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 - Stepping up international climate finance : a European blueprint for the Copenhagen deal {COM(2009) 475 final}
Date: 2009-09-10
Institutions: European Commission
Subjects: EU Member State, EU action, climate change, energy policy, energy saving, environmental protection, greenhouse gas, management of resources, reduction of gas emissions

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 10.9.2009 
SEC(2009) 1172 

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  

Stepping up international climate finance: A European blueprint for the Copenhagen 
deal  

{COM(2009) 475 final} 

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1. 

 PLEDGES OF ANNEX I COUNTRIES AS OF 7 SEPTEMBER 2009 

Table 1: Pledges of Annex I of Annex I countries as of 7 September 2009 

emissions in t CO2eq 

low end 

high end 

1990 

2005 

rel 1990 

rel 2005 

rel 1990 

rel 2005 

Australia 

416155

529524

13%

-11% 

-11% 

-30%

Belarus 

Canada 

Croatia 

EU 27 

Iceland 

Japan 

127361

75594

592281

734491

-5%

-3%

60% 

-10% 

52%

-20% 

-3% 

-20%

32527

30561

-20%

-15% 

-30% 

-25%

5572021

5153699

-20%

-14% 

-30% 

-24%

3409

3709

-15%

-22% 

-15% 

-22%

1272056

1358065

-9%

-15% 

-25% 

-30%

New Zealand 

Norway 

61948

49698

77354

-10%

-28% 

-20% 

53800

-30%

-35% 

-30% 

-28%

-35%

Russian Federation 

3326404

2123359

-10%

41% 

-15% 

33%

Switzerland 

52800

53790

-20%

-21% 

-30% 

-31%

Turkey 

Ukraine 

170059

312420

84%

0% 

84% 

922013

425666

-20%

73% 

-20% 

0%

73%

United States 

6135243

7106638

0%

-14% 

-7% 

-20%

Annex I total 

18734206

18038941

-9%

-5% 

-16.5% 

-13%

Shaded  countries  did  not  make  formal  pledges!  The  following  assumptions  are  made  for 
illustration: 

Croatia: Targets similar to the EU27 are assumed 

Turkey: For both the low and the high end, a return of emissions to 2005 levels by 2020 is assumed. 

United States: The low end reflects objective mentioned by President Obama, the high end taken from 
the  indicative  economy-wide  reduction  target  as  contained  in  the  Waxman/Markey  bill  endorsed  by 
the House of Representatives on 26 June 2009. Depending on the further development of that bill in 
the Senate the implied reductions compared to 1990 could be higher or lower than indicated.  

Pledges differ in scope and conditionality. The following qualifications apply:  

Australia:  High  end  is  conditional  on  CPH  agreement  (450ppm,  comparable  efforts),  including 
LULUCF and carbon market use (data in the table does not include LULUCF) 

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Canada: Target relates to domestic emission reductions only, unconditional to CPH agreement, 2006 
reference year 

EU:  High  end  is  conditional  on  CPH  agreement  (comparable  Annex  I  efforts,  adequate  DC 
contributions) 

Japan:  High  end  is  recent  announcement  of  new  Japanese  Government  and  conditional  on  CPH 
agreement 

New  Zealand:  Target  conditional  on  CPH  agreement  (450ppm,  comparable  efforts),  including 
LULUCF and carbon market use 

Russian Federation: Using range indicated by President Medvedev on 19 June 2009, unconditional to 
CPH agreement 

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2. 

 THE SCALE AND TIMING OF TOTAL CLIMATE FINANCE IN DEVELOPING COUNTRIES: 
A SUMMARY 

The  scale  of  necessary  financial  flows  cannot  be  determined  as  a  single  figure  in  isolation 
from  the  other  key  questions.  While  it  is  important  to  ensure  the  mobilisation  of  adequate 
resources by contributing countries, the Copenhagen agreement needs to design a process for 
developing countries to set out their concrete needs and proposals for the 'supported actions' (- 
which go beyond developing countries' unsupported own action), both on the mitigation and 
adaptation  side.  Climate  finance  will  essentially  be  a  process  of  'matching'  those  needs  and 
proposals with the available financial support. 

The  bottom-up  approach  relies  on  the  country-driven  design  of  policies  and  strategies  for 
mitigation and adaptation at national level. To ensure broad acceptance and therefore effective 
implementation of these strategies they will have to be designed, implemented and monitored 
with  the  active  participation  of  all  concerned  stakeholders  and  be  integrated  into  poverty 
reduction/national  development  strategies,  as  recognised  by  the  EU's  proposal  on  a 
Framework for Action on Adaptation and low-carbon growth plans.  

Reducing emissions in developing countries 

The scale of emission reductions in developing countries and consequently the additional cost 
of  their  actions  will  depend  on  the  overall  level  of  ambition  of  the  Copenhagen  agreement. 
Earlier this year the Commission estimated the additional cost of global climate action in line 
with the EU's objective to peak global emissions before 20201.  

Under  this  'global  appropriate  action'  scenario,  the  total  net  additional  cost  of  mitigation 
action in developing countries in the energy, industry, agriculture and forest sectors amounts 
to  around  €  94  billion  in  2020.  However,  thes e  are  results  of  rough  top-down  modelling 
exercises. In practice, cost estimates will have to be build from bottom up when developing 
countries develop their nationally appropriate mitigation actions (NAMAs) in the context of 
gradually  evolving  low-carbon  growth  plans.  This  also  means  that  the  financial  flows  will 
have  to  be  built  up  step  by  step  corresponding  to  the  evolving  policy/programme/project 
pipeline which will limit the absorption capacity at the early stages. 

Table 2: Total additional costs in developing countries, 'Appropriate global action' Scenario 

Total additional costs 2020 (Billion €, 2005 prices) 

billion €, 2005 prices 

2020 

2030 

Mitigation1 

–  Energy & industry 

–  Agriculture (non-CO2) 

–  Reduced 

Emissions 

Deforestation 
and 
Degradation (REDD) 

from 
forest 

1 

See SEC(2009) 101. 

