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 {SEC(2009) 101} {SEC(2009) 102}
Date: 2009-01-28
Institutions: European Commission
Subjects: European Union, association agreement (EU), climate change, energy policy, environmental protection, third country

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 28.1.2009 
COM(2009) 39 final 

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 

{SEC(2009) 101} 
{SEC(2009) 102} 

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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 

1. 

EXECUTIVE SUMMARY 

The successful conclusion of the international climate change negotiations at Copenhagen at 
the end of 2009 is a key priority for the EU. Now that the Climate and Energy package has 
been adopted, the EU must step up its contacts with third Countries, both in the UN context 
and beyond.  

This Communication sets out concrete proposals to achieve this goal. It addresses three key 
challenges: targets and actions; financing; and building an effective global carbon market. It 
also  responds  to  the  request  made  by  the  European  Council  in  June  2008  to  present  a 
comprehensive  strategy  for  scaling  up  finance  and  investment  flows  for  both  emission 
reduction and adaptation. 

In  order  to  limit  the  global  average  temperature  increase  to  not  more  than  2°C  above  pre-
industrial levels, developed countries as a group should reduce their emissions to 30% below 
1990  levels  in  2020.  The  EU  has  set  the  example  by  committing  to  a  20%  reduction  in  its 
emissions  compared  to  1990  levels  by  2020,  irrespective  of  whether  or  not  an  international 
agreement  is  concluded.  This  is  by  far  the  most  ambitious  commitment  by  any  country  or 
group of countries in the world for the post-2012 period.  

international  agreement 

The  EU  is  willing  to  go  further  and  sign  up  to  a  30%  reduction  target  in  the  context  of  a 
sufficiently  ambitious  and  comprehensive 
that  provides  for 
comparable  reductions  by  other  developed  countries,  and  appropriate  actions  by  developing 
countries. Developing countries as a group should limit the growth of their emissions to 15 to 
30%  below  business  as  usual.  Significantly  increased  financial  resources  will  be  needed  to 
support  the  necessary  action  in  developing  countries:  this  should  come  from  domestic 
sources, from the global carbon market, but also by contributions from developed countries. 
Much  of  these  investments  will  have  both  rapid  and  long  term  benefits  in  terms  of  climate 
change, economic recovery and should in any case be less than the costs of inaction. 

A  global  carbon  market  can  and  should  be  built  by  linking  comparable  domestic  emissions 
trading systems. This will promote cost-effective emission reductions. The EU should reach 
out to other countries to ensure an OECD-wide market by 2015 and an even broader market 
by 2020. 

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2. 

INTRODUCTION 

The EU’s agreed objective is to limit the average global temperature increase to less than 2°C 
compared  to  pre-industrial  levels.  Going  beyond  2°C  will  mean  increasing  food  and  water 
scarcity and severe weather events and significantly increase the threat to unique ecosystems. 
If current emission trends continue, the 2°C threshold may already be crossed in 2050. Even 
staying below 2°C would still require significant adaptation efforts. In the light of some new 
research  findings,  an  increasing  number  of  scientists  are  calling  for  the  level  of  greenhouse 
gases (GHG) in the atmosphere to be stabilised at a significantly lower level than previously 
recommended, i.e. as low as 350 ppmv CO2 equivalent. It is imperative to secure an ambitious 
outcome in Copenhagen that leaves the door open for a lower stabilisation level. 

The basic physical inertia of the global climate system means that ignoring scientific warnings 
will lead to unprecedented, costly and potentially unmanageable consequences. At the same 
time,  there  is  an  opportunity  to  address  climate  change,  energy  security  and  the  current 
economic recession together. Tackling climate change will necessitate significant private and 
public investment, and will help secure the transition to the low-carbon economy, opening up 
new  possibilities  for  growth  and  jobs  and  promoting  sustainable  development.  Globally, 
governments  are  announcing  major  investment  programmes  that  encourage  low-carbon 
investments, foster innovation and growth and increase energy security, such as the recently 
adopted European Economic Recovery Plan. Actions to tackle the financial crisis can help to 
use the narrow window of opportunity that remains to stay below a 2°C increase. 

At  the  international  level,  the  2007  Bali  Action  Plan  started  a  process  to  conclude  a  new 
international climate agreement for the period after 2012 at the UN conference in Copenhagen 
in  December  2009.  This  agreement  needs  to  set  concrete  new  targets  and  actions  to  reduce 
GHG  emissions  and  to  provide  the  basis  for  sustainable  development  by  strengthening 
countries’  ability  to  adapt  to  inevitable  climate  change  while  triggering  innovation  and 
economic growth, reducing poverty and providing access to sustainable energy services (the 
‘shared  vision’).  Following  the  UN  conference  in  Poznan  in  December  2008,  talks  have 
shifted into full negotiating mode. 

