense of "meeting" but rather of "association," which explains the seemingly redundant expression "fourth session of the Conference of the Parties." – Conference of the Parties serving as the Meeting of the Parties (CMP): The UNFCCC’s supreme body is the COP, which serves as the meeting of the Parties to the Kyoto Protocol. The sessions of the COP and the CMP are held during the same period to reduce costs and improve coordination between the Convention and the Protocol. – Credits - Emission entitlements generated in offsetting or carbon crediting mechanisms that can be used for compliance in cap and trade systems at country or private sector level. – Deforestation - Conversion of forest to non-forest. – Emission rights - Emission entitlements generated in cap and trade systems. Two examples of emission rights generated through cap and trade systems are Assigned Amount Units (AAU) and EU Allowances (EUA) – ETS - Emission trading systems are cap and trade systems set up to regulate emissions at private entity level. At present the largest ETS is the EU ETS. – EUA - EU Allowances: The EU Emission Trading System sets an absolute emission cap for large point source emitters in the EU and allows for trade. The emission rights traded are called EU allowances. – Flexible mechanisms - Generic terms for the 3 mechanisms under the Kyoto Protocol that allow for flexibility across borders to achieve reduction targets by Annex I parties. The 3 flexible mechanisms are 'Emissions Trading' between Parties, Joint Implementation (JI) and the Clean Development Mechanism (CDM) – GEF - Global Environment Facility: an independent financial organization that provides grants to developing countries for projects that benefit the global environment and promote sustainable livelihoods in local communities. The Parties to the Convention assigned operation of the financial mechanism to the Global Environment Facility (GEF) on an on-going basis, subject to review every four years. The financial mechanism is accountable to the COP. – GHGs - Greenhouse gases: the atmospheric gases responsible for causing global warming and climate change. The major GHGs are carbon dioxide (CO2), methane (CH4) and nitrous oxide (N20). Less prevalent --but very powerful -- greenhouse gases are hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6). – Global carbon market - The transfer of emission rights or credits that has the objective to be used for compliance purposes by both public and private authorities. – GWP - Global warming potential – ICAO - International Civil Aviation Organisation – IEA – International Energy Agency – IIASA - International Institute for Applied Systems Analysis – IMF – International Monetary Fund – IMO - International Maritime Organisation – Intergovernmental Panel on Climate Change (IPCC) - Established in 1988 by the World Meteorological Organization and the UN Environment Programme, the IPCC surveys world-wide scientific and technical literature and publishes assessment reports that are widely recognized as the most credible existing sources of information on climate change. The IPCC also works on methodologies and responds to specific requests from the Convention's subsidiary bodies. The IPCC is independent of the Convention. – International carbon crediting mechanisms – Mechanisms that generate credits for emission reductions in countries or sectors that are not subject to a quantified emission reduction or limitation target. Like offsetting mechanisms, they allow for the transfer of these credits to other countries or private sectors entities in other countries for compliance with binding emission caps. More broadly than offsetting mechanisms, carbon crediting mechanisms include also those mechanisms that provide credits for emission reductions only beyond a certain target level that is more ambitious than business as usual. An example for such mechanisms is the so called "no-lose" target that rewards emission reductions below a crediting target, but does not require countries or sectors to acquire credits if the target is not met. – JRC/IPTS - Joint Research Centre's Institute for Prospective Technological Studies, European Commission – Kyoto Protocol - An international agreement standing on its own, and requiring separate ratification by governments, but linked to the UNFCCC. The Kyoto Protocol, among other things, sets binding targets for the reduction of greenhouse-gas emissions by industrialized countries. – LULUCF - Land use, land-use change, and forestry. A greenhouse gas inventory sector that covers emissions and removals of greenhouse gases resulting from direct human-induced land use, land-use change and forestry activities. – Marrakesh Accords: Agreements reached at COP-7 which set various rules for "operating" the more complex provisions of the Kyoto Protocol. Among other things, the accords include details for establishing a greenhouse-gas emissions trading system; implementing and monitoring the Protocol's Clean Development Mechanism; and setting up and operating three funds to support efforts to adapt to climate change. – Mitigation - In the context of climate change, a human intervention to reduce the sources or enhance the sinks of greenhouse gases. Examples include using fossil fuels more efficiently for industrial processes or electricity generation, switching to solar energy or wind power, improving the insulation of buildings, and expanding forests and other "sinks" to remove greater amounts of carbon dioxide from the atmosphere. – Net deforestation – difference between afforestation and deforestation & reforestation – Non-Annex I Parties - Refers to countries that have ratified or acceded to the United Nations Framework Convention on Climate Change that are not included in Annex I of the Convention. – QELROs - Quantified Emissions Limitation and Reduction Commitments. Legally binding targets and timetables under the Kyoto Protocol for the limitation or reduction of greenhouse-gas emissions by developed countries. – Offsetting mechanisms - Mechanisms that generate credits for emission reductions in countries or sectors that have themselves no emission cap and allow for the transfer of these credits to countries or sectors that have an emission cap under a cap and trade system in order to be used for compliance purposes. At present the only offsetting mechanism is the CDM that can be used by countries with a reduction target under the Kyoto Protocol for compliance and is also allowed within the EU ETS for compliance in the EU ETS. Also the proposals discussed in the US congress on a US ETS foresee offsetting mechanisms. But these also include internal ones in sectors not covered by the US ETS. – Private carbon market - This covers a set of activities, i.e. the investment by the private sector in credit generating activities in offsetting mechanisms, the transfer of emission rights or credits as intermediates and the use of emission rights or credits for compliance purposes by private entities under an ETS. – Public carbon market - The transfer of emission rights or credits that has the objective to be used for compliance purposes by public authorities, such as Annex I parties under the Kyoto Protocol. – REDD - Emissions from deforestation and forest degradation – Reforestation - Replanting of forests on lands that have previously contained forests but that have been converted to some other use. – RMU - Removal unit: A Kyoto Protocol unit equal to 1 metric tonne of carbon dioxide equivalent. RMUs are generated in Annex I Parties by LULUCF activities that absorb carbon dioxide. – SRES - Special Report on Emissions Scenarios: emissions scenarios used, among others, as a basis for the climate projections in the IPCC the Third and the Fourth Assessment Reports. – Subsidiary Body for Implementation (SBI) :The SBI makes recommendations on policy and implementation issues to the COP and, if requested, to other bodies under the UNFCCC. – Subsidiary Body for Scientific and Technological Advice (SBSTA): The SBSTA serves as a link between information and assessments provided by expert sources (such as the IPCC) and the COP, which focuses on setting policy. – Technology transfer - A broad set of processes covering the flows of know-how, experience and equipment for mitigating and adapting to climate change among different stakeholders – UNFCCC - United Nations Framework Convention on Climate Change. 