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Adaptation2 

Total 

1 SEC(2009) 101 
2 UNFCCC Secretariat estimate for 2030 

[10-24] 

104-118 

23-54 

Supporting the poorest to adapt to inevitable climate change 

Current estimates of adaptation needs are extremely variable. A more precise estimate based 
on  incremental  financing  needs  for  national  adaptation  strategies  will  have  to  be  made  over 
time as efficient strategies are designed. The UNFCCC Secretariat estimated that adaptation 
costs in all developing countries for planned adaptation could range between € 23-54 billion 
per year in 20302. Numbers for 2020 are linearly extrapolated starting in 2012 at € 0 going to 
€ 23 – 54 billion in 2030. 

Adaptation priorities in developing countries have so far been framed in national adaptation 
plans  (such  as  NAPAs  in  LDCs)  which  in  most  cases  lack  strategic  (long  term)  and 
crosscutting perspective that sustainable and effective climate adaptation will require. While 
existing  plans  provide  a  useful  basis  for  immediate  investments  on  priority  actions, 
developing  countries  must  move  beyond  individual  projects  towards  a  programmatic 
approach integrating systematically adaptation concerns in national policies, strategies, plans 
and budgets. 

For  an  effective  integration  of  adaptation  in  development  strategies,  a  sound  and 
comprehensive assessment of the likely impacts of climate change will be required as well as 
adequate institutional and technical capacity.  

As regards funding, priority will be given to the most vulnerable developing countries and in 
particular LDCs, small island developing states  (SIDS) and African countries (as defined in 
the Bali Action Plan),. In line with the commitments in the Paris Agenda, the EU will provide 
wherever possible their support as budgetary financing using country systems. 

Fast start funding 2010-2012 

The  establishment  of  effective  domestic  institutions  in  developing  countries  will  need  to  be 
assisted  with  capacity  building  already  from  2010  onwards,  for  example,  to  prepare  and 
implement effective national low-carbon growth plans. In addition, early international support 
is  required  to  build  the  necessary  database,  including  emission  inventories,  which  should 
become the backbone of measurement, reporting and verification.  

As regards adaptation, an early commitment by the developed countries ahead of Copenhagen 
increasing  the  global  contribution  to  adaptation  funding  between  now  and  2013  could 
contribute significantly to trust-building with the poorer developing countries in the run-up to 
the Copenhagen conference. It would also provide an important bridge before any new post-
2012 arrangements are in place. 

2 

Recent  studies  indicate  that costs  might  be  higher  as some  sectors were  only  partly  included  in  these 
estimates:  see  for  instance  'Assessing  the  costs  of  adaptation  to  climate  change:  A  critique  of  the 
UNFCCC estimates, Martin Parry, Nigel Arnell, Pam Berry, David Dodman, Samuel Fankhauser, Chris 
Hope, Sari Kovats, Robert Nicholls, David Sattherwaite, Richard Tiffin, Tim Wheeler, Published: Aug 
2009 – IIED'. 

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3. 

 ADDITIONAL COSTS IN DEVELOPING COUNTRIES FROM MITIGATION ACTIONS  

The technical analysis 

The  analysis  carried  out  for  the  January  2009  communication  "Towards  a  comprehensive 
climate  change  agreement  in  Copenhagen'  analysed  the  costs  of  a  30%  reduction  target  for 
developed  countries  by  2020  compared  to  1990,  appropriate  own  mitigation  action  by 
developing countries and the impact of the carbon market. 

It concluded that total additional costs in developing countries by 2020 would be equal to € 94 
billion,  but  this  was  in  part  due  to  the  extra  reductions  necessary  to  generate  offset  credits 
which increases costs in developing countries.  

Taking  into  account  the  financial  flows  generated  via  the  carbon  market  in  the  energy  and 
industry sector, the remaining net total additional costs were estimated at € 56 billion in all 
sectors,  of  which  €  33  billion  in  the  energy  and  industry  sector  (see  table  below).  This 
requires  the  assumption  that  all  profits  from  selling  offset  credits  would  also  be  used  to 
mitigate GHG emissions in developing countries, preferentially first those with high costs.  

The  remaining  €  33  billion  costs  in  the  ener gy  and  industry  sector  are  additional  costs 
associated to a large extent with energy efficiency measures. These are considered low cost 
but have long pay-back times, longer than acceptable normally for the private sector to invest 
into.  

The other € 23 billion rela te to costs associated with agriculture and forest sector, which are 
not compensated in any manner through the carbon market in these projections. 

Table 3: Estimate of additional costs in developing countries from mitigation actions 

Total additional costs 2020 (Billion €, 2005 prices) 

Internal reduction cost 
2020 of reductions 

Net costs incl. 
carbon market flows 

Developing countries 

–  Energy & industry

–  Agriculture (non-CO2)

–  Reducing Emissions from 
Deforestation and Forest 
Degradation (REDD)

Financial flows carbon market 

Source: Analysis for SEC(2009) 101 

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38 

56 

33 

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 A NEW SECTORAL CREDITING MECHANISM 

4. 
The Commission’s earlier Communication3 identifies the development and implementation of 
domestic cap and trade systems and the bilateral linking of those systems as one of the key 
elements of the EU’s post-2012 strategy. It proposes that, 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.  In  this 
context,  the  Commission  proposed  the  creation  of  a  new  sectoral  carbon  market  crediting 
mechanism,  for  economically  more  advanced  developing  countries  and  highly  competitive 
economic sectors, as an interim step toward the development of (multi-sectoral) cap and trade 
systems in developing countries. Provisions have also been put forward for the participation 
of developing countries in sectoral international emissions trading. 

