New Paradigm of Low New Paradigm of Low Carbon DevelopmentCarbon Development

Rae kwon ChungClimate Change Ambassador

Republic of Korea

Story of Three Myths

Climate Action (CA): Bad for EconomyTarget: only way for Emission ReductionNot Enough Money/Technology for CA

Climate Action: Good for EconomyE R: Possible without Target Enough Money/Technology for CA

Story of Low Carbon Parad

High Carbon Paradigm:Energy, Growth, Climate Nexus

Cheap Fossil Fuel

Low Energy Efficien

Vul To high oil price

High Fossil Fuel Depend

Vul to Climate Change

Economivulner-ability

Ecologic vulnerability

MDG in dangerUnsustainable Growth

Low Carbon Paradigm

• High Energy Efficiency Saving Energy Costs Energy Security against High Oil Price Improve Industrial Performance Sustain Economic Growth

• Low Fossil Fuel Dependency Reducing GHG Emissions Reducing vulnerability to Climate Change Improving Ecologic

al Sustainability• Economic Growth + Ecological Sustainability Green Growth • Turn Vicious Cycle to Virtuous Cycle

Paradigm Shift from High to

Low Carbon Paradigm

Climate Action = Energy Security

• Especially When Oil is 130 USD per Barrel

• Climate Action Improving Energy Efficiency

Improving Energy Security • High Oil Price is making Climate

Action not only Ecological action but Economic Action

CA Bad for Economy ?

• Internalize Ecological Costs Improves Energy Efficiency Strengthen Competitiveness Encourage R&D, Create New Market, Employment, Growth• Countries with High Energy Price High Energy Efficiency

Then Why Resist ?

• Positive Results: Long-Term• Afraid of Short-Term Burden/Costs• Key: How to close Long-term/Short-

Term Gap ?• Need Policy Support to Minimize Short-Term Burden to Maximize Long-Term Gains

Because We do not know yet

• Whether decoupling could happen in DCs• Low Carbon Development: still vision, • Decoupling only happens in rich countries• Korea: 75-06, GDP increased 7.5 times Energy Consumption 7.4 times• We need Low Carbon Economics: that can make decoupling happen in DCs.

A/P Can not repeat

Quantity of Growth

Quantity of Growth

Grow First, Clean Up

Later

Grow First, Clean Up

Later

Market Cost Efficiency

Green Green GrowthGrowthGreen Green

GrowthGrowthQuality of Quality of

GrowthGrowthQuality of Quality of

GrowthGrowth

A/P 새로운 성장 패턴

Eco-efficiency

Asia & Pacific Asia & Pacific

• High Growth

• 2/3 of world poor

• 1.5 times population density

• 34% of global GHG emission

• Lowest ecological carrying capacity

Ecological Status of Global Economy

• Deepening Ecological Deficit– Footprint is surpassing Biocapacity

Unmet basic needs… need Unmet basic needs… need for further economic growthfor further economic growth

• 600 million without safe drinking water • 1.9 without sanitation• 800 million without electricity • Still need rapid economic growth

Asia-Pacific situation

Limited Carrying capacity

A/P has to change “Growth Pattern”

• To attain

• MDG 1 (poverty reduction)

• MDG 7 (environmental sustainability)

at the same time

Paradigm Shift from

•Quantity of GDP to Quality of GDP

• Ecological Quality• Economic Quality• Social Quality

Current Paradigm: MCE

• Market Cost Efficiency: market price

• Market Price < Ecological Price • Market Cost Efficiency (MCE) <

Ecological Cost Efficiency (ECE)•Gap between MCE & ECE has to

be closed

Need to shift from MCE to Ecological Efficiency (EE) •EE: Key Concept of

Green Growth•EE is Internalize Ecological Cost Maximize Resource EfficiencyMinimize Pollution Impact

EE of Economic Growth

•Different Pattern of Growth • Japan> EU > US• In Asia: Singapore

Different Patterns of Growth

(global hectares per capita, 2003)

Examples of Eco-Efficiency

• Japan: rail based transport system • Singapore: private car control • London: congestion charge• Norway: Road Pricing, ban

shopping mall • Failure of EE: Traffic Congestion

Costs Japan 0.79%, US 0.65%, UK 1.25%, Bangkok 6%, Korea 3%

Basis for Eco-Efficiency

1. Price-structure: close gap between market

Price & Ecological Price

* Invisible Infra of society

2. Infra-structure: Frame of Economic

Performance * Visible Infra of society

Policy Tool for Eco-Efficiency

•Eco-Tax Reform: Tax Base, Income Carbon•Sustainable Infra: Transport •Demand-side Management•Green Business Promotion•Climate Action