1. Procedural issues and consultation of interested parties 1.1. Organisation and timing This staff working document gives background information to the Communication "Towards a comprehensive climate change agreement in Copenhagen". This Communication further specifies the Commission’s climate change policy as outlined in the 2005 Communication “Winning the battle against global climate change” and the 2007 Communication “Limiting global climate change to 2ºC”. This Communication is a strategic initiative in the Commission Legislative and Work Programme 2009, "Acting now for a better Europe". It is a non-legislative action with the aim to further refine the EU’s negotiating position towards achievement of the EU objective of limiting the average increase of global temperature to 2°C above pre-industrial levels within the mandate as defined by the European Council in Spring 2007. It is meant as an input for further discussions in order to shape a comprehensive EU position ahead of the UN Climate Change Conference in Copenhagen The 15 th Conference of the Parties to the UNFCCC and the 5 th Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol in December 2009.[3] The 15 th Conference of the Parties to the UNFCCC and the 5 th Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol This staff working document also builds further on the analysis of two earlier impact assessments COM(2005) 35 final, COM(2007) 2 final , and presents the results of examining different options for engaging all countries in taking further action against climate change, including investment and financing options. Work on this staff working document started in March 2008. The Joint Research Centre's Institute for Prospective Technological Studies (JRC/IPTS) was requested to further improve its global climate change mitigation models. A draft outline of the Communication and annotations to it were distributed in the Inter-service Group on the international climate change negotiations, and this group was regularly updated on the work on the communication. [4] COM(2005) 35 final, COM(2007) 2 final The staff working document made use of several models to assess the impact on GDP and other relevant socio-economic factors of low carbon emission scenarios and certain specific elements of interest to the future international agreement on climate change. The global POLES model was used by JRC/IPTS to analyse the impact on the energy system and industry. It assesses the mitigation potential for GHG emissions in the energy system and industrial emissions including other gases than CO 2 . The direct emissions and the potential for mitigation from agriculture were estimated using the land use change model of the integrated assessment model IMAGE of the Netherlands Environmental Assessment Agency (PBL, Planbureau voor de Leefomgeving). IIASA’s International Institute for Applied Systems Analysis (IIASA) G4M and GLOBIOM models were used to assess the potential for mitigation from both reduced deforestation and increased afforestation, mainly to foresee increased demand from bio-energy. Also indirect emissions from deforestation due to agriculture, including increasing demands for bio-energy, were assessed with this set of models.[5] International Institute for Applied Systems Analysis (IIASA) The GEM-E3 model of JRC/IPTS is a general equilibrium model that was employed to assess the macro-economic effects of various mitigation scenarios covering all economy-wide emissions except those from land-use change. The TM5 model from JRC/IES was employed to estimate the effects of different GHG emission scenarios and their corresponding energy consumption on local air pollutants. The GAINS Europe and GAINS Asia models from IIASA were used to assess the inter-linkages between GHG and local air pollution abatement policies and their respective costs if applied in parallel. Finally JRC/IES provided a spreadsheet based tool to assess the impact of different accounting rules for the Land Use, Land Use Change and Forestry (LULUCF) sector for the current developed countries under the Kyoto Protocol based on historic data for the base year 1990 or the base period 1990-1999. A more detailed description of the models can be found in Annex 1 of this Staff Working Document (Part 2). 1.2. Stakeholder Consultation An internet consultation "Towards a comprehensive and ambitious post-2012 climate change agreement" was conducted from 4 August to 10 October 2008. It received 324 responses, out of which 59% were from individuals and 41% from organisations. From organisations most contributions were received from non-governmental organisations (37%) and organisations representing private sector (36%). Most active respondents were from Germany (21.5%), followed by Belgium (15.5%), France (12.9%) and the United Kingdom (12.6%). Furthermore a stakeholder conference was held on 15 October 2008. Over 200 participants from public authorities, business community, trade unions, consumer organisations, academia and NGOs from developed and developing countries shared their views on the key elements of a global post-2012 climate regime For background information, see: http://ec.europa.eu/environment/climat/post_2012/reg.htm . The event in particular focused on mitigation commitments by developed countries, mitigation actions by developing countries and adaptation to climate change. Underneath a summary is presented on the main issues raised by stakeholders in the consultation and the conference. For specific elements regarding the issues raised in the stakeholder conference, see also Annex 2 of this Staff Working Document (Part 2). [6] For background information, see: http://ec.europa.eu/environment/climat/post_2012/reg.htm Most stakeholders agreed that the goal of reducing global greenhouse gas emissions by at least 50% below 1990 levels by 2050 is needed to tackle the climate change challenge. In addition, it was often stated that to make this long-term target credible, there is a need for (1) interim emission reduction targets for 2020 and 2030 to ensure 2050 goal attainable; (2) a commitment by industrialized countries to reduce their own emissions by at least 80% below 1990 levels by 2050; (3) financial and other support by industrialized countries to developing countries to ensure that the transition to low carbon economy is compatible with development and poverty reduction goals. Some stakeholders expressed concerns that current objectives are not ambitious enough as 450ppmv scenario provides only for 50% probability to stay below 2 degree target. Therefore, it was suggested that the emission reduction goals should be revised over time in the light of the latest available scientific research. A need for broad and comprehensive post-2012 climate change agreement was expressed, including fast developing countries like China and India. Among other elements of shared vision, the need to tackle emissions from deforestation was commonly mentioned. Importance of energy efficiency and necessity for lifestyle changes was also emphasised. Most stakeholder recognised that based on the historical responsibility, developed countries must take the lead by committing to binding absolute emission reduction targets reflecting comparable efforts. Need for redefinition of “developed countries” was pointed out by some stakeholders. Emission reductions made up to date (since 1990), capacity to pay for emission reductions (GDP per capita) and GHG emissions per capita were among the criteria most often mentioned for determining comparable efforts. Other criteria included emission intensity of the economy, technological potential to reduce emissions, historic responsibility and the UN's human development index. Regarding developing country mitigation actions, most stakeholders considered that all countries should undertake sustainable policies and measures as a means of realizing low carbon development. Recognising wide differences among developing countries, many stakeholders considered that different types of mitigation actions are appropriate for different developing countries. However, many noted that all countries should stop subsidising fossil fuel extraction and use, and nuclear power, that could increase the cost of the energy sector. Even though emission reduction actions would differ among developing countries, there should be a common monitoring, verification and reporting system. Technology and financial assistance for mitigation in developing countries should be measured, reported and verified according to actual and additional mitigation achieved (e.g. tons of CO2 equivalent avoided) as a result of assistance given by developed countries. Carbon leakage is a concern for many stakeholders. Most commonly proposed measures to avoid relocation of industries were a comprehensive global agreement, sectoral approaches, free allocation in EU ETS for industries concerned and border adjustment measures. Some stakeholders considered that a stronger cooperation between the UNFCCC and ICAO (International Civil Aviation Organisation) and IMO (International Maritime Organisation) would be is needed to effectively address emissions from international air and maritime transport. It was also mentioned that sectoral approaches could play a positive role in this context. Since emissions from deforestation and forest