To  ensure  a  coherent  transition,  the  Commission  also  proposed  that  the  EU  should  seek 
common  ground  with  the  US  and  other  countries  implementing  cap-and-trade  systems  and 
generating demand for offset credits in a coordinated manner. The Commission furthermore 
proposed  that  the  CDM  should  be  reformed,  crediting  only  those  projects  that  deliver  real 
additional reductions and go beyond low cost options. The Commission's approach was to a 
large extent supported by the 2009 March Environmental Council4, the 2009 European Spring 
Council5  and  the  June  2009  Economic  and  Financial  Affairs  Council6.  Building  on  this,  the 
EU has furthermore put forward concrete proposals in the UN negotiations. 

Differences with the CDM 

There are two main differences between the CDM and the SCM (or sectoral trading). The first 
is  that  the  CDM  typically  applies  to  a  single  project,  which  is  usually  related  to  a  single 
installation, whereas the SCM would cover an entire sector (steel, cement, power, etc.) – i.e. a 
number  of  installations.  The  second  is  that  the  CDM  credits  emission  reductions  that  are 
additional to the emissions that would have occurred in the absence of the project (business as 
usual),  while  the  SCM  would  credit  reductions  against  a  more  ambitious  threshold  (see 
graph).  This  threshold  should  reflect  the  capacity  of  developing  countries  to  undertake  own 
appropriate action that does not generate offset credits. 

It does not credit all reductions from the sector, but only those between the crediting threshold 
and actual emissions. The reductions between the sectoral BAU emissions and the crediting 
threshold  can  therefore  be  considered  an  own  mitigation  contribution  of  the  developing 
country resulting from the SCM.  

The EU has proposed that the new SCM is an interim step toward the development of cap and 
trade systems in developing countries. The development of such cap and trade systems is to 
take place at the national level following national design choices.  

In the context of the Kyoto framework, the net result of trades in allowances between Kyoto 
Parties  under  linked  domestic  multi-sectoral  trading  systems  are  shadowed  by  a  transfer  of 
assigned amount units under the Kyoto Protocol's International Emissions Trading Provisions 
(Article  17  KP)  to  ensure  that  the  net  result  of  the  transactions  between  domestic  trading 
systems  are  also  recognised  for  compliance  under  the  Kyoto  Protocol.  Should  the  Kyoto 
Protocol’s accounting framework continue post-2012, provision should be made to enable the 

3 
4 
5 
6 

COM(2009) 39. 
Brussels, 3 March 2009. 
Brussels, 29 April 2009. 
Luxembourg, 9 June 2009. 

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recognition of allowances resulting from bilaterally linked domestic sectoral or multi-sectoral 
trading  systems,  even  if  one  of  those  systems  is  in  a  developing  country  (and  thus  has  not 
been  allocated  AAUs).  If  a  developed  country  links  its  emissions  trading  system  with  a 
domestic sectoral or multi-sectoral trading system in a developing country and wishes to use 
the net results of trades between the two systems for compliance with its obligations under the 
Copenhagen Agreement, that Agreement will therefore need to provide for such recognition.  

Figure 1 Illustration of the Sectoral Crediting Mechanism 

sectoral BAU

credits

crediting thresholds

actual emissions

crediting period 1

crediting period 2

2006

2008

2010

2012

2014

2016

2018

2020

2022  

Incentives for developing countries to move from CDM, via SCM, to cap and trade 

The new SCM has to be sufficiently attractive for developing countries to provide incentives 
to  move  from  the  project  based  CDM  approach  to  the  SCM  approach.  Incentives  for 
developing countries to move towards a SCM include: 

–  The  developing  country  would  receive  credits  in  case  a  sector  beats  its  no-lose  target. 

Those credits can be sold on the carbon market, providing revenue.  

–  The  SCM  can  provide  credits  on  a  greater  scale  than  project-based  crediting,  thus 
providing a better possibility for more structural transformation of sectors to become low-
carbon sectors and deeper emission reduction cuts in developed countries.  

–  When the Copenhagen agreement provides for phase-out of CDM for certain economically 
more  advanced  developing  countries  and/or  sectors,  there  is  an  incentive  for  those 
countries to move to the SCM. This incentive can be further amplified by the recognition 
rules of CDM and SCM credits in the EU ETS and other linked carbon markets by means 
of putting in place more generous quantitative limits for SCM rather than CDM credits. 

–  Moving from a project-specific to a sector-wide approach will reduce transaction costs for 

the country and installations covered under the SCM.  

–  The developing country sector administrator would directly receive the credits instead of 
project developer as is the case in the CDM, providing flexibility for the country to choose 
how to use the resulting revenue. 

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Likewise,  incentives  will  be  needed  to  ensure  that  developing  countries  move  towards  cap-
and-trade. Incentives, in addition to the ones listed above, include:  

–  Credits would be issued ex ante rather than ex post.  

–  When the Copenhagen agreement provides for a phase-out or sunset clause for the SCM, 

there is a regulatory incentive for a developing country to move to cap-and-trade. 

–  The threshold would generate a price signal in the sector that could drive mitigation action 

in a cost-effective way. 

–  If  the  cap  and  trade  system  is  linked  to  the  international  carbon  market,  business  has  an 
interest in moving to such system as it provides more control over reduction options and 
any credits resulting from reductions. 

–  If  the  cap  and  trade  system  is  linked  to  the  international  carbon  market,  business  can 
achieve  compliance  by  buying  allowances  from  other  markets  (import  of  foreign 
allowances, while system overall may be a net exporter for quite some time). 

Coverage 

One  of  the  key  architectural  issues  is  which  sectors  in  which  countries  are  eligible  for  the 
SCM. Or put differently, international rules should be clear on which sectors or countries can 
no longer participate in the CDM.  