At  the  domestic  level,  both  developed  and  developing  countries  are  stepping  up  action. 
Targets are being set and carbon markets are being established. In December, the EU adopted 
its ambitious climate change and energy package, implementing the EU’s independent target 
to  reduce  its  GHG  emissions  to  20%  below  1990  levels  by  2020  and  expanding  and 
improving the EU emissions trading system (EU ETS). The new US Administration has made 
tackling climate change a major priority. At the same time, Australia has also announced its 
mid-term  climate  commitments,  with  a  strong  focus  on  emissions  trading.  These  trading 
systems could form the nucleus of a truly global carbon market. 

3. 

TARGETS AND ACTIONS 

To have a reasonable chance of staying below the 2°C threshold, global GHG emissions must 
be  reduced  to  less  than  50%  of  1990  levels  by  2050.  In  addition,  global  GHG  emissions, 
excluding  emissions  from  land  use,  land-use  change  and  forestry,  will  have  to  peak  before 
2020. Developed countries must lead in meeting this global goal and demonstrate that a low-
carbon  economy  is  possible  and  affordable.  A  significant  contribution  from  developing 
countries,  and  in  particular  from  economically  more  advanced  developing  countries,  is  also 
essential, as many of them are quickly becoming important emitters. To this end, cooperation 
must be significantly boosted to provide the necessary capacity, technology and finance. 

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3.1. 

New GHG reduction targets for developed countries  

The  Copenhagen  agreement  should  set  further  absolute  economy-wide  emission  reduction 
commitments  for  developed  countries.  The  EU  has  set  the  example  by  committing  to  an 
autonomous 20% reduction in its emissions compared to 1990 levels by 2020. This is by far 
the most ambitious commitment made by any country or group of countries for the post-2012 
period. The EU is willing to go further and sign up to a 30% reduction target in the context of 
an  ambitious  and  comprehensive  international  agreement  if  there  are  comparable  reductions 
by  other  developed  countries  and  appropriate  contributions  by  the  economically  more 
advanced developing countries based on their responsibilities and capabilities.  

the  2°  objective.  The  4th  Assessment  report  by 

The EU has proposed that developed countries, as a group, should reduce their emissions by 
an  amount  consistent  with 
the 
Intergovernmental  Panel  on  Climate  Change  (IPCC)  indicates  that  this  would  require 
emission reductions for developed countries in the range of 25-40% by 2020 and 80-95% by 
2050.  Developed  countries  should  be  able  to  achieve  their  reduction  targets  in  part  through 
domestic action and in part by using credits resulting from emission reductions in developing 
countries, as illustrated in Figure 1. 

Figure 1: Developed Countries Emissions 

GHG Emission 
GHG Emission 
Level
Level

Baseline
Baseline

Domestic Action
Domestic Action

Actual emissions
Actual emissions

Acquisition of credits 
Acquisition of credits 
through carbon market
through carbon market

Developed country 
Developed country 
target
target

Time
Time

The  developed  countries’  overall  target  must  be  distributed  in  a  manner  that  is  fair  and 
ensures comparability of efforts. The following parameters are considered as key: 

– 

– 

– 

– 

GDP per capita: reflecting the capability to pay for domestic emission reductions and 
to purchase emission reduction credits from developing countries; 

GHG  emissions  per  unit  of  GDP:  indicating the  domestic GHG  emission reduction 
potential; 

Trend in GHG emissions between 1990 and 2005: recognising domestic early action 
to reduce emissions; 

Population trends over the period 1990 to 2005: taking into account the link between 
the size of the population and total GHG emissions. 

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The  accepted  Kyoto  base  year,  1990,  should  be  used  as  the  historical  reference  point  when 
determining further contributions to the global emission reduction effort after 2012. The total 
effort for the group of developed countries should amount to 30% below 1990 levels in 2020. 
In determining the future emission targets of individual countries, more recent years could be 
used  to  take  advantage  of  more  accurate  statistics,  as  the  EU  has  done  in  its  climate  and 
energy package which uses 2005. However, this should not be used to water down emission 
reduction efforts. 

