The Kyoto Protocol: Commitments and the need for further clarification

Consequences for German and European Climate Policy

Kyoto - Conclusions

Appendix to the second edition

On 11 December 1997 the "Protocol to the United Nations Framework Convention on Climate Change" was adopted in Kyoto, Japan. In order to become legally binding, it must now be ratified by the governments and parliaments of at least 55 of the contracting states. Together they must be responsible for at least

55 % of the CO₂ emissions emitted in 1990. The following section will, thus, in the light of the report, which was written before Kyoto, briefly outline the main results of the agreement and those parts of the Treaty which require further clarification, and will also highlight the consequences for German and European climate policy.

The Kyoto Protocol: Commitments and the need for further clarification

The European Union could not push through its goal of standard reductions for all industrialized countries, totalling 15% for CO₂, CH₄ and N₂O emissions by the year 2010, with a halfway target of 7.5% by 2005. Nevertheless, the Europeans' comparatively demanding goals did make an impression. Compared with the starting positions of the participants, particularly those of the USA and Japan, the highly controversial marathon of negotiations resulted in a compromise, which, while remaining below ecological imperatives, is however an important step in keeping the transformation of our unsustainable industrialized societies on international and national agendas.

The Kyoto Protocol contains the following commitments for industrialized nations:

Reduction of a "basket" of six gases - carbon dioxide (CO₂), Methane (CH₄), Nitrogen oxide (N₂O), sulphur hexafluoride (SF₆), partially halogenated hydrofluorocarbons (HFCs) and perfluorocarbons (PFCs).

The commitment period is 2008 - 2012. The contracting parties can fail to meet the target in individual years of the 5-year period, provided they achieve it on average during the 5-year period taken as a whole. The base year for the reduction commitments for CO₂, CH₄ and N₂O is 1990. For the other gases 1995 can be chosen as an alternative base year.

The reduction targets range from minus 8% for the European Union, its Member States and a number of East European states, up to a permitted increase of emissions of plus 8% for Australia and plus 10% for Iceland. The USA accepted minus 7 %, a much tougher target than stabilizing at 1990 levels, as had been proposed by President Clinton. Japan and Canada only have to reduce emissions of the "basket" of greenhouse gases by 6 %. Russia and Ukraine, with an obligation to stabilize at 1990 levels, got off very lightly, especially given the fact that both states currently have an emission level 30 % less than that of 1990, due to the drastic changes their economies are undergoing. The EU is allowed to make distinctions between obligations for Member States internally, as long as the EU as a whole remains under the reduction target of 8% of 1990 levels. Thus, for example, the poorer states in the south of the EU could increase emissions, as long as Member States such as Germany and Great Britain stay below the ceilings set for them. They will however be held individually responsible for a reduction of 8%, should the European Union fail to fulfil its total combined level of emission reductions.

It was not possible to have the year 2005 accepted as the first target year, as the EU originally wished. It was merely written into the Treaty as a non-binding challenge, according to which "visible progress" should be made by the year 2005. Nor was it possible to set reduction targets for individual greenhouse gases, in particular for CO₂. This was because in most contracting states CO₂ and other greenhouse gases produced by burning fossil fuels make up over 80% of greenhouse gas emissions, and so even with the "basket approach" the signal concerning CO₂ should be clear.

The results of the negotiations are disappointing in particular due to the lack of agreement on concrete policies and measures. Neither the setting up of an International Solar Energy Agency, nor the introduction of a world-wide reduction target for kerosene was even seriously discussed.

As regards the actual level of the reduction targets, a certain amount of caution is required because those in favour of a "sink approach" won the day in Kyoto. Following this approach carbon dioxide which is absorbed by a country's forest "sinks" can be deducted from that country's overall emission reduction obligations. The inclusion of "greenhouse gas sinks" in the obligation would thus in many cases reduce the absolute amount of the cutback required. The USA, for example, was expecting that this "artificial measurement" would reduce their obligation by 3%, so that their commitment to reduce emissions by 7% would in fact correspond to an obligation to reduce emissions by only 4%. The text of the Treaty is however so unclear that the size of this loop-hole cannot at present be estimated. It is however of utmost importance that land-use change due to human activity, and afforestation, reafforestation and deforestation should be taken into account. The methodological treatment of further activities should be clarified by future conferences. The danger of including sinks does not only lie in the fact that obligations will thereby be weakened, but also, and especially, because of the uncertainty that it would introduce into calculations. For if it cannot actually be decided how much CO₂ is absorbed, then it is difficult to determine whether the obligations are being met. This could undermine the confidence of other states in the proper fulfilling of the treaty obligations. Accordingly efforts must be made in the next few years to ensure that effective criteria for the inclusion of sinks are agreed in follow-up negotiations.

