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Hot topics Global warming and climate change COP17 and what it means for business Q: What is COP17? A: The