degradation (REDD) account for some 20 % of global GHG emissions, necessary incentives to reduce these emissions should be found. Forest-based carbon credits and auction revenues were among most commonly mentioned financing sources to reduce emissions from REDD. However, some stakeholders expressed concerns that allowing forest-based carbon credits in the EU ETS will drastically reduce allowance prices. Many stakeholders considered that there are solutions to non-permanence, leakage and liability issues in monitoring emission reductions from REDD. To address leakage, any REDD regime must be nationally based. Countries should take on obligations to reduce emissions from deforestation and countries instead of private companies should be responsible for delivering those emission reductions. Since the national approach will not eliminate international leakage, it is important that participation in any REDD regime is as broad as possible. It was considered crucial that funding for adaptation is predictable and sustainable. Auctioning of Assigned Amount Units (AAU) was most commonly mentioned as a key measure for generating finance on the scale necessary to support adaptation in developing countries. International funds like Adaptation Fund or Least Developed Countries Fund were mentioned appropriate vehicles for financing adaptation. Adaptation activities should be conducted in a transparent way, and should draw on knowledge and learning from similar programmes, while formulating locally appropriate programmes. Adaptation decisions should be made at the lowest possible level. Coordinating the work of other international organisations, overseeing establishment of regional adaptation centres and regional information systems on climate change risks in developing countries were mentioned as potential roles of UNFCCC in adaptation. Stakeholders’ views on necessity of support schemes for development, demonstration and deployment of certain technologies were divergent. Some argued for some kind of technology cooperation mechanism. However, first of all it would be necessary for developing countries to identify the most critical technologies for their low carbon development and to assess gaps in domestic capacities to be able to benefit from this technology cooperation mechanism. Few argued that governments should ensure that existing policy tools such as carbon markets, CDM, tax incentives, regulations, and efficiency standards are applied appropriately to contribute to development, demonstration and deployment of technologies, but no specific support schemes are needed. International standards (e.g. for energy efficiency) as a way to facilitate the diffusion of modern technologies were commonly mentioned. Renewable energy technologies and carbon capture and storage were among most commonly mentioned technologies for which support schemes would be needed. Intellectual property rights, removal of existing barriers and capacity building were stated as important elements for strengthening enabling environment for the deployment of the existing clean technologies. Auctioning Assigned Amount Units was among the most commonly mentioned means of organising additional public financing. Establishing a system of micro credits for measures to enhance energy-efficiency and deployment of less GHG intensive technologies seemed useful to some stakeholders. Adaptation, leveraging massive clean technology uptake and reducing emissions from tropical deforestation and forest degradation were among priority areas for financial support in developing countries. Legal certainty and improved governance were mentioned among important factors to mobilise private sector financing. Most stakeholders considered that the first step to good compliance is a new globally accepted agreement, which includes also all countries that did not sign up to the Kyoto Protocol. Many stakeholders thought that non-compliance with reduction commitments should be subject to sanctioning mechanisms. Such mechanisms could include a financial penalty, exclusion from international climate finance vehicles and limited trade sanctions (border tax adjustments). 2. Background 2.1. Global temperature increase needs to be limited Climate change is happening and will have large and irreversible impacts if global temperatures continue to increase significantly. Already in 1996, the EU Council of Ministers put 2 C forward as the upper limit for this rise in temperatures compared to pre-industrial times 1939 th Council Meeting, Luxembourg, 25 June 1996. . This was based on the 2 nd Assessment Report of the Intergovernmental Panel on Climate Change (IPCC). [7] 1939 th Council Meeting, Luxembourg, 25 June 1996. The most recent IPCC 4 th Assessment Report published in 2007 strengthens the scientific evidence of the need and the urgency to act against climate change given the wide variety of negative effects that will affect on a global scale our ecosystems that will in turn gravely affect our socio economic fabric. The figure below gives an overview of the type of impacts that can be expected when temperatures continue to increase. Figure 1 Key impacts as a function of increasing global average temperature change (...PICT...) Source: Adapted from IPCC, 4 th Assessment Report, Working Group II Report "Impacts, Adaptation and Vulnerability, Summary for Policymakers, Figure SPM2 Consistent with the findings of the IPCC, the EU Heads of State and Government reaffirmed the 2°C objective in their conclusions in March 2007 European Council, 8-9 March 2007. .[8] European Council, 8-9 March 2007. Recent scientific publications that came out since the cut off date for the IPCC's 4 th Assessment not only confirm the IPCC’s earlier findings but are often even bleaker. For instance, research indicates the need to further increase global warming projections if geological and ecosystem feedbacks would be included in warming projections. One such feedback is the release of methane from decaying Arctic permafrost. New measurements of methane emissions from Siberian thaw lakes revealed that these emissions are already five times greater than previous estimates. Also recent measurements of ice loss in the Arctic are worrisome. The observed sea ice decline is about three times faster than the mean model projections, which suggests that melting of Arctic sea ice is likely to happen much faster than projected by current climate models. Sensitive mechanisms have been identified with respect to Arctic summer ice and the Greenland ice sheet, where the thresholds for an abrupt change of the earth system was estimated in a range from 1°C to 2.5°C above pre-industrial level. For more detailed information on the recent scientific findings, see Annex 3 of this Staff Working Document (Part 2) . Similarly it is clear that even if temperature increase is limited to 2 C, there will be significant impacts from climate change. Some of these effects are already occurring. Therefore, there is not only a need to limit climate change to 2 C, but there will also be a need to adapt to inevitable changes. While developed countries can be expected to mobilise sufficient resources to adapt to these impacts domestically, developing countries, in particular the Least Developed Countries LDCs and most vulnerable countries, will be much less capable of doing so. 2.2. Urgent need for global action The driver behind global climate change is the increase in anthropogenic greenhouse gas (GHG) emissions. The mean baseline projections These are the potential future scenarios as defined in the IPCC Special Report on Emission Scenarios. included in recent IPCC's 4 th Assessment Report all see the 2 C limit surpassed within this century with a maximum of around 5 C and more for two baseline scenarios Based on the results presented in the IPCC, 4th Assessment Report, Working Group II Report "Impacts, Adaptation and Vulnerability, Summary for Policymakers, Figure SPM2 for the projected increase in temperatures for the A2 and A1FI scenarios. These scenarios were defined in the IPCC Special Report on Emission Scenarios . Recently recorded global emissions levels have tended to fall in line with the 'high emission' scenarios.