The  main  objective  of  the  SCM  is  to  initially  cover  sectors  that  have  a  large  reduction 
potential, sectors that are most exposed to carbon leakage, or sectors that significantly affect 
production  costs  of  sectors  exposed  to  carbon  leakage.  The  two  leakage-related  categories 
require  inclusion  of  sectors  that  sell  products  or  services  in  internationally  competitive 
markets  as  well  as  the  power  sector.  This  means  that  the  SCM  should  initially  focus  on  all 
major industry sectors covered by the EU ETS, including the cement, iron and steel, refining, 
as well as a number of chemical industry sectors, but also the aviation and maritime sectors. 
In view of the EU's position on crediting for forestry sectors, this sector should be excluded. 

Criteria to help determine whether a specific country should use the SCM for a specific sector 
could  include  a  country’s  per  capita  GDP,  its  total  and  per  capita  GHG  emissions.  These 
criteria could also help to determine different capacity thresholds to determine the inclusion of 
installations  in  a  sector,  expanding  the  coverage  for  a  country  that  has  a  higher  GDP  and 
higher emissions. 

For  sectors  to  be  included  in  the  SCM,  it  must  be  assured  that  their  emissions  can  be 
monitored  with  sufficient  accuracy  in  all  relevant  installations  in  the  sector  and  that  the 
institutional frameworks are available within the country to implement the SCM. The degree 
of  homogeneity  of  installations  within  the  relevant  sector  will  also  need  to  play  a  role  in 
whether a sector is included, or whether a subset of installations in that sector is included. In 
practice, one should start off with covering rather large installations in each sector (e.g. power 
plants  above  300  MW  installed  capacity)  and  include  smaller  installations  later  on  as 
appropriate.  

Setting the crediting threshold 

Setting the crediting threshold will be a controversial political decision. Possible approaches 
include: 

–  Setting  the  threshold  in  relation  to  actual  and  verified  emissions  which  are  collected  for 

one or two years prior to SCM implementation 

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–  Estimating business as usual and setting the threshold at a fixed percentage below that or a 
dynamic  percentage  that  is  related  to  the  level  of  development  of  a  country  or  sector  or 
other objective criteria; 

–  Estimating a benchmark related to available technology or technology used in a reference 

case (country, region, global etc.). 

Crediting  thresholds  could  in  principle  be  formulated  on  an  absolute  or  intensity  basis. 
Intensity-based  thresholds  may  initially  be  more  attractive  to  protect  the  environmental 
integrity in view of emissions data uncertainties. Even if one would initially accept intensity-
based threshold for a few years, countries should eventually apply absolute thresholds so as to 
maximise environmental effectiveness.  

Any implementation of sectoral carbon market mechanisms (either on a "no-lose" or binding 
basis) will require robust governance, to ensure credibility and environmental integrity. The 
international  governance  structure  should  be  fully  integrated  into  that  for  NAMAs  and  will 
need  to  be  complemented  by  a  governance  structure  at  the  national  level  in  developing 
countries. 

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5. 

POTENTIAL SCOPE OF SUPPORTED ACTIVITIES UNDER 'FAST START' FINANCE, 2010-
2012 

Immediate  financial  needs  for  international  public  finance  after  the  conclusion  of  the 
Copenhagen  agreement  are  estimated  to  range  from  €  5-7  billion  annually  from  2010-2012. 
The priority areas for the fast start funding identified are: 

Capacity building - € 1-2 billion p.a. 

•  All  developing  countries,  except  least  developed  countries,  should  set  up  annual  GHG 

emission inventories and low-carbon growth plans by the end of 2011. 

•  Up-to-date emissions inventories along with key indicators (e.g. emission intensity) and a 
projection of business-as-usual emissions for key sectors or source categories are the basis 
for  developing  a  meaningful  low-carbon  growth  plan.  Significant  support  for  data 
collection, data analysis, reporting and verification will be required. 

•  Increase  capacity  of  developing  countries  to  move  towards  integrating  climate  change 
concerns in national development strategy as a cross-sectoral long term challenge, which 
will allow clarifying the adaptation needs.  

•  Increase the knowledge base on impacts in most vulnerable countries and regions, as well 

as on adaptation options, preparing the relevant information for decision-making. 

Mitigation including technology deployment – € 1 billion p.a. 

•  Support  for  the  Global  Energy  Efficiency  and  Renewable  Energy  Fund  (GEEREF),  a 
public-private  partnership,  will  ensure  equity  capital  to  clean  private  sector  initiatives  in 
developing countries. 

•  Access to clean energy technologies for poor populations. 

•  Build  capacity  for  domestic  cap-and-trade  systems  in  economically  more  advanced 
developing  countries  and  highly  competitive  sectors  and  contributions  to  e.g.  the  World 
Bank Carbon Partnership Facility would provide technical assistance for the development 
of sectoral crediting mechanism. 

•  Reduce  emissions  from  deforestation  and  forest  degradation  (REDD).  Public  funding 
should  initiate  and  build  up  the  readiness  of  developing  countries,  including  building 
monitoring  capacities,  preparing  and  implementing  policy  reforms.  Contributions  to  the 
World Bank Forest Carbon Partnership Facility will help build this capacity and to tap into 
any future system of positive incentives for REDD. 

•  Support  changes  in  agriculture  through  land  use  and  livestock  management  practice, 

seeking synergies between sustainability, food security and poverty reduction. 

•  Support  maintenance  and  restoration  of  carbon  rich  ecosystems  including  peatlands, 

wetlands, forests and natural grasslands. 

Adaptation – € 2-3 billion p.a. 

•  Urgent  implementation  of  immediate  priorities  identified  in  National  Adaptation 
Programmes  of  Action  (in  LDCs)  or  in  other  relevant  national  document  (in  other 
vulnerable  countries),  via  increased  financing  through  the  Global  Climate  Change 
Alliance, the Least Developed Countries Fund, bilateral and multilateral channels. 

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•  Build  up  experience  in  areas  requiring  further  work,  e.g.  synergies  between  disaster  risk 
reduction and climate adaptation, including the use of risk transfer mechanisms as a safety 
net for the most climate vulnerable population (e.g. pilot programmes on insurance).  