Binding  emission  reduction  commitments  should  not  be  limited  to  the  countries  that  have 
targets under the Kyoto Protocol. The Copenhagen agreement should set emission reduction 
commitments for at least all countries listed in Annex I to the UNFCCC, all OECD member 
countries and all current EU Member States, EU candidate countries and potential candidates. 

When setting targets for the post-2012, possible surpluses of emission rights from before 2012 
need  to  be  taken  into  account  in  order  to  ensure  that  the  30%  target  is  met  through  real 
reductions after 2012. Similarly, the rules for land use, land-use change and forestry should 
not  undermine  the  environmental  integrity  of  the  30%  target.  Monitoring,  reporting  and 
verification  of  reductions  as  wells  as  regular  peer  reviews  of  climate  policies  should  be 
improved. 

3.2. 

Action to curb rising GHG emissions in developing countries 

It is becoming increasingly clear that climate change is going to have the most serious impacts 
in  developing  countries,  faced  with  problems  like  flooding,  drought  and  deforestation.  So, 
although  developed  countries  should  continue  to  take  the  lead  in  reducing  emissions,  in 
particular  in  the  immediate  future,  contributing  to  the  2°C  objective  is  in  the  interest  of 
developing countries too. 

However,  developing  country  GHG  emissions  are  increasing  rapidly  and,  if  not  addressed, 
will  outweigh  developed  country  efforts  to  reduce  their  GHG  emissions.  To  meet  the  2°C 
objective, a recent scientific report indicates that developing countries, as a group, will need 
to  limit  the  rise  in  their  GHG  emissions  through  nationally  appropriate  actions  to  15-30% 
below  baseline  by  2020.  These  estimates  exclude  the  impact  of  reductions  that  result  in  the 
transfer of carbon credits to developed countries as illustrated in Figure 2. Appropriate actions 
should  include  a  rapid  decrease  in  emissions  from  tropical  deforestation.  By  2020,  gross 
tropical  deforestation  should  be  reduced  by  at  least  50%  compared  to  current  levels  and  by 
2030 global forest cover loss should be halted. 

Differing  national  circumstances  and  stages  of  development  in  developing  countries  require 
differentiated actions and the levels of ambition. This can be achieved by building on national 
climate  change  strategies.  Over  the  past  few  years,  a  number  of  developing  countries  have 
formulated  national  mitigation  strategies  in  the  context  of  development,  including  China, 
India, South Africa, and Brazil. During the course of this year, these and other economically 
more  advanced  developing  economies  should  update  their  strategies  indicating  the  overall 
level of ambition up to 2020. 

Under the Copenhagen agreement, all developing countries, except least developed countries 
(LDCs),  should  commit  to  adopting  low-carbon  development  strategies  by  the  end  of  2011. 
These  strategies  should  set  out  a  credible  pathway  to  limit  the  country’s  emissions  through 
nationally  appropriate  mitigation  actions  that  cover  all  key  emitting  sectors,  especially  the 
power sector, transport, major energy-intensive industries and, where significant, forests and 
agriculture.  The  strategies  should  identify  the  support  required  to  implement  the  proposed 
actions  resulting  in  incremental  costs  that  cannot  be  sustained  by  the  country  itself.  Robust 
and  verifiable  low-carbon  development  strategies  should  be  a  prerequisite  for  access  to 

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international support for mitigation action. Further to funding, fostering capacity building in 
many developing countries will be necessary in order for them to prepare and implement their 
low-carbon development strategies.  

Figure 2: Developing Country Emissions 

GHG Emission 
GHG Emission 
Level
Level

Baseline
Baseline

Own Action,
Own Action,
Autonomous
Autonomous

Own Action,
Own Action,
Supported
Supported

Actual emissions
Actual emissions

Action generating 
Action generating 
credits for transfer
credits for transfer
through carbon market
through carbon market

Time
Time

To  ensure  a  sufficient  level  of  ambition,  discussions  on  concrete  strategies,  proposals  for 
action  and  support  should  be  linked  to  and  facilitated  by  an  independent  technical  analysis. 
Sectoral  approaches  could  be  used  as  a  tool  in  the  analysis  and  development  of  mitigation 
options, taking into account technical information from the private sector. A new Facilitative 
Mechanism for Mitigation Support should provide a platform to match proposed action with 
appropriate bilateral and multilateral support mechanisms, based on a technical assessment. It 
should also assess whether the overall level of ambition pursued in the plan is in line with the 
capacity  of  the  country  to  take  action  and  appropriate  for  achieving  the  overall  emission 
reduction  compared  to  baseline  of  the  group  of  developing  countries.  Where  necessary,  it 
should explore options to raise the level of ambition. 