[9][10] These are the potential future scenarios as defined in the IPCC Special Report on Emission Scenarios. Based on the results presented in the IPCC, 4th Assessment Report, Working Group II Report "Impacts, Adaptation and Vulnerability, Summary for Policymakers, Figure SPM2 for the projected increase in temperatures for the A2 and A1FI scenarios. These scenarios were defined in the IPCC Special Report on Emission Scenarios Historically developed countries were the largest source of GHG emissions, but in recent decades growth in emissions has been rising significantly in developing countries. The IPCC 4 th Assessment Report estimated that developed countries accounted in 2004 for 46% of global GHG emissions, and developing countries for 54% IPCC, 4th Assessment Report, Working Group III Report " Mitigation of Climate Change", Technical summary . This includes emissions from deforestation accounting for around 20% of global GHG emissions. Projections indicate that emission growth is expected predominantly in developing countries in the coming decades. The IPCC 4 th Assessment Report projects emissions growth from energy up to 2030 to come for two thirds to three quarters from developing countries IPCC, 4th Assessment Report, Working Group III Report " Mitigation of Climate Change", Summary for Policy Makers . The IEA's World Energy Outlook 2008 projects that almost the entire increase in fossil fuel consumption in the baseline up to 2030 occurs in non-OECD countries. However, per capita emissions in developed countries continue to be significantly higher than even those of rapidly industrialising developing countries.[11][12] IPCC, 4th Assessment Report, Working Group III Report " Mitigation of Climate Change", Technical summary IPCC, 4th Assessment Report, Working Group III Report " Mitigation of Climate Change", Summary for Policy Makers At the same time emissions would need to peak globally by 2020, and then would have to be reduced by up to 50% compared to 1990 in 2050, if a 50% chance to limit temperature increase to 2 C is to be achieved This is in line with emission scenarios where GHG concentrations first overshoot 450 ppmv and then reduce back to 450 ppmv over time. In 2006 concentration of the six GHG included in the Kyoto Protocol had reached already 433 ppmv CO2 equivalent. . In order to arrive at a higher likelihood that temperatures will not surpass 2 C, global GHG reductions will need to be significantly more than 50% by 2050 compared to 1990.[13] This is in line with emission scenarios where GHG concentrations first overshoot 450 ppmv and then reduce back to 450 ppmv over time. In 2006 concentration of the six GHG included in the Kyoto Protocol had reached already 433 ppmv CO2 equivalent. It is obvious that such emission limitation and subsequent reductions on a global scale can only be achieved if there is global participation in the fight against climate change. The 2005 Communication COM(2005) 35 final "Winning the Battle Against Global Climate Change" already highlighted the need for global action. It also pointed out that reducing deforestation will have to be part of the answer and that it is not possible to continue a situation where two of the fastest growing global sectors, i.e. aviation and maritime transport, are continued to be excluded from any type of action.[14] COM(2005) 35 final The 2007 Communication SEC(2005) 180 "Limiting Global Climate Change to 2 degrees Celsius - The way ahead for 2020 and beyond" assessed the type and level of action that would be required. It concluded that developed countries should take the lead and commit as a group to a reduction target of -30% compared to 1990 by 2020. But the Communication also underlined that in developing countries the rate of growth of overall emissions will have to start to fall, followed by an overall absolute reduction from 2020 onwards.[15] SEC(2005) 180 The IPCC's 4 th Assessment Report IPCC, 4th Assessment Report, Working Group III Report " Mitigation of Climate Change", Chapter 13 Policies, instruments, and co-operative arrangements, Box 13.7 indicated that in order to have a 50% chance to limit climate change to 2 C Stabilising GHG concentrations in the atmosphere at 450 ppm CO2-eq would give around 50% chance of limiting global temperature rise to 2 C compared to pre-industrial times. , developed countries as a group would have to commit to GHG emission reduction targets in the order of –25% to –40% below 1990 levels by 2020. The IPCC concluded that in addition to developed countries action, developing countries’ emissions need to substantially deviate from baseline in a number of key regions.[16][17] IPCC, 4th Assessment Report, Working Group III Report " Mitigation of Climate Change", Chapter 13 Policies, instruments, and co-operative arrangements, Box 13.7 Stabilising GHG concentrations in the atmosphere at 450 ppm CO2-eq would give around 50% chance of limiting global temperature rise to 2 C compared to pre-industrial times. The authors of this part of the 4 th Assessment Report have since then quantified the necessary range of this deviation den Elzen Michel, Höhne Niklas, 2008 . They estimate that a deviation of 15% to 30% compared to business as usual emissions by 2020 is necessary for all sectors excluding deforestation. If emissions from deforestation were to be reduced below baseline the deviation from baseline for the other sectors could be lower The 15 to 30% range assumes that emissions from deforestation remain at baseline, so the range for emission deviations from baseline for those sectors excluding deforestation reduces when deforestation emissions reduce below baseline. .[18][19] den Elzen Michel, Höhne Niklas, 2008 The 15 to 30% range assumes that emissions from deforestation remain at baseline, so the range for emission deviations from baseline for those sectors excluding deforestation reduces when deforestation emissions reduce below baseline. The European Spring Council of 9 March 2007 confirmed the -30% target for developed countries as a group and also endorsed an EU objective of a 30% reduction in GHG emissions by 2020 as its contribution to a sufficiently ambitious global agreement on climate change. The Council of the European Union also noted in its conclusions 2912 nd Council Meeting, Brussels, 4 December 2008. the need for a deviation from baseline in developing countries of 15 to 30 % below business as usual in order to be consistent with the global emission reduction goal to stay within the 2 C objective.[20] 2912 nd Council Meeting, Brussels, 4 December 2008. Part of this effort by developing countries to deviate with 15 to 30% from the baseline needs to be achieved by reducing emissions from deforestation. Recently the Commission addressed the need to tackle these emissions in its Communication "Addressing the challenges of deforestation and forest degradation to tackle climate change and biodiversity loss" COM(2008) 645 final of 17 October 2008 . It proposes that in the UNFCCC negotiations on the future climate regime the EU aims to halt global forest cover loss by 2030 at the latest and to reduce gross tropical deforestation by at least 50 % by 2020 compared to current levels, delivering major climate change and biodiversity benefits by 2020. The aim was endorsed by the EU Council of Ministers 2826 th Council meeting, Luxembourg, 30 October 2007. and will be pursued within the UNFCCC negotiations. [21][22] COM(2008) 645 final of 17 October 2008 2826 th Council meeting, Luxembourg, 30 October 2007. 2.3. The EU and Commission's role in the international negotiations The EU is widely seen as one of the parties with a leadership role in the international negotiations. This is underpinned by ambitious domestic action, for instance by creating the largest emissions trading system (EU ETS) globally, and by putting in place a 20% unilateral reduction target by 2020 to be increased to 30% if the international agreement is sufficiently ambitious. The EU speaks with one voice in international environmental negotiations, and the Community is a full signatory to the UNFCCC and its Kyoto Protocol. This requires internal coordination in the EU Council to establish a common EU position. EU Environment Ministers lead on the coordination, but relevant dimensions are also discussed by Energy, Development, Finance and Foreign Ministers. In recent years EU Heads of State and Government increasingly provide overall guidance on key elements of the EU position. This underlines the significance and political priority the EU attributes to global climate change policy. The Communication aims at contributing to the further development and refinement in the EU’s position towards the negotiations at COP15/MOP5 in Copenhagen. In the light of the current stage of the negotiations and taking into account proposals that have been tabled by other Parties up to now, it will need to address all the building blocks included in the Bali Roadmap. One focus will be on developing a comprehensive strategy for providing financial support as requested by the European Council in June 2008. Box 1 gives an overview of the key elements that have been set out by the EU as building blocks of a global agreement in order to ensure that average global temperature increase does not surpass 2°C above pre-industrial levels: (...) Box 1 : Building blocks for a Copenhagen agreement proposed by the EU – Developed countries as a group should commit to GHG emission reductions of 30% compared to 1990 by 2020. – The EU is willing to take on a 30% reduction target itself provided that other developed countries commit themselves to comparable emission reductions and that economically more advanced developing countries contribute adequately according to their responsibilities and respective capabilities. – Developing countries need to commit to appropriate mitigation action that leads to a deviation of GHG emissions from business as usual by about 15 to 30 % by 2020. – Part of this action will need to be supported by developed countries as appropriate by finance, technology and capacity building. – As part of this, appropriate action by developing countries it is needed to halt global forest cover loss by 2030 at the latest and to reduce gross tropical deforestation by at least 50 % by 2020 compared to current levels. – Adaptation action is needed in all countries. The new agreement needs to provide support for effective adaptation especially for the poorest and most vulnerable developing countries. – A new global agreement needs to address emissions from international aviation and shipping sectors that show fast growing GHG emissions. 