Technology research, development and demonstration - € 1 billion p.a. 

•  Contributions  to  the  Global  Partnership  established  by  the  Major  Economies  Forum  to 
drive 
the 
adoption  and  application  of  cost  efficient  energy  efficiency  measures  in  a  multilateral 
context, e.g. through the International Partnership for Energy Efficiency Cooperation. 

low-carbon,  climate-friendly 

technologies.  Accelerating 

transformational 

•  Assistance  to  key  developing  country  partners  on  technology  demonstration,  e.g.  co-
financing  of  carbon  capture  and  storage  demonstration  such  as  contributions  to  the  Near 
Zero Emission Fossil Fuel initiative, advanced solar technology initiatives. 

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6. 

 EXAMPLES OF CONTRIBUTION KEYS FOR SHARING GLOBAL FINANCIAL EFFORT 

GDP (2008, Intl.$, at market prices, source Worldbank) and greenhouse gas emissions (2005 
energy and industrial emissions + 2000 LULUCF, source: WRI-CAIT database) of G20 
Members as possible indicators to calculate contribution keys for sharing of the global 
financial effort (GDP and emission percentages relative to world total) 

Table 4: Examples of contribution keys for sharing global financial effort 

GHG 
Emissions 

GDP 

GDP 25% 

GDP 50% 

GDP 75% 

GDP 90% 

GHG 75% 

GHG 50% 

GHG 25% 

GHG 10% 

EU-27 
USA 
Japan 
Canada 
Australia 
China 
Mexico 
Brazil 
Russia 
India 
South Korea 
Indonesia 
South Africa 
Saudi 
Arabia 
Turkey 
Argentina 
Total G-20 
Total LDCs 

11.07% 
14.46% 
2.97% 
1.75% 
1.22% 
15.80% 
1.60% 
5.26% 
4.44% 
3.99% 
1.21% 
6.96% 
0.94% 

0.82% 
0.91% 
0.82% 
74.22% 
< 0.7% 

32.55% 
25.29% 
8.74% 
2.49% 
1.81% 
6.87% 
1.93% 
2.87% 
2.86% 
2.17% 
1.65% 
0.92% 
0.49% 

0.83% 
1.41% 
0.58% 
93.47% 
<0.5% 

16.4%
17.2%
4.4%
1.9%
1.4%
13.6%
1.7%
4.7%
4.0%
3.5%
1.3%
5.4%
0.8%

0.8%
1.0%
0.8%

21.8%
19.9%
5.9%
2.1%
1.5%
11.3%
1.8%
4.1%
3.7%
3.1%
1.4%
3.9%
0.7%

0.8%
1.2%
0.7%

27.2% 
22.6% 
7.3% 
2.3% 
1.7% 
9.1% 
1.9% 
3.5% 
3.3% 
2.6% 
1.5% 
2.4% 
0.6% 

0.8% 
1.3% 
0.6% 

30.4%
24.2%
8.2%
2.4%
1.7%
7.8%
1.9%
3.1%
3.0%
2.3%
1.6%
1.5%
0.5%

0.8%
1.4%
0.6%

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7. 

 IMPACT OF DESIGN ELEMENTS ON THE SCALE OF EMISSION REDUCTIONS 

Targets for developed countries matter for the potential demand of offset credits in the global 
carbon market. The lower the targets, the lower the potential demand and carbon prices within 
this global market. 

But  not  only  the  targets  matter,  also  other  elements  under  discussion  in  the  negotiations  on 
comparability can have potentially a large impact on this demand. The table below estimates 
what the total shortfall is between emissions in baseline and the targets proposed for the group 
of developed countries. This measure is used as a proxy for the potential demand for offset 
credits.  

The  second  column  gives  an  estimate  of  this  projected  shortfall  compared  to  baseline  on 
average for the whole period 2013 – 2020. 

The following design elements are analysed: 

•  The level of the reduction target:. Scenario A assumes that developed countries take on 
collectively  a  target  of  -30%  compared  to  1990  by  2020  whereas  the  other  Scenarios 
assume  that  targets  only  add  up  to  a  reduction  of  -10%,  similar  to  the  lower  range  of 
pledges that is proposed at present.  

•  Surplus AAUs banked or not: Several Annex I countries have greenhouse gas emission 
levels that are well below their Kyoto Protocol targets and are therefore expected to have a 
lot  of  emission  rights  in  excess  over  the  period  2008-2012  (the  so  called  surplus  AAUs 
under  the  Kyoto  Protocol)7.  Scenarios  A  and  B  assume  that  the  potential  net  ‘surplus’ 
AAUs’ from the period 2008-2012 are not available for compliance by developed countries 
in the period 2013 – 2020. The other Scenarios assume the opposite, i.e. that these surplus 
AAUs are available for compliance after 2012.  

•  Starting level: Also the starting level in 2013 and the trajectory of targets over the period 
2013-2020  matters  for  the  demand  over  this  period.  For  this  analysis  it  is  assumed  that 
targets  evolve  linearly  over  the  period  2013-2020.  But  the  starting  level  is  assumed 
different for different scenarios. In scenario D it is assumed that in 2013 the starting level 
is  the  Kyoto  Protocol  target  for  the  period  2008  –  2012.  This  will  lead  again  to  the 
generation  of  surplus  AAUs  for  those  countries  that  have  at  present  greenhouse  gas 
emission levels well below their Kyoto targets8. Instead the other Scenarios assume that the 
starting level in 2013 is the Kyoto target or the 2010 emission level, whatever is lowest.  

Potential demand for offsets credits reduces with 60% when comparing scenario B to A. This 
decrease is even larger when comparing scenario C to A, i.e. -80%. In scenario D there could 
be  potentially  no  demand  at  all  for  offset  credits  but  rather  a  surpluss  of  available  AAUs 
compared to the average emissions over the period 2008-2012. 