Developing  country  action  should  be  entered  into  an  international  registry.  This  registry 
should  list  the  action  taken  and  show  the  mitigation  benefits,  using  transparent  and  robust 
measurement,  reporting  and  verification  methods.  The  UN  climate  change  conference  will 
review  the  resulting  mitigation  efforts  of  the  group  of  developing  countries  as  a  whole  and 
may  decide  to  request  developing  countries  to  strengthen  their  mitigation  efforts  and 
developed countries to increase their support. 

3.3. 

Addressing  emissions  from  international  aviation,  maritime  transport,  and 
fluorinated gases 

International aviation and maritime transport 

International  aviation  and  maritime  transport  are  large  and  rapidly  growing  sources  of 
greenhouse gas emissions, but have so far been left outside the international climate change 
framework  and  the  Commission  believes  that  the  emissions  from  these  sectors  should  be 
included. 

As  part  of  the  Copenhagen  agreement  the  UNFCCC  should  set  targets  for  reducing  the 
climate  impact  of  these  sectors  below  2005  levels  by  2020,  and  significantly  below  1990 

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levels  by  2050.  Due  to  the  global  nature  of  international  aviation  and  maritime  transport, 
global  measures  should  be  taken  to  address  their  climate  impact.  The  International  Civil 
Aviation  Organisation  and  the  International  Maritime  Organisation  have  a  responsibility  to 
facilitate the development and adoption of such global measures by the end of 2010. Market 
based  measures,  including  emissions  trading,  can  ensure  cost-effective  emission  reductions. 
Action  to  reduce  emissions  should  take  into  account  the  possible  net  negative  impact  on 
isolated  regions,  remote  islands  and  LDCs.  If  at  the  end  of  2010  there  is  no  agreement  in 
ICAO and IMO, emissions from international aviation and maritime transport will be counted 
towards national totals under the Copenhagen agreement which will ensure comparable action 
by all developed countries. 

The EU has included CO2 emissions from aviation in its emissions trading system. As regards 
maritime  transport  several  market-based  measures  are  currently  being  examined.  If  no 
effective global rules to reduce GHG emissions from this sector can be agreed upon, the EU 
should agree its own measures. 

Addressing fluorinated gases 

The  accelerated  phase-out  of  HCFCs  over  the  coming  decade  under  the  Montreal  Protocol 
may lead to a rapid increase in HFC emissions, many of which are very potent GHGs. Part of 
the  Copenhagen  agreement  should  include  an  international  emission  reduction  arrangement 
for  HFC  emissions.  This  will  encourage  industry  to  step  up  intensified  research  into  and 
development of HFCs with low global warming potential and HFC-free alternatives. 

4. 

FINANCING LOW-CARBON DEVELOPMENT AND ADAPTATION 

A  comprehensive  Copenhagen  agreement  must  be  underpinned  by  adequate  financial 
resources  to  enable  its  implementation.  Especially  in  the  current  economic  situation,  the 
Copenhagen agreement must ensure that climate change goals are delivered cost-effectively. 
Commission analysis shows that an effective global carbon market can greatly reduce costs in 
developed and developing countries, but there is a need to significantly scale up, redirect and 
optimise finance and investment. The international financial architecture to support efforts to 
tackle climate change must follow principles of sound governance maximising effectiveness, 
adequacy, efficiency, equity, accountability, coherence and predictability. Spending priorities 
in  the  context  of  the  Copenhagen  agreement  should  focus  on  effective  mitigation  action 
through  performance-based  incentives  and  on  adaptation  in  developing  countries.  Potential 
sources of financing include for instance private and public funding and the use of grants and 
loans  under  international,  bilateral  and  multilateral  efforts. EU  contributions  will  be  at  both 
Community and Member States level. Financing instruments and institutions to fight climate 
change should be coherent and complementary to existing international bodies and financial 
institutions  and  take  account  of  the  current  debate  about  their  respective  roles  and 
responsibilities. 

4.1. 

Financing the reduction of emissions 

Global 

Investments to reduce global emissions will need to see year-on-year rises. Recent research by 
JRC  and  other  independent  institutes  estimate  the  net  global  incremental  investments  in  the 
order of € 175 billion by 2020. It is  estimated that more than half will have to be invested in 
developing  countries,  including  the  forestry  sector.  Investment  in  areas  such  as  energy 
efficiency and low-carbon technologies will spur innovation and growth and enhance energy 
savings and security. Investments in reduced deforestation will safeguard global biodiversity 

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and  ensure  local  long-term  sustainable  development.  This  should  also  be  seen  against  the 
costs of non-action (between 5 to 20 % of global GDP according to the Stern report). 