3. Problem definition: Reaching an agreement within the multilateral context of the UNFCCC, ensuring that average global temperature does not increase by more than 2 C The global fight against climate change is coordinated within the United Nations Framework Convention on Climate Change (UNFCCC) and its Kyoto Protocol, with the participation of more than 190 countries, at the annual Conference of the Parties (COP) to the UNFCCC that since its 11 th meeting in Montreal in 2005 also serves as the Meeting of the Parties to the Kyoto Protocol (COP/MOP). Under the UNFCC all countries are expected to contribute to the protection of the climate system in accordance with their common but differentiated responsibilities and respective capabilities. On the basis of this principle, Parties agreed that the developed countries should take the lead in combating climate change and the adverse effects thereof. The leadership role of developed countries was translated in 1997 in the Kyoto Protocol into quantitative emission limitation and reduction objectives (QELROs) for those developed listed in its Annex B. The reduction targets for developed countries in Annex B only apply for the period 2008-2012. In 2005, at the UN climate change conference in Montreal, negotiations started on new commitments for developed countries under the Kyoto Protocol for the period after 2012. As the US is not a Party to the Kyoto Protocol, it does not participate in these negotiations. At the same time, it was recognised that the current framework under the Kyoto Protocol will not suffice to limit climate change to 2 C, even with further targets for developed countries, but that further action on both mitigation and adaptation is needed. At the Bali UN climate change conference in December 2007 Parties therefore agreed to launch a comprehensive negotiating process, referred to as the Bali Roadmap. This process is set to conclude in 2009 at the UN climate change conference in Copenhagen. Following the decisions taken in Montreal and Bali, the UN climate change negotiations are now taking place under two tracks: – The first track, started in Montreal, focuses on further emission reduction commitments by developed countries under the Kyoto Protocol (Ad-hoc Working Group on the Kyoto Protocol or AWG-KP). This includes discussions on the future use and design of the flexible mechanisms that can be used by developed countries for compliance with their targets, the accounting rules for Land Use, Land Use Change and Forestry (LULUCF) in developed countries, and the future coverage of emission reduction targets (i.e. sectors, sources and gases). – The second track, started in Bali, focuses on further actions to strengthen the implementation of the UNFCCC. It is exploring building blocks for an agreement on further action that affect all countries, including the USA and the developing countries (Ad-hoc Working Group on Long-term Cooperative Action, AWG-LCA). These building blocks focus on: – a shared vision for long-term co-operative action to address climate change – mitigation commitments of developed countries – nationally appropriate mitigation action by developing countries – enhanced action on adaptation – technology cooperation – investment and financial flows Since Bali, four negotiating sessions have taken place during the course of 2008 (Bangkok, Bonn, Accra and Poznan), where Parties presented their views on the different elements under negotiation. These four meetings have revealed significant differences between the Parties’ expectations for the Copenhagen agreement. At the same time, this first year of negotiations has provided Parties with a comprehensive overview of ideas and proposals and allows for substantive negotiations during the remaining four sessions until Copenhagen. Key problems that will need to be tackled to obtain the necessary consensus on the different building blocks of the Bali Roadmap at Copenhagen are elaborated in sections 3.1 to 3.8 below. They cover the following elements: (...)(...) – Individual GHG emission reduction targets for developed countries – LULUCF accounting rules – Surplus of Assigned Amount Units and the impact on future targets – Appropriate action to be undertaken by developing countries – Further development of the global carbon market – Reduction in emissions from deforestation and forest degradation in developing countries – Addressing international maritime transport and aviation – Assistance for appropriate own action by developing countries through finance and technology Annex 5 of this Staff Working Document (Part 2) gives a more detailed overview of the views of key parties on these different issues including the role of the G8 and the Major Economies meeting. 3.1. GHG reduction targets for developed countries By Copenhagen, an agreement needs to be reached on the GHG emission reduction targets for developed countries (including for the USA). The EU has proposed that developed countries as a group should commit to a 30% reduction of GHG emissions by 2020 compared to 1990. The EU has, however, yet to define specific method for how this target should be distributed among different developed countries. Other developed countries seem reluctant to engage in the discussion on the level of reduction targets necessary to stay within the 2 C objective or are only willing to do so if they see clear re-engagement by the US and sufficient engagement from developing countries. As the US will start to re-engage in these negotiations, the comparability of efforts between developed countries will become a key element of the discussions. At the UN climate change negotiations in Poznan in December 2008, Parties already agreed that further developed country targets should be "informed by the consideration of, inter alia, the analysis of mitigation potential, effectiveness, efficiency, costs and benefits of current and future policies, measures and technologies at the disposal of [developed country] Parties, appropriate in different national circumstances". In setting further reduction targets for developed countries, two important sets of accounting rules must be taken into account, in view of their large impact on the potential of developed countries to meet their reduction target. These are the accounting rules for the Land Use, Land-Use Change and Forestry sector (LULUCF, see chapter 3.2 for problem definition) and the accounting rules for any surplus of emission rights carried forward by developed countries from the period 2008-2012 into the next commitment periods (see chapter 3.3 for problem definition). (...)(...) 3.2. LULUCF accounting rules The LULUCF sector covers all activities related to land use (e.g. forests, croplands, grasslands, wetlands) and can be responsible for emissions (for example when a forest is converted into an agricultural pasture) and removals of GHG emissions (for example when a long existing pasture is reforested). For some countries, like the US and most EU Member States, the total balance of all GHG fluxes from the LULUCF sector results in a “net sink”, i.e. the sequestration rather than emission of greenhouse gases For example: In 2005, net removals from the LULUCF sector were estimated to amount to 315 MtCO2 for the EU 27 (8% of the EU GHG emissions) and 10 Mt CO2 in the USA (11% of USA’s GHG emissions). . But the LULUCF sectors are not static and in some countries sometimes constitute a sink and sometimes a source. These variations can be very large and are linked to for instance large forest fires or insect pests which vary from one year to another For example: In 2004, the Canadian LULUCF sector resulted in a net source, estimated to 11% of Canada’s overall GHG emissions for the year 2004 whereas in 2005, the Canadian LULUCF sector was estimated to be a net sink (2% of Canada’s overall GHG emissions for the year 2005). .