Table 5: Potential impact level of ambition targets on demand for offset credits 

7 

8 

Note that these surpluses of AAUs are estimated to be also larger than any potential demand from other 
Annex I countries that have ratified the Kyoto Protocol but are expected to have higher emissions than 
their targets over the period 2008-2012. Note also that no demand can be expected from the US, given 
that it has not ratified the Kyoto Protocol.  
For the US that has no Kyoto Target, the emission level of 2010 is taken as a target in all scenarios. 

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Scenario A: Appropriate reduction case (' 2 degrees Celsius 
scenario') 
(-30% vs 1990 in 2020, no surplus AAUs banked, target 2013 is the 
lowest of 2010 emissions or KP target 2008-2012) 

Scenario B: Current pledges + No surplus AAUs  
(Low pledges as from 08/2009, no surplus AAUs banked, target 
2013 is the lowest of 2010 emissions or KP target 2008-2012) 

Scenario C: Current pledges + Surplus AAUs 
(Low pledges as from 08/2009, surplus AAUs banked, target 2013 is 
the lowest of 2010 emissions or KP target 2008-2012) 
Scenario D: Current pledges + surplus AAUs + start from KP 
target in 2013 
(Low pledges as from 08/2009, surplus AAUs banked, target 2013 is 
the KP target 2008-2012 with the exception of the US which would 
use 2010 emissions) 

Source: Simulation based on baseline by POLES, JRC 

Average 
reduction 
2013-2020 

-17% 

-7% 

-3% 

1% 

For this assessment baseline emission data are used of the POLES model. Scenario A was the 
scenario  assessed  in  the  Staff  Working  Document  that  accompanied  the  Commission 
Communication  “Towards  a  comprehensive  climate  change  agreement  in  Copenhagen”  of 
January 2009. 

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8. 

 DETAILED DESCRIPTION OF THE DECENTRALISED GOVERNANCE STRUCTURE 

This  Annex  sets  out  the  detail  of  the  European  blueprint  for  a  decentralised  bottom-up 
governance  structure  which  is  the  result  of  intensive  discussions  with  many  negotiating 
partners worldwide and builds also on the EU's extensive cooperation experience. 

Guiding prinicples 

For  an  overall  governance  structure  to  be  efficient,  effective,  and  equitable  it  needs  to  take 
into account: 

•  Coherence/Subsidiarity:  To  meet  the  objectives  it  seems  most  efficient  to  build  on  the 
existing financial architecture, which is decentralised and applies different channels in line 
with  their  respective  comparative  advantage  to  deliver  support,  including  bilateral  and 
multilateral  initiatives  as  well  as  international  financial  institutions.  It  will  make  use  of 
both UNFCCC and non-UNFCCC institutions. 

•  Transparency:  As  sources  and  scale  of  funding  would  be  multiple,  coordination  and 
facilitation among the different organisations will need to be greatly improved compared to 
existing  structures.  A  fully  transparent  and  up-to-date  reporting  system  will  be  essential. 
Only  this  will  allow  for  comparing  efforts  of  different  contributing  countries  and  for 
making sure that there is equitable access for developing countries. 

•  Accountability and equity: However, developing countries regard traditional multilateral 
and  bilateral  routes  as  donor  dominated  and  argue  for  a  new  centralised  fund.  Thus, 
shaping  the  governance  structure  needs  to  offer  sufficient  prospect  of  improvement  (e.g. 
increased  developing  country  voice  and  simplified  access  to  funds),  whilst  retaining 
enough flexibility and safeguards for contributors (e.g. choice over which channels to use, 
fiduciary standards). 

•  Rewarding  performance:  It  should  be  kept  in  mind  that  public  funding  will  always  be 
scarce.  This  situation  will  be  aggravated  for  a  number  of  years  in  view  of  the  fact  that 
public  deficits  due  to  the  current  economic  recession  will  remain  high  for  a  number  of 
years. Therefore, performance-based mechanisms will have to be established ensuring the 
most efficient use of scarce public financial resources. This also calls for adhering to the 
principles of aid effectiveness when delivering external public funds at country level (Paris 
and Accra declarations). 

•  Additionality:  There  is  an  on-going  international  debate  as  regards  the  relationship 
between  climate  change  finance  and  Official  Development  Assistance  (ODA),  which 
already  dates  back  to  the  beginning  of  the  climate  negotiations.  The  main  fear  of 
developing  countries  is  that  developed  countries  would  rededicate  current  ODA  from 
traditional sectors like education and health to climate change. ODA and additional climate 
change finance should be seen as complementary, and both financing streams shall support 
the  development  and  implementation  of  national  sustainable  development  strategies 
integrating climate-resilience and low-carbon development paths. In any case, establishing 
a  fully  transparent  reporting  of  all  public  financial  flows  to  and  its  ultimate  uses  in 
developing countries will be essential. 

•  Complementarity: Advocating a decentralised governance structure, however, should not 
preclude the possibility of a new multilateral fund, if necessary. A multilateral fund, like 
the  Mexican  Green  Fund,  could  indeed  add  value  if  it  provides  funding  for  themes  and 
geographical  areas  where  it  is  difficult  to  secure  appropriate  flows  from  other  channels. 
The  fund  would  therefore  be  complementary  or  assume  the  role  of  'donor  of  last  resort'. 

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Contributions  to  such  a  fund  could  be  determined  in  the  same  manner  as  the  overall 
financial contributions, but because of its complementary nature would need to be modest 
compared than the total contribution. 

Governing the support to mitigation 

A  country  driven  bottom-up  approach  seems  to  be  the  most  appropriate  way  in  order  to 
determine the optimal blend  and scale of necessary financial support. At the same time, the 
approach should encourage the exchange of good practice providing confidence to all actors 
and enabling the system to deliver both actions and support effectively and efficiently. 