Developing countries 

National low-carbon development strategies will have to provide an estimate of additional net 
investment  costs  for  mitigation  and  the  viable  financing  and  mitigation  policy  options  to 
leverage such investments. 

The following sources of funding for developing countries exist: 

– 

– 

Domestic:  Until  2020,  most  actions  identified  in  national  low-carbon  development 
strategies have low incremental costs or even generate a net benefit in the mid term, 
but  require  up-front  investment.  For  instance,  it  is  estimated  that  more  than  half  of 
the  reductions  in  the  energy  sector  can  be  realised  through  energy  efficiency 
measures. Financing of these measures will primarily need to come from the private 
sector and households, and government policies can leverage this finance. This will 
trigger  substantial  domestic  investment  and  boost  energy  secure  economic  growth. 
International  loan  programmes  could  also  help  to  tap  into  international  private 
capital. 

External:  The  low-carbon  development  strategies  will  need  to  identify  mitigation 
action  that  goes  beyond  low  cost/short  term  net  benefit  options  and  that  require 
financing  beyond  the  domestic  capabilities  of  the  respective  developing  country. 
Support for the incremental costs of such investment must come from the full range 
of  sources  and  innovative  financing  mechanisms,  including  public  funds  and 
international  carbon  crediting  mechanisms.  It  is  estimated  that  these  crediting 
mechanisms  can  provide  one  third  or  more  of  the  additional  investments  in 
developing countries. 

4.2. 

Addressing and financing adaptation to inevitable climate change 

The  Copenhagen  agreement  should  provide  a  framework  for  action  on  adaptation,  which 
should include the following elements: 

– 

– 

– 

The  need  for  all  to  adapt:  Support  for  doing  so  should  be  provided  to  the  most 
vulnerable  and  the  poorest.  Only  by  anticipating  potential  adverse  effects  early 
enough and adapting accordingly can very costly damage be avoided. 

A  commitment  to  systematically  integrate  adaptation  into  national  strategies:  This 
should be a shared responsibility for both developed and developing countries. 

Improving  the  tools  to  define  and  implement  adaptation  strategies  including 
methodologies and technologies for adaptation, capacity building and a strengthened 
role  for  the  UNFCCC  process  by  mobilising  stakeholders,  including  international 
organisations, 
risk 
and 
management/disaster risk reduction. 

coordinated 

a  more 

approach 

ensuring 

to 

To pool experience, the EU should recommend that a technical panel on adaptation be set up 
under  the  UNFCCC.  All  countries  should  be  required  to  draft  comprehensive  national 
adaptation strategies. Efficient adaptation policies  will  need  to  move  beyond  the  urgent  and 
immediate  adaptation  needs.  There  should  be  a  transition  from  project  based  approaches 
towards  a  long-term  strategic  integration  in  a  country's  broader  planning  and  development 
strategy.  Experience  gained  in  this  respect  through  the  Global  Climate  Change  Alliance 
(GCCA) will be useful. Financial and technological support should be provided to the most 
vulnerable countries, in particular LDCs and Small Island Developing States. 

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The  costs  of  capacity  building  and  priority  action  in  most  vulnerable  countries  could,  to  a 
large extent, be covered by the existing Adaptation Fund. But although estimates of additional 
costs  for  adaptation  vary  widely,  the  Adaptation  Fund  will  be  insufficient  to  support 
adaptation  in  all  developing  countries.  Hence  innovative  sources  of  finance  will  have  to  be 
utilised to match adaptation needs. Similarly to mitigation, the financing options need to be 
tailored to actual investment. The UNFCCC Secretariat estimated that adaptation costs in all 
developing countries could range between € 23-54 billion per year  in 2030. A large number of 
early  measures  will  even  generate  a  net  benefit  to  the  economy,  for  instance  measures  to 
improve  water  use  efficiency  in  areas  that  will  suffer  from  water  shortages.  A  multilateral 
insurance  pool  to  cover  disaster  losses  should  be  explored  to  complement  existing  funding 
mechanisms in case of climate related natural disasters. The European Commission is already 
involved in piloting such schemes. 

4.3. 