[23][24] For example: In 2005, net removals from the LULUCF sector were estimated to amount to 315 MtCO2 for the EU 27 (8% of the EU GHG emissions) and 10 Mt CO2 in the USA (11% of USA’s GHG emissions). For example: In 2004, the Canadian LULUCF sector resulted in a net source, estimated to 11% of Canada’s overall GHG emissions for the year 2004 whereas in 2005, the Canadian LULUCF sector was estimated to be a net sink (2% of Canada’s overall GHG emissions for the year 2005). Under the Kyoto Protocol countries need to take into account these LULUCF sectors when they report on compliance with their targets. When these sectors are a net source, emissions needs to be added to the total GHG emissions of a country, and when the sectors are a net sink, then the country can issue additional emission rights (“removal units” or RMUs) which can be used for compliance or be traded via the emission trading mechanism under the Kyoto Protocol. The present rules that govern LULUCF in developed countries are inconsistent and provisional due to the lack of data at the time they were agreed. There is no mandatory reporting for all LULUCF sectors. For some it is obligatory ( afforestation, reforestation and deforestation ) while others are optional (revegetation, forest management, cropland management and grazing land management.). For different sectors there are different accounting rules. Forests activities are accounted for using the so-called 'gross-net' accounting method while for agricultural activities (cropland and grazing land management) the 'net-net' accounting approach was adopted For more background information on these specific issues, including what the difference is between 'gross-net' and the 'net-net' accounting approach, see annex 8.10 . In the case of forest management, 'national caps' were agreed in the Marrakech accords, which were in part politically motivated and which are due for review before 2012. The cap for forest management often limits the incentives to look for and develop climate friendly practices, rewarding mainly business as usual. These rules were meant to undergo some revision after 2012. The following are the main problems that will need to be tackled in this sector in an international agreement:[25] For more background information on these specific issues, including what the difference is between 'gross-net' and the 'net-net' accounting approach, see annex 8.10 – There is a clear need for better harmonising the approach to account for LULUCF across all developed countries, ensuring that no sector can be left out that poses a considerable risk of the release of the enormous quantities of GHG stored in soils and biomass into the atmosphere. – In the current set of rules for the LULUCF sector, countries lack consistent incentives to develop climate-friendly policies in the LULUCF sector. Rules often do not encourage real additional action in the LULUCF sector to mitigate GHG emissions and increase GHG removals. The forest management cap is a good example where to a large extent business as usual behaviour is credited. A future international agreement should set real incentives for additional mitigation action. – The accounting rules needs also to encourage national policies and actions that promote an effective contribution of agriculture and forestry to climate change mitigation, including through the reduction of emissions, the protection and enhancement of sinks and carbon stocks and the development of sustainable supply of bioenergy and wood material. – The complexity of the natural processes, high uncertainties in the measurement, the difficulty in differentiating between anthropogenic and natural emissions, and high inter-annual fluctuations (part of them outside, or only limited, human control) need to be recognised in the accounting rules. This needs to be done in a conservative manner to ensure that real incentives are created for additional action from land managers.. 3.3. Accounting rules for a surplus of Assigned Amount Units Under the Kyoto Protocol, developed countries reduction targets get translated into a total absolute amount of allowed emissions over the entire commitment period (2008-2012), called a country's Assigned Amount. This Assigned Amount is issued into a country's registry in individual Assigned Amount Units (AAUs), each representing 1 ton of CO 2 -equivalent emissions. These are the emission rights that can be transferred under the Kyoto Protocol's emission trading mechanism and these are also used, together with other units created under the Kyoto Protocol, to demonstrate compliance with a country's Kyoto Protocol target. If countries have lower emissions than their target provides for, they have a surplus of AAUs, which they can transfer to other countries with a reduction target or bank into a next commitment period after 2012 to be used for compliance purposes. The present accounting rules under the Kyoto Protocol foresee that developed countries that reduce emissions below their target for the period 2008-2012, can bank any unused emission rights to the next commitment period for compliance purposes. Some developed countries have at present large excess quantities of such emission rights because their emissions are well below their reduction targets as foreseen for the first commitment period. The excess emission rights that can be transferred to the period after 2012 are much larger than expected at the time the Kyoto Protocol was agreed. When the Kyoto Protocol was agreed, the expectation was that the US would purchase a large part of this surplus. The US non-ratification of the Kyoto Protocol means that a large excess of emissions rights may be banked into a future commitment period. This would make it significantly easier for developed countries to achieve future reduction targets without taking additional mitigation action in the period after 2012, thereby potentially creating a problem in relationshiop to the environmental integrity of targets in a next commitment period. 3.4. Appropriate action by developing countries The Bali Action Plan (paragraph 1,b ,ii) recognises that developing countries need to undertake nationally appropriate mitigation action. The EU has indicated that developing countries should undertake nationally appropriate mitigation action that leads to a deviation of GHG emissions with 15 to 30% from business as usual by 2020. Developing countries however oppose taking on quantified emission reduction commitments as envisaged for developed countries. Most importantly, the Bali Action Plan draws a clear link between the ability for developing countries to take nationally appropriate mitigation action and the need to support and enable that action by technology, financing and capacity-building. In the context of the negotiations up to Copenhagen, the EU needs to specify in more detail, what action it is expecting from different developing countries, what instruments need to be included in the Copenhagen agreement that can ensure that developing country action is sufficiently ambitious and how developing country actions and support for it can be measured, reported and verified under the UNFCCC.. As The EU should explore options to support developing country action by technology, financing and capacity building and ensure that the carbon market will also support part of this action by developing countries through offsetting mechanisms that go beyond mere crediting compared to a baseline. 3.5. The development of a global carbon market Large differences in the marginal abatement costs between regions and sectors and in the ability to pay or the responsibility to reduce emissions often imply that those countries or sectors that take on ambitious reduction targets do not always have the most cost efficient reduction options. These differences are a key driver for the creation of market-based mechanisms that allow for trade in emission rights between countries or sectors that have a cap and trade system in place or the trade in credits generated in countries or sectors that have no reduction obligation but can generate credits for reductions beyond a certain level which can then be used for compliance in countries/sectors that have a reduction obligation (i.e. so-called offsetting mechanisms) See annex 9.18.1 for a glossary of carbon market terms used in this staff working document . . [26] See annex 9.18.1 for a glossary of carbon market terms used in this staff working document . In theory, perfect trading mechanisms, including the link between cap and trade systems and offsetting mechanism, lead to equalisation of the marginal abatement costs which in turn ensures cost-efficient reductions. The benefits of such market mechanisms are twofold. Firstly, they guarantee the environmental outcome set by the cap. Secondly they allow for the differentiation of efforts in accordance with the ability to pay or other allocation criteria Effort can be set differently by varying the cap per country/installation in a cap and trade system or by setting more or less ambitious levels that need to be met before crediting can happen in offsetting mechanisms. while achieving a cost-efficient outcome.