For mitigation the European blueprint foresees the following key elements: 

•  Low-Carbon Growth Plans (also known as Low Carbon Development Strategies): At 
the  core  of  this  approach  is  the  concept  of  ambitious,  convincing,  country-owned,  short, 
medium  and  long-term  national  low-carbon  growth  plans.  These  would  comprehensively 
articulate  the  country  specific  objectives  and  planned  nationally  appropriate  mitigation 
actions  (NAMA),  and  guide  national  administrations  and  the  wider  international 
community and donors. 

•  Ex-ante  technical  analysis:  The  approach  should  encourage  the  exchange  of  good 
practice providing confidence to all actors and enabling the system to deliver both actions 
and support effectively and efficiently. To this end, an ex-ante technical analysis should be 
conducted of all those NAMAs that require international assistance. 

•  Registry: In order to recognise the mitigation actions undertaken by developing countries 
and to assess their contribution in the global fight against climate change, all actions, the 
technical analysis and the eventual impacts on emissions, as well as all financial support 
should  be  recorded.  For  this  a  central  international  registry  should  be  established  which 
should include the most recent information on all actions, both supported and unsupported 
requiring  support,  and  which  will  ensure 
recognition. 
Correspondingly  developed  countries  should  annually  record  all  financial  support  in  the 
registry,  as  due  to  the  decentralised  governance  structure  there  will  be  multiple  sources, 
donors  and  different  scales  of  funding  and  an  optimal  flow  of  information  on  which 
mitigation support is delivered will be key. This will complement the existing OECD/DAC 
reporting. 

transparency  and  wide 

•  Coordinating  mechanism:  In  order  to  implement  these  functions  within  a  decentralised 
governance  structure  and  to  ensure  continued  improvement  of  actions  and  support 
foreseen, a coordinating mechanism should be set up under the guidance of the UNFCCC. 
This  independent  international  professional  body  under  the  UN  would  be  resourced  with 
wide  technical  expertise.  It  should  specify  harmonised  guidelines  that  ensure  sufficient 
quality of proposed actions It could convene technical panels to assist in the technical and 
economic analysis. It should also set up the registry and based on the information provided 
to this by the Parties, it would regularly track and report on the implementation of actions 
and support. On this basis the matching function of the coordinating mechanism can focus 
mainly  on  areas  facing  most  difficulties  in  mobilising  appropriate  funding  from  other 
channels.  It  could,  for  instance,  provide  a  gateway  to  relevant  funds  and  contributors  or 
organise donor conferences for specific type of NAMAs or countries. However, it should 
be kept in mind that public funding will always be scarce. This situation will be aggravated 
for a number of years in view of the fact that public deficits due to the current economic 
recession  will  remain  high  for  a  number  of  years.  Therefore,  performance-based 
mechanisms  will  have  to  be  established  ensuring  the  most  efficient  use  of  scarce  public 
financial  resources.  This  calls  for  adhering  to  the  principles  of  aid  effectiveness  when 

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delivering external public funds at country level. In the future, the coordinating mechanism 
could  act  as  the  appropriate  body  to  assist  in  setting  baselines  for  the  proposed  new 
sectoral  crediting  and  the  sectoral  trading  mechanisms  providing  a  shared  body  for  both 
public and private funding. 

•  Enhanced in-country coordination: In any case, most functions will be implemented in a 
decentralised  manner  such  as  the  drawing  up  or  integrating  individual  actions  plans  into 
low-carbon  growth  plans  by  developing  countries,  the  execution  of  the  technical  and 
economic analysis, the political endorsement, the decisions regarding releasing of funding, 
establishing  annual  emission  inventories  and  third  party  verification  of  funding  provided 
and  emission  reductions  achieved.  At  country  level,  enhanced  donor  coordination  must 
ensure harmonisation and alignment of funding. 

•  Measurement,  reporting  and  verification:  Furthermore,  regular  assessments/peer 
reviews  of  all  actions  and  support  and  whether  they  meet  the  required  ambition  level 
should be conducted on the basis of information held in the registry and in annual emission 
inventories  as  well  as  provided  in  regular  National  Communications  by  developing 
countries  and  developed  countries.  These  data  would  also  feed  into  the  global  review  of 
overall  progress  of  developing  countries  actions  and  developed  country's  commitments 
towards the 2°C objective proposed to be concluded in 2016. This allows the reassessment 
and  determination  of  further  commitments,  actions  and  financial  flows  which  should 
always be brought in line with the latest scientific findings. 

Governing assistance to adaptation 

Adaptation  benefits  are  primarily  local  and  progress  towards  climate-resilience  cannot  be 
measured easily. This implies that responsibilities among institutional actors will have to be 
shared  differently  than  for  mitigation.  Therefore,  for  adaptation  the  European  blueprint 
foresees a simplified, and even further decentralised approach: 

•  Integration  into  development/poverty  reduction  strategies:  A  Copenhagen  agreement 
should  encourage  and  facilitate  a  country  led  process  of  integrating  adaptation  concerns 
into  development  and/or  poverty  reduction  strategies  which  should  also  include  the 
assessment of financial needs.  

•  Guidance,  exchange  of  information,  and  reporting:  At  the  central  international  level, 
there should still be general guidance on setting priorities and expected content of national 
adaptation responses, as well as analysis and sharing of good practice and lessons learnt. 
Developing  countries  would  also  need  to  report  regularly  on  progress  in  the  integration 
process  and  implementation  in  their  National  Communications  which  will  have  to  be 
improved. 

•  Enhanced  in-country  coordination:  The  integration  process  will  take  place  in-country 
and should include the assessment of financial needs. Coordination of the various sources 
of climate funding and synergies with public international development assistance should 
be ensured at country level, using existing mechanisms which coordinate ODA flows and 
reflecting the principles of aid effectiveness (the Paris Declaration of 2005 and the Accra 
Agenda for Action of 2008). 