One of the potential loopholes mentioned in Chapter II.4 of this report, namely the idea of "borrowing" emission credits from future years, as was proposed by the USA, was blocked by the European States. However various instruments for increasing the "flexibility" of climate protection commitments did find their way into the Kyoto Protocol. These could water down the reduction commitments if interpreted in the wrong way.

It was agreed in principle, for example, that trading in emission licences is permissible. But many questions were left open in the text adopted at Kyoto, not just because of resistance from developing countries, but also because the contracting parties - i.e. the industrialized nations - can participate in emission trading to help fulfil their obligations under the Kyoto Protocol. However emission reductions of greenhouse gases – which can be accumulated as credits - must be made in addition to domestic measures adopted for the purposes of meeting commitments. The actual form that these rules should take is to be worked on in the future at the Conference of Parties serving as the meeting of the Parties to this Protocol. As so often, the real difficulties lie in transforming the economic principle into detailed rules. For example, Russia and Ukraine would also be allowed to sell emission licences, and their emissions currently lie at 30% below 1990 levels and are likely to remain far below this level during the period between 2008 and 2012. This means that the quantity of tradable emission licences will increase considerably. Thus the trading system could become so bloated that some states could be tempted to stop making any efforts of their own and just cheaply buy their way out of their obligations.

Another potential loop-hole which could induce states not to make any efforts of their own to reduce emissions is the "clean development mechanism", incorporated in the Protocol. This has replaced the previous "joint implementation" programme vis-à-vis developing countries. This mechanism is supposed to channel public and private capital into developing countries in order to carry out projects which would lead to a reduction in the emission of greenhouse gases. The whole point of this concept is the transferability of emission reduction credits gained through such projects. Indeed emission reduction credits obtained between 2000 and 2008 can be used to comply with reduction targets in the first commitment period. A quantification of these "averted emissions" is not yet possible, and thus criticism is deserved: as much as the use of private capital to modernize and increase efficiency of industry in developing countries is to be welcomed, it should not provide industrialized states with a feather bed, giving them the opportunity to do nothing in their own countries. The future concrete use of these instruments must also be thought out with care, in order to reduce to a minimum any loop-hole effect. According to the Kyoto Protocol the previous "Joint Implementation" programme will be limited to project-based compensation between industrialized countries.

In short, it can be said that the obligations accepted in Kyoto by the industrialized states definitely do not represent an ideal outcome, but on the whole the positive factors outweigh the negative ones. The Kyoto Protocol offers an acceptable basis for future international climate policy. There remains however much to do in order to fill the existing holes and to formulate those concepts which are still not finalized in an ecologically sound manner.

Consequences for German and European Climate Policy

Germany and the European Union must in the coming months quickly determine their positions for the international negotiations being held to clarify the points left open at Kyoto, which are due to begin as early as June 1998. They will have to be careful that the already insufficient ecological impact of the agreement is not further diluted by a watering down of the international obligations contained therein. The main priority will however be to ensure that the economic signal sent out by the Kyoto Protocol to politicians, industry and society is not further weakened. In this area the formulation of rules on trading emission licences is of utmost importance. The fixing of an upper ceiling for the permissible acquisition of traded licences at a level of at most 50% is necessary, in order not to bring national and European attempts to increase efficiency and restructure the energy industry to a standstill. It will also be just as important to limit the amount of tradable emissions from the potential "vendor" countries of central and eastern Europe.