Financing global research, technology development and demonstration 

A major boost must be given to research, development and demonstration of low-carbon and 
adaptation technologies in all economic sectors and activities. This should build on the needs 
identified  in  national  low-carbon  development  strategies  and  assessments  made  by  the 
Facilitative Mechanism for Mitigation Support, and could include capacity building, science 
and technology-oriented cooperation, reducing market access barriers on environmental goods 
and services and improved global research coordination. 

For  all  these  activities,  additional  public  financing  will  be  needed.  Globally,  it  would  be 
desirable  to  at  least  double  energy-related  RD&D  by  2012  and  increase  it  to  four  times  its 
current level by 2020, with a significant shift in emphasis towards low-carbon technologies, 
especially  renewable  energy  sources.  Likewise  research  on  impacts,  adaptation  and  other 
mitigation  options  to  climate  change  need  to  be  strengthened  at  the  international  level.  A 
commitment  to  do  so  should  form  an  integral  part  of  the  Copenhagen  Agreement.  The 
Commission  should  work  with  Member  States  to  promote,  in  a  coherent  way,  international 
science  and  technology  co-operation  for  all  climate-related  research,  including  low-carbon 
technologies, across all sectors. 

To  accelerate  the  development  and  kick-start  deployment  of  strategically  important  low-
carbon technologies, the EU is implementing the European Strategic Energy Technology Plan 
(SET-Plan).  The  EU  is  also  planning  to  create  one  of  its  first  Knowledge  and  Innovation 
Communities  on  climate  mitigation  and  adaptation  as  part  of  the  European  Institute  on 
Innovation  and  Technology  (EIT),  in  line  with  the  broader  RD&D  policy  objectives  of  the 
EU.  Under  the  revised  EU  ETS,  300  million  allowances  are  set  aside  to  help  stimulate  the 
construction  of  carbon  capture  and  geological  storage  demonstration  plants  as  well  as 
innovative  renewable  energy  technologies.  Moreover,  the  Commission  is  preparing  a 
Communication on the financing of low-carbon technologies. 

Finally,  more  efforts,  including  via  all  forms  of  education,  need  to  be  made  to  advance  the 
understanding  of  the  evolution  of  climate  and  its  impacts  to  society,  economy  and 
ecosystems. 

4.4. 

Innovative international funding sources 

Developed  countries  will  contribute  via  public  funding  and  the  use  of  carbon  crediting 
mechanisms.  Public  financial  contributions  should  be  comparable  and  be  based  on  the 
polluter-pays  principle  and  each  country’s  economic  capability.  The  scale  of  contributions 
should be negotiated and form an integral part of the Copenhagen Agreement. 

Two  principal  options  to  generate  innovative  funding  have  been  identified.  The  first  option 
determines the annual financial commitment of developed countries on the basis of an agreed 

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formula. Such a formula could be based on a combination of the polluter pays principle (i.e. 
total amount of allowed emissions) and its ability to pay (i.e. GDP/capita). Under the second 
option a certain percentage of the allowed emissions would be set aside from each developed 
country.  These  emissions  are  then  auctioned  to  governments  at  the  international  level.  This 
percentage could increase progressively in line with the per capita income. 

The  first  option  provides  certainty  as  to  the  total  amount  of  funding  committed.  Countries 
could  raise  financial  contributions  individually,  and  spend  them  in  a  decentralised  manner 
using  all  the  existing  bilateral  and  multilateral  channels.  This  would,  however,  require  a 
robust and transparent system for monitoring, reporting and verification of additional public 
funding  for  climate-related  actions.  To  ensure  compliance  with  funding  commitments,  a 
corresponding  number  of  emission  rights  could  be  withheld  for  those  countries  that  do  not 
provide  the  agreed  amount.  The  second  option  would  not  necessarily  generate  predictable 
levels  of  funding  as  governments  could  instead  also  use  carbon  credits  from  the  Clean 
Development  Mechanism.  It  would  also  require  a  centralised  governance  structure  at  UN 
level in order to organise the auctioning process, to set spending priorities and to channel the 
funds for mitigation and adaptation.  

For the EU, significant additional public revenue will be generated by auctioning allowances 
in the EU ETS. Member States could use some of this revenue to honour their international 
financial obligation under the future climate change agreement under both options.  

Both instruments can be combined with funding that could come from a global instrument to 
address  international  aviation  and  maritime  transport  (e.g.  the  proceeds  from  auctioning 
allowances under a global cap and trade system applying to those sectors). 

It  should  be  explored  how  developing  countries,  except  the  LDCs  and  Small  Island 
Developing  States  (SIDS),  could  also  make  increasing  contributions  over  time,  in  line  with 
their financial capability. 