The existing Least Developed Countries Fund, Special Climate Change Fund and Adaptation 
Fund,  as  well  as  the  climate  funding  under  the  Global  Environment  Facility  (GEF)  are  all 
subject  to  UNFCCC  guidance.  Decisions  regarding  other  channels  remain  with  individual 
funds  and  contributors.  At  present,  there  seems  to  be  no  necessity  to  establish  new  vertical 

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funds for adaptation financing, unless they clearly add value to mechanisms or funds already 
in place. 

Additionality of financial flows 

While  for  ODA  it  is  possible  to  build  on  the  existing  OECD/DAC  reporting  systems  and 
improve them, where specific markers will be introduced, financial flows from new financing 
sources  require  complementary  bottom-up  monitoring.  This  should  allow  to  account  and 
report  annually  (to  OECD  and  UNFCCC)  on  the  financing  being  provided  for  the 
implementation  of  national  climate  resilience  strategies.  Developing  countries  would  also 
need  to  report  regularly  on  progress  in  the  integration  process  and  implementation  in  their 
National Communications which will have to be improved.  

At the central level under the UNFCCC, there should be a compilation of the needs, based on 
national  assessments  and a  tracking  of  the  financial  support.  This  should  allow  for  the 
identification of imbalances and gaps. This should become an integral part of review process 
of National Communications from developing countries. 

There is an on-going international debate as regards the relationship between climate change 
finance and ODA, which already dates back to the beginning of the climate negotiations. The 
main fear of developing countries is that developed countries would rededicate current ODA 
from traditional sectors like education and health to climate change. 

However, most of the international public grant financing for adaptation and mitigation has, 
until now, always met the agreed definition of ODA and, thus, it has been accounted against 
OECD countries’ ODA targets of 0.7 % of their GNI by 2015. 

In the short term, grants and highly concessional loans that are ODA eligible will continue to 
play the central role in the public financing of adaptation measures, particularly in the LDCs 
and  SIDS.  Furthermore,  in  fulfilling  the  0.7  %  goal,  world  development  aid  will  more  than 
double,  as  the  present  average  for  the  OECD/DAC  is  0.3  %  (0.42  %  for  the  EU  DAC 
countries).  In  absolute  and  real  terms,  this  means  moving  from  US$120  billion  in  2008  to 
around US$  280 billion by 2015. Over this  period,  EU ODA will equally increase by some 
US$50  billion.  Within  this  increase  it  will  possible  to  accommodate  some  of  the  additional 
public funding required to cope with climate change, while maintaining the overall focus on 
reaching  the  Millennium  Development  Goals  targets.  As  climate  change  imposes  an 
additional  burden  to  developing  countries,  finance  provided  for  adaptation  and  mitigation 
should therefore not come at the expense of traditional development finance. 

In the medium/long term (after 2013), climate financing could become a blend of ODA and 
non-ODA  resources  depending  on  whether  new  financing  mechanisms  envisaged  under  the 
UNFCCC  will  progressively  phase-in.  In  this  context,  ODA  and  additional  climate  change 
finance  should  be  seen  as  complementary,  and  both  financing  streams  shall  support  the 
development  and  implementation  of  national  sustainable  development  strategies  integrating 
climate-resilience and low-carbon development paths.  

In any case, establishing a fully transparent reporting of all public financial flows to and its 
ultimate uses in developing countries will be essential. 

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9. 

POTENTIAL  REVENUES  FROM 
TRANSPORT 

INTERNATIONAL  AVIATION  AND  MARITIME 

Whilst  there  is  quite  good  data  available  for  emissions  from  international  aviation  there  is 
considerable uncertainty regarding emissions from international shipping. Historic emissions 
for international aviation are  provided by  the International Energy Agency (2009). Aviation 
emission  projections  for  2020  are  based  on  studies  undertaken  for  the  ICAO  Group  on 
International  Aviation  and  Climate  Change  (GIACC)  and  Committee  of  Aviation  and 
Environmental  Protection  (CAEP)  analyzed  by  AEA  Technology  UK.  Historical  data  for 
international  shipping  and  projections  come  from  the  Second  IMO  GHG  Study  2009  (April 
2009) (MEPC 59/INF.10) which are the latest 'consensus' figures agreed by IMO but actual 
emissions  could  be  +/-  20%.  The  IMO  is  currently  assessing  the  possibility  of  developing 
market-based measures. 

Table 6: Emission data international aviation and maritime sectors 

1990 

2005 

2020 (BAU) 

International shipping 

International aviation 

468 

255 

795 

389 

982 

648 

Total international bunkers  723 

1184 

1630 

Shipping (vs 1990) 

Aviation (vs 1990) 

Shipping (vs 2005) 

Aviation (vs 2005) 

0% 

0% 

-41% 

-34% 

+70% 

+110% 

+53% 

+154% 

0% 

0% 

+24% 

+67% 

Sources: AEAT, IEA, IMO  

For  example,  if  one  were  to  assume  for  illustration  purposes  a  30%  reduction  target  below 
2005  levels  for  international  maritime,  this  would  equate  to  556  Mt  CO2.  A  30%  reduction 
target below 2005 levels for international aviation would equate to 272 Mt CO2. In total this 
would resemble a target for both sectors combined equal to 828 mio ton CO2. 

If it is assumed that this target would be 100% auctioned, and assuming prices between 20 € 
and 30 € per emission right, total revenue would be  in the range of 17 to 25 billion € /per year. 

If no effective rules can be agreed at the global level, the EU will, for instance, continue to 
raise revenue from the inclusion of aviation in its emission trading system that it can use for 
its own purposes. With auctioning of 15 % of the total allowances this could generate between 
€ 617 and 928 million p.a. after 2012 at a carbon price between € 20 and 30 per ton 9. 

9 

Assuming  historic  emissions  are  equal  to  216  Mt  CO2  and  the  target  is  5%  below  these  historic 
emissions. 

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