Eco-Tax Reform Tax Base: Income

Tax Base: Carbon

Income Tax

Carbon Tax

•

Carbon Tax

Changing Tax Base

Income Tax

Double Dividend

•1 stone 2 birds

•Reducing GHG Emissions•Promoting Growth

Demand-side Management

• As Income level rises, consumption will place major pressure on CO₂emission

• Deteriorating EE of Consumption• Consumer Acceptance: Key• Congestion charge, Road Pricing

Climate Change

• Market Failure (MF): Stern ReviewNeed invest 1-2% of Global GDP If not, global GDP will be lower 5-20%

• From GG perspective: EE Failure

• GG Ultimate answer to Climate Change

• Low Carbon Paradigm: one of the tools for GG/EE

United Nations Economic and Social Commission for Asia and the United Nations Economic and Social Commission for Asia and the PacificPacific

EE & Carbon Intensity

• Ecological Efficiency GG• Low Carbon Intensity (LCI) LC Dev. • EE: improving efficiency of Power

plants• LCI: switching Coal-fired power

station to Gas-fired one

3 myths of Climate Regime

• Target is Good. No Target is Bad.• “Binding” is better than “Voluntary”• “Binding Target” is the only option to

reduce Global Emission. - placing a far greater role on Government over Market (Finance, TT)

2 Cases of Target

• When BAU

(ANNEX 1)• When BAU

(Non-Annex1)

Fixed/Absolute/Binding Target

•When BAU : Feasible •When BAU : Not Feasible

- Uncertainty of Projection - Difficulty of Agreement•Hot Air / Growth Capping

Flexible/Relative/Voluntary Target

•Target: Indicative Goal, Political Will

•Driver of Short Term Action•Pledge & Review: adjustable to

changing circumstances

When target has limited role?When target has limited role?

•MRV (Measurable, Reportable and Verifiable) actions of NA-1: Need Incentives

•Market Mechanism could play key role in providing Incentives.

In designing Post-2012 In designing Post-2012

• Need Market and Private Sector Dynamism• Improve Commercial Viability of Investment • What is lacking is not money and

technology In fact we have too much money and enough technology.

• Once we can design a mechanism which can improve commercial viability of mitigation investment money & tech will flow

to Mitigation

DC: “Unilateral Actions”DC: “Unilateral Actions”• China & DCs: already taking significant m

itigation actions • China: 20% energy efficiency target, has to be recognized & incentivized

It is not fair to say that China does not have a target. It already has.

• Nicklaus Stern: Key Elements for Global Deal for CC, incentive for DCs

as Carbon Credit for mitigation

Unilateral Developing Country Unilateral Developing Country Actions Compared to US and Actions Compared to US and

EU EU

• Reductions from BAU (CCAP)

1638 1687

2029

2582

MM

TC

O2e

US Lieberman-Warner in 2015 EU-27 -30% Target in 2020

China, Brazil, and Mexico's Unilateral Actions US Lieberman-Warner in 2020

EU 3

Lieberman-Warner (2015)

EU 30% target

China, Brazil, & Mexico

Lieberman-Warner (2020)

Cost Cost of 1 ton COof 1 ton CO₂Reduction₂Reduction

• CO2 ER per ton (USD): 234 Japan, 153 USA, 198 Europe.

• a few dollars to 20 or 30 $ per ton in developing countries (less than 20 $ in China) Asia-Pacific Integrated Model (AIM), Japan

• Cost Differential: can make ER investment in DC commercially viable: drive market mechanism

Barrier for Market Mechanism

• Political Ideology: Supplementarity Principle Reduce in your country

Is it necessary ? To what extent ???• Additional Burden on Annex 1 ??? it depends on design of Climate Regime• If Supplementarity Principle is relaxed, reduces burden on Annex1 & enables Deeper Cut/Deeper Global Net Reduction

Original CDM Design•Annex 1 Compliance Mechanism

– Political (Not Market) Mechanism– Supplementarity Principle:– CDM: loophole of A-1 Compliance

Restrict CDM As Much As Possible Impose Additionality Criteria:Technical, Project, Financial Additionality

CDM has to be redesigned as market incentive mechanism

Evolution of CDM DesignEvolution of CDM Design

• From Compliance to Market Mechanism • Bilateral to Unilateral CDM:

– A-1: Investing in NA-1 to generate CER (B/CDM) – A-1: Buying CER from NA-1 (U/CDM)– Proposed in 2000 at COP 6, Approved in 2005– Strong opposition: G-77(China,India), EU