[27] Effort can be set differently by varying the cap per country/installation in a cap and trade system or by setting more or less ambitious levels that need to be met before crediting can happen in offsetting mechanisms. This makes emissions trading a superior policy tool in an international framework compared to international carbon taxes, which in principle would also allow for the equalisation of marginal abatement costs and thus cost efficiency provided that such an international tax would be set at an equal level across all countries/sectors. Furthermore, an international tax does not guarantee ex ante a certain environmental outcome. Apart from these disadvantages, it is also politically inconceivable that a common level of international taxes would be accepted at a global scale that is sufficiently ambitious to stay within the 2ºC objective. This option will therefore not be further analysed. Since the ratification of the Kyoto Protocol both the public carbon market (mainly through acquisitions of CDM credits by governments but lately also to some extent through trades in AAUs) and the private carbon market (through the creation of the EU ETS) have boomed. In 2007 global trade was estimated to reach US$ 64 billion of which trade in EU ETS allowances represented US$ 50 billion. But the current market is not perfect and marginal abatement costs have not equalised across the globe. In the coming year it is to be expected that the carbon market will further develop. Individual countries or regions are setting up emissions trading systems for their domestic sectors, for instance in the US, Australia and New Zealand (see Annex 5 of this Staff Working Document (Part 2) for more information). These country-specific systems all have access to some degree to some type of offsetting mechanisms and are likely to be linked up over time, and by doing so increasing cost efficiency. This will create a better functioning carbon market in the coming decade, certainly between those regions that have set a reduction target and introduce cap and trade systems within their country. The global carbon market is often put forward as the mechanism of choice to reduce global costs of mitigating GHG emissions and at the same time realise GHG reductions in developing countries through offsetting mechanisms. This can be problematic. While it is correct that the global carbon market reduces costs through access to offsetting mechanisms, there are problems with the continued use of offsetting mechanisms such as the Clean Development Mechanism (CDM) in its present form. These include problems of scale, where it is questionable whether the project-based format of the current CDM can deliver a sufficiently large amount of offsets, but also of quality, where questions have been raised on the environmental benefit of specific types of CDM projects. In addition to that, a continued use of purely offsetting mechanisms may increasingly undermine incentives for developing countries to implement actions that reduce their emissions without producing offsets. Therefore the international agreement will need to ensure that offsetting mechanisms evolve in such a way that they go beyond mere crediting and also stimulate appropriate own action in developing countries that does not generate credits. In addition to that, offsetting mechanisms should not lead to double counting. Any reductions that generate credits in developing countries that can be used to offset targets in developed countries cannot be counted towards the mitigation efforts by developing countries. 3.6. Action to reduce emissions from deforestation and forest degradation Part of the appropriate action by developing countries consist out of reducing GHG emissions from deforestation and forest degradation (REDD). These are often seen as a relatively cheap reductions option, with large co-benefits through decreased biodiversity loss, however with a large uncertainty in relation to the costs to achieve these reductions. In practice there are large uncertainties on costs. If developing countries need to be compensated for decreasing their deforestation rates, costs can vary widely depending on the amount of leakage that occurs. Leakage happens when the activity causing deforestation in one project area is shifted to a different location outside the boundaries of the project area. If no leakage occurs, only the forest area targeted for avoided deforestation ("the frontier forests") needs to be included in the system, as such leading to relatively low costs per ton of CO2 emissions avoided. If leakage occurs, cost can however greatly increase, because of the need to compensate a larger area than the one that would have been deforested. Leakage on a global scale would translate into the need to compensate for the continued conservation of all standing carbon stocks globally. Therefore leakage is a key problem to be addressed in an international agreement. Furthermore there is dual pressure on deforestation due to climate change mitigation policies. On one hand, climate change mitigation policies try to reduce emission from deforestation directly. On the other hand, without appropriate sustainability criteria and proper enforcement of the relevant national law, the increased demand for biofuels and biomass might increase pressure on land use and induce deforestation and the conversion of virgin forests into plantation. The international agreement will have to ensure that the right balance can be found between these opposing forces. 3.7. Addressing emissions from international maritime transport and aviation Emissions form international aviation and maritime transport are one of the fastest growing sources of GHG emissions globally. Yet, those emissions are not controlled under the UNFCCC and its Kyoto Protocol. The Kyoto Protocol provides for Parties to work through the International Civil Aviation Organisation (ICAO) and the International Maritime Organisation (IMO) to address emissions from these sectors. However, over the past decade, work performed within these organisations did not result in concrete actions to address appropriately the growth in emissions in these sectors which continues to threatens to significantly impair global emission reduction effort in other sectors The EU has therefore called upon all Parties to agree clear and meaningful targets for these sectors within the framework of a future global climate agreement. Council of the European Union, Brussels, 19 October 2007 Stronger leadership by the UNFCCC and more concrete actions from ICAO and IMO are needed in this matter. There isalso disagreement among Parties on the respective future role of the different relevant organisations to regulate emissions from international aviation and maritime transport.[28] Council of the European Union, Brussels, 19 October 2007 3.8. Assistance through finance and technology The UNFCCC explicitly foresees that developed countries should enable developing country actions to mitigate GHG emissions and adapt to climate change through financial and technological assistance. Emissions reduced in developing countries through such type of assistance can be counted for as appropriate action by developing countries because it does not lead to credits that can be used for compliance with reduction targets in developed countries. The carbon market is likely to be the main source of finance for mitigation solutions in the longer run. It will, however, neither be sufficient in the short term and nor be the most appropriate means of support for all types of actions. As a consequence, new and additional sources of financing need to be identified to kick-start the transformation to a low-carbon economy for which assistance for developing countries will be necessary. 4. Objectives 4.1. General objectives The general objective of the EU is to limit global average temperature increase to not more than 2 degrees Celsius above pre-industrial level. 4.2. Specific objectives In support of the general objective, the EU wants to achieve an ambitious and comprehensive international agreement at the UN climate change conference in Copenhagen in December 2009. This international agreement will have to cover all the building blocks of the Bali Roadmap. 