Even after the conclusion of the Kyoto negotiations we believe the central message of our report to be correct: Germany and the European Union should pursue the development of their own climate policy independently from the lethargic development of climate policy on the international stage. They should use the impulse that climate policy gives for modernization and innovation to overcome their locational disadvantages in international competition, to offer the over 18 million unemployed in the EU a future, and to create secure markets for energy-saving devices and renewable energy as well as ensuring increased resource productivity in the production sector, in the service industry, and in research and development.

The German Federal Government's express declaration, made after Kyoto, that it wanted to adhere to its national target of reducing CO₂ emissions by 25% by 2005, is to be welcomed. This declaration of intent must however now be followed up with action. Further details of this issue are to be found in Chapter III of this report. Following the recent enactment of the amendment to the Law on the Fuel and Electricity Industries it seems even more important to prevent the new rules having negative effects on efforts to increase energy efficiency and to extend the supply of renewable energy sources. Ecological tax reform must be got underway quickly, in order to stop the trend of diminishing power prices and to offer investors from the supply and demand sides of efficiency technologies, as well as products and services within the solar industry, security and a reliable framework for business.

Now that the results of the first monitoring survey of the voluntary agreement of German industry on precautionary climate protection are available, we would like to reiterate our proposal for the enactment of a federal law on the reduction of CO₂ emissions. If the national CO₂ reduction goal were legally binding and a subsidiary CO₂ tax were introduced, the necessary incentives would exist to encourage the finding of economically advantageous ways to increase efficiency and would reward those prepared to be innovative.

During the first half year 1998 the right course must be set at European Union level for the future climate policy of the EU. The emergence of first signs indicating that the EU would like to depart from its reduction targets of 15% for 2010 and 7.5% for 2005, make it seem even more urgent to mention the counter-productive effect that such a decision would have on business and employment in Europe. The European Community should stick to these targets, make them legally binding, not least in order to counter-balance the institutional weakness of climate and environmental policy in comparison to other climate-relevant policy areas such as transport, agriculture and structural policy.

The "double" rule contained in the Kyoto Protocol - the possibility of the reduction commitment being fulfilled Community-wide, coupled with the simultaneous responsibility of the EU Member States for national fulfilment of the obligations should the EU-wide reduction target not be reached - has strengthened Community climate policy. The danger of individual member states free-riding is reduced by this agreed division of responsibility, but cannot be completely excluded. EU partner states must have an interest in effective decision-making in the Community. In this way their tendency to reject target-oriented proposals from the Commission should diminish, at least in this direction.

The EU's common post-Kyoto climate policy will have to withstand its baptism by fire, if further questions of EU automobile policy have to be decided under the British presidency. Should the current efforts to reach a voluntary agreement with the Association of European Automobile Manufacturers on a workable limit to CO₂ emissions from motor vehicles continue to fail to be crowned with success, legal regulatory limits must be introduced, as has been proposed by Austria. The binding aim of 5 litres per 100km for vehicles which run on petrol, and 4.5 litres per 100km for diesel-run cars by the year 2005 will stimulate further the European automotive industry and will secure its competitive position on international markets well into the next century.

Given the possibility of a further blockade of tax rules at EU level due to the requirement of a consensus between all Member States on questions of tax policy, we continue to believe, as we did before Kyoto, that national action and continued joint action between similarly-minded European Member States are both necessary and promising. In the first half of 1999 Germany will assume the EU Presidency. Negotiations should be begun now with those states with exemplary climate-orientated tax policies in order to enable a common start on ecological tax reform, which could then be placed on the agenda of the German EU Presidency with a greater chance of success.

The planned introduction of the euro is a great challenge to European institutions and Member States, especially as regards employment policy. In this context the 1993 proposals from the then President of the Commission Jacques Delors, presented in the "White Paper on Growth, Competitiveness and Employment", gain new relevance. The White Paper emphasizes the idea of "double dividends", a greater integration of environmental goals into the policies of various economic sectors by means of ecological tax reform, increasing tax on resources and reducing labour costs. Climate policy is a classic example of the necessity for and economic advantage of such integration. At the same time it offers the chance to combine sustainable growth on the ever converging European market, which now consumes almost 65% of all exports of EU Member States, with both a higher level of employment and with the protection of the environment. Germany and the European Union should not miss this opportunity.

Edda Müller, Hermann Ott

Wupperal Institute for Climate, Environment and Energy

March 1998