4.5. 

Funding early action  

Capacity  building  in  order  to  ensure  that  the  institutional  capacity  is  developed  to  mobilise 
efficient reduction and adaptation will be key in the years immediately after a new agreement 
is reached.  

Early  action  makes  adaptation  and  the  transition  towards  a  low-carbon  economy  smoother. 
The  EU  should  explore  the  possibility  of  developing  a  frontloading  mechanism  to  rapidly 
deliver substantial funding in favour of the most vulnerable and poorest developing countries. 
This  would  be  a  bridging  initiative  in  the  transition  period  between  2010  and  the  full  scale 
implementation of the new financial architecture to be agreed in Copenhagen. Based on the 
issuance of bonds, the proposed Global Climate Financing Mechanism (GCFM) would allow 
early spending on priority climate-related actions. These funds would in particular allow for 
an  immediate  reaction  to  urgent  adaptation  needs  with  a  high  return  such  as  disaster  risk 
reduction.  A  share  of  the  funds  raised  could  also  support  mitigation  activities,  in  particular, 
those  that  generate  synergies  between  mitigation  and  adaptation  such  as  reducing  emissions 
from  deforestation.  The  GCFM  aims  at  raising  around  €  1  billion  per  year  for  the  period 
2010-2014, provided that Member States make appropriate pledges. 

4.6. 

Governance of international financial flows for climate change 

As the sources of funding for adaptation and mitigation are likely to be multiple, coordination 
and  cooperation  will  need  to  be  improved.  A  high-level  forum  on  international  climate 
finance  should  bring  together  key  decision  makers  from  the  public  and  private  sectors  and 
international  financial  institutions.  It  would  regularly  review  funding  availability  and 

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expenditure  and  provide  recommendations  for  improvements.  This  forum  should  cooperate 
closely with the Facilitative Mechanisms for Mitigation Support. 

5. 

MITIGATING  GHG  EMISSIONS  AND  RAISING  REVENUE  ON  A  GLOBAL  CARBON 
MARKET 

5.1. 

Domestic cap and trade systems  

Domestic cap and trade systems are one of the most promising instruments at the disposal of 
countries to reduce GHG emissions, in particular in sectors with relatively large emitters. The 
emissions cap ensures these systems are environmentally effective and the flexibility offered 
by trading allowances makes them cost efficient. Domestic carbon markets can and should be 
linked to build an effective global market, reducing the cost of mitigation. The Copenhagen 
agreement can support the emerging carbon market through global and country target setting. 

The EU has "first mover" experience in setting up the EU ETS as the world’s largest cap and 
trade  system.  Interest  in  this  system  is  growing  rapidly  in  a  number  of  other  developed 
countries. In parallel to the UN negotiations, the EU should promote the creation of a robust 
OECD-wide carbon market by 2015, to be further extended to economically more advanced 
developing countries by 2020.  

As  an  important  step  towards  this  goal,  the  EU  should  actively  engage  with  the  new  US 
Administration  and  legislators.  President  Obama  has  already  indicated  his  intention  to 
establish a strong US cap and trade system. The Commission will seek to put in place an EU-
US working group on the design of carbon markets. Similar bilateral processes should be set 
up  with  other  developed  countries  and  with  economically  more  advanced  developing 
countries.  

Developing countries will need to make increasing contributions to global mitigation efforts 
and  should  therefore,  over  time,  adopt  and  implement  domestic  cap-and-trade  systems  that 
can  spur  efficient  own  action.  The  EU  should  help  interested  developing  countries  gain 
experience in emissions trading, in particular to set up sound governance structures and strong 
domestic  institutions  and  to  boost  their  capacity  to  monitor  and  report  emissions.  Private 
sector and other stakeholders should be consulted in this context. 

5.2. 

Improving UN-based offsetting mechanisms 

The  Kyoto  Protocol’s  Clean  Development  Mechanism  (CDM)  has  enabled  developing 
countries to participate in the carbon market. It is currently designed as a project-based offset 
mechanism in which developing countries can sell credits that represent emission reductions 
achieved  by  a  specific  project.  These  credits  can  then  be  bought  by  a  developed  country  in 
order to comply with its national reduction target. CDM projects provide financing for clean 
technology and build capacity for climate policies in developing countries. 