• U/CDM: incentive for investment in mitigation projects in NA-1, about 70% U/CDM

Still Half Way:Still Half Way:

• Original Bilateral CDM: Political Mechanism• U/CDM: Hybrid of Political / Market Mechanism

– Still Same Additionality Criteria: restricting project scope• CDM: yet very limited incentive for investment in mitiga

tion in NA-1– Need to remove project & financial additionality criteria, but

maintain Technical Baseline strict

Key Issues for Post-2012Key Issues for Post-2012

• For Developing Country: How to design finance & technology transfer mechanism?– Current Debate focusing on the role

of Governments of Annex 1:Not Realistic

• For Investor: How to improve commercial viability of investment for mitigation?

What is NAMA ?

• Nationally Appropriate Mitigation Actions (NAMA)

by developing country parties, supported and enabled by technology, financing and capacity-building, in a MRV (Measurable, Reportable, Verifiable) manner

- Bali Action Plan Decision 1/COP 13, Para. 1.(b).(ii)

If Credit is awarded to NAMA

• Mitigation initiated even without Finance & Technology (e.g. Unilateral CDM)

• Commercial Viability will be improved Fin & Tech flow will be scaled-up• Global Mitigation Cost could be reduced• Annex 1 could take deeper target • Mitigation will be driven by market

dynamism/ Private Sector.

With credit for NAMA

• Global Carbon Market will function as Fin & Tech Transfer Mechanism

• DCs can initiate mitigation while pursuing Low Carbon Development (GG)

• Certain share of proceeds can be allocated to Adaptation Fund,

then 4 key issues of Bali Roadmap positively addressed

How to Operationalize NAMA?

• Demand Side: need buyer of credit Annex 1: deeper target • Supply Side: Wholesale approach for CDM, prog

rammatic and sectoral CDM Can build on existing rules of CDMTotal cost of Global Mitigation: reduced

Carbon Intensity (CI)

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

Related Issues

• Additional Deeper Cut: Additional Financial burden?

Better than Fund or Bond • Carbon Trade: only carbon

offsetting? No.• How to balance supply and demand?Needs study (price differentiation,

CER Discounting etc.)

How to negotiate NAMA?

• Agree on principle by 2009Work out details after 2009 as was CDM

• Scope and Extent of Credit & Modality is open to negotiation

• Carbon Intensity of Sectors: can be applied to sectoral approach

Another Idea of Market Another Idea of Market MechanismMechanism

• Reform & Expand CDM Scope: removing Project & Financial Additionality but maintain Technical Additionality

• Enhance and Wholesale CDM: Lord Nicklaus Stern

• Multiply CER for Solar & Wind

Climate Regime after 2012Climate Regime after 2012

• A-1: Deeper Target (more than potential domestic red

uction) to create demand for carbon credit from NA-1, Fin & Tech Transfer • NA-1: Incentive Mechanism through Carbon Market

Mechanism (NAMA Credit)

Mixed with Soft Target (Vol, Pldge & Review)

Net Global Reduction ?Net Global Reduction ?

• CDM: Emission Shifting (Carbon Offset) Mechanism Not Global Emission Reduction Mechanism

• But if we Discount CER: Then CDM can function as

Mechanism for Net Global Reduction Mechanism without imposing target on NA-1

• CER Discount: CER price stabilization & Net Global Reduction

UER/CER DiscountingUER/CER Discounting

Carbon Credit

NoReduction

Carbon Credit

Sold

Unsold

Net Global Reduction

How About Korea ?

• Early Mover/Bridging Role• Set Mid-term Target for 2020: to be announced by next year• Pledge & Review: Adjustable/ /relative/ volunt

ary target• Post-2012: Recognize vol target/ Incentive for

Mitigation Action • East Asia Climate Partnership:

East Asia Climate Partnership

• Vision: Low Carbon Development Strategy Common Challenge of Harmonizing Growth & Climate• 200 Million USD for 5 years• Policy Forum: launching early next year• Technology & Finance Cooperation• Pilot Projects

Climate Change

• Need “Beyond GDP Paradigm”• “Low Carbon Paradigm” Need to change the way we live/new value: Happiness/Quality of life/ Motainai (Japan) Sufficiency Economy (Thailand)

Climate Change

• Not just an ecological issue• Issue of changing lifestyle • If we just try to maximize GDP, we

will end up with shrinking GDP (Stern Review)

• If we focus on quality of GDP, then actual GDP will be even bigger

West

East

Happiness EquationHappiness Equation

Happiness =

GDP

Desire

New AsianConsumerism

New WesternConsumerism