4.3. Operational Objectives The international climate change negotiations in the coming year will focus on the level and type of required mitigation commitments and actions by developed and developing countries, and the necessary support to developing countries for both adaptation and mitigation, as well as the institutional architecture required to govern these actions and support Building on the problem definition as set out in chapter 4 the operational objectives that are assessed through different policy options are the following: a) Set fair, comparable and effective emission reduction targets for individual developed countries To agree in the international agreement upon individual GHG reduction targets for developed countries in a fair, comparable and transparent manner that ensure that the group of developed countries takes on a reduction target equal to -30% by 2020 compared to 1990 b) Define LULUCF accounting rules that respect the environmental integrity of the agreement To reach an international agreement that foresees new harmonised rules for accounting of LULUCF in developed countries that rewards real additional action in this sector. c) Accounting rules for a surplus of Assigned Amount Units Address the impact on the environmental integrity of the reduction targets for the period after 2012, when surplus amounts of assigned amount units could be banked under the international agreement. d) Appropriate action by developing countries Ensure that policy instruments are included in the international agreement that lead to measurable, reportable and verifiable mitigation actions under the UNFCCC, leading to a deviation of GHG emissions with 15 to 30% from business as usual by 2020. e) Gradual development of a global carbon market Improve the CDM and develop other international carbon crediting mechanisms that go beyond mere offsetting, as such strengthening the environmental integrity of the CDM and ensuring that the global carbon market not only reduces global mitigation costs but also stimulates mitigation action in developing countries that does not lead to the creation of offset credits. f) Action to reduce emissions from deforestation and forest degradation Ensure that policy instruments are included in the international agreement that would reduce gross tropical deforestation by at least 50 % by 2020 from current levels and halts global forest cover loss by 2030 at the latest. g) Addressing emissions from international maritime transport and aviation Ensure that policy instruments are included in the international agreement that would address the emissions from international maritime transport and aviation appropriately. h) Assistance through finance and technology Define adequate and predictable sources of assistance through finance and technology to support appropriate mitigation action and adaptation in developing countries. 5. Policy Options This staff working document will assess different policy options to ensure that the operational objectives can be met. This assessment is focused on the quantitative assessment of these policy options. Elements related to the further aspects of the institutional architecture are described in the annexes of this staff working document. 5.1. Distribution of a 30% reduction target for developed countries In order to split the reduction target for developed countries in a fair and efficient manner, several criteria could be used, and some have already been proposed. Still, most developed countries have not yet expressed themselves what mid-term reduction target could be acceptable for them. The EU has proposed a 30% reduction target by 2020 compared to 1990 for the group of developed countries as a whole. The EU is willing to take up itself a reduction target of 30% if the future international agreement is sufficiently ambitious (see also Annex 8 of this Staff Working Document (Part 2) on the EU position on absolute reduction targets and the view of other developed countries on the issue of target setting). Cost-efficiency Cost efficiency is seen by a majority of countries as a key aspect when allocating targets. Reductions should take place where they are cheapest. However, when using cost efficiency as the sole rule for allocating efforts between different countries it raises serious issues as regards fairness. For the EU's 20% unilateral target the Commission analysed in its impact assessment SEC(2008) 85/3 a cost efficient policy case. This assessment demonstrated clearly that allocation of the effort to the EU Member States only on the basis of cost efficiency would lead to substantial differences in the total economic costs that each of them would have to face. Because of the large number of low cost emission reduction options in Member States with lower GDP per capita they would incur relatively higher costs while having the least financial capacity to invest in GHG abatement. The Commission therefore concluded that these large national cost differences are not consistent with the need to share the effort in a fair and equitable way, which was agreed by the Spring European Council.[29] SEC(2008) 85/3 Within the group of developed countries, similar differences exist in economic development as can be found between EU Member States. A cost efficient approach is analysed in chapter 6.5.2 on the global carbon market. To determine the cost efficient allocation of the target in developed countries it's assumed that there is no emission trading at all with developing countries but that the carbon price does equalise within developed countries at a level that assures that the group of developed countries achieves the 30% reduction target internally. (...) As can be seen in Table 12 , if targets would be set cost effectively (with no global carbon market), then the 30% reduction target leads to very high relative costs compared to GDP for those developed economies with a low GDP per capita but a high potential to reduce, e.g. for Russia. In Russia costs would be at around 2,5 times the global average. (...) Furthermore, a cost efficient allocation of the target does not give any information on the ability of countries to pay for emission reductions in developing countries through offsetting mechanisms. For these reasons, the cost efficient approach will not be further analysed as an option to distribute the 30% reduction target among developed countries. Allocation according to a set of simple indicators The IPCC defines 4 main drivers for GHG emissions, i.e. changes in energy and carbon intensity, population growth, and global per capita income growth. While these are often seen as drivers for emission growth, they can also be looked at as indicators for the ability to mitigate. 1. GDP per capita The income level of a country determines to a large extent the ability to pay for mitigation action. Rich countries have a higher ability to invest in reductions than poor ones and have a higher ability to invest in GHG reductions in other countries through offsetting mechanisms. GDP/capita is selected as a first simple indicator that could be used to attribute a reduction target to a country. The higher the indicator, the more stringent the reduction target is set. This indicator measures the ability to act today on climate change. As such there is no need to project GDP/capita but one can simply use recent available data. For this assessment data for the year 2005 was used. One can measure GDP/capita in current prices or in purchasing power parity (PPP). As most clean environmental technologies and services required for large scale investments in a low carbon energy infrastructure are traded internationally at world market prices, the GDP/capita in current prices reflects more appropriately the ability to allocate the necessary financial resources. 2. GHG emissions per GDP The amount of emissions a country needs in order to produce a certain amount of goods or services also indicates whether there is high or low potential to reduce emissions. Low carbon productivity can often be attributed to a carbon intensive energy mix or a high degree of energy inefficiency. This generally offers substantial mitigation potential at lower cost than those economies that have a low carbon energy mix or are highly energy efficient. GHG emissions per unit of GDP is selected as a second simple indicator that could be used to attribute a reduction target to a country. The higher the indicator, the more ambitious the reduction target can be. This criterion measures the ability to mitigate today. As such there is no need to project changes in GHG/GDP but one can simply use recent available data. For this assessment data for the year 2005 were used. 3. Population growth Countries with an increasing population will have more difficulties to reduce their emissions than countries with stable or declining populations, assuming per capita income, carbon and energy intensity are all stable. Population trend is, therefore, selected as a third simple indicator that could be used to attribute a reduction target to a country. The higher the indicator, the less stringent