In  order  to  ensure  that  a  large  part  of  EU  emission  reductions  is  done  domestically,  and  to 
enhance  environmental  integrity,  the  EU  ETS  limits  the  use  of  CDM  credits  based  on 
quantitative and qualitative criteria. In the UNFCCC context, the CDM should be reformed, 
crediting  only  those  projects  that  deliver  real  additional  reductions  and  go  beyond  low  cost 
options.  In  addition,  for  advanced  developing  countries  and  highly  competitive  economic 
sectors, the project based CDM should be phased out in favour of moving to a sectoral carbon 
market crediting mechanism. Such mechanisms can be an efficient tool to drive development 
and deployment of low-carbon technologies in developing countries, and pave the way for the 
development of cap  and  trade systems. To ensure a coherent transition, the EU should seek 

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common  ground  with  the  US  and  other  countries  implementing  cap-and-trade  systems  and 
generating demand for offset credits in a coordinated manner. 

6. 

COPENHAGEN AGREEMENT, A BASIS FOR LONG-TERM POLICIES 

The EU should aim to ensure that the Copenhagen agreement lays the basis for a long-term 
international  framework  that  raises  overall  ambition  and  increases  contributions  from  both 
developed  and  developing  countries,  guided  by  scientific  knowledge.  A  periodic  review  of 
overall  progress  and  the  adequacy  of  commitments  and  action  should  therefore  form  an 
integral part of the agreement, including a comprehensive review in 2016. On this basis, the 
global  goal  should  be  reassessed  and  further  mid-term  commitments,  action  and  financial 
flows  set  in  line  with  the  latest  scientific  findings.  If,  in  the  context  of  a  comprehensive 
review of the Copenhagen agreement in 2016, the combined mitigation efforts of developed 
and developing countries are insufficient, the UN climate change conference should set new 
national ambition levels for the subsequent commitment period. 

7. 

NEXT STEPS AND CONCLUSIONS 

Over  the  coming  months,  the  EU  will  have  to  mobilise  all  available  resources  to  ensure 
intensive  dialogue  and  cooperation  with  third  countries.  One  of  the  key  challenges  for  the 
2009  negotiations  will  be  to  ensure  the  adequate  and  comparable  effort  from  developed 
countries plus a meaningful contribution from developing countries, supported by developed 
countries.  This  is  essential  to  achieve  overall  environmental  effectiveness  and  to  address 
competitiveness concerns. Bilateral contacts within the UNFCCC process, the upcoming G8 
meetings,  follow-up  of  the  Major  Economies  process  and  bilateral  discussions  between  the 
EU  and  key  third  countries  should  explore  concrete  contributions  to  the  Copenhagen 
agreement  from  both  developed  and  developing  countries.  The  result  of  these  discussions 
should  enable  developed  countries  to  commit  to  sufficiently  ambitious  reduction  targets  in 
Copenhagen  and  economically  more  advanced  developing  countries  to  propose  ambitious 
low-carbon  development  strategies,  or  meaningful  action  that  will  form  part  of  those 
strategies. The shaping of the EU contribution to these processes should also be discussed at 
the March 2009 European Council. 

In conclusion, it is proposed that the EU should: 

1. 

2. 

3. 

4. 

Reaffirm  its  determination  to  reach  a  comprehensive  and  ambitious  international 
agreement in Copenhagen in December 2009; 

Engage  with  other  developed  countries  with  a  view  to  agreeing  on  a  set  of  GHG 
reduction  targets,  ensuring  comparable  efforts,  based  on  the  criteria  in  this 
Communication,  in  order  to  collectively  deliver  30  %  emission  reductions  in  2020 
compared to 1990.  

Engage with developing countries, especially with the economically more advanced, 
so that they take appropriate actions that will deliver collectively a deviation of 15-30 
% below business as usual in 2020; 

Acknowledge that staying below 2°C will require significant financial resources for 
emission  reductions  and  adaptation,  but  that  this  will  also  stimulate  innovation, 
economic growth and lead to long-term sustainable development. Express readiness 
to  provide  a  substantial  financial  contribution  in  support  of  actions  by  developing 
countries, in particular for the most vulnerable and poorest, for instance through the 
Global Climate Financing Mechanism. 

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5. 

Propose  to  enter  into  bilateral  partnerships  with  the  US  and  with  other  developed 
countries to share experience on designing domestic  emissions trading systems and 
to facilitate the creation of a robust OECD-wide carbon market by 2015. This market 
should be further extended to economically more advanced developing countries by 
2020. 

The Commission  invites the Council to approve the above conclusions  and take note of the 
orientations  set  out  in  this  Communication. It  stands  ready  to  pursue  discussions  in  the 
Council and to make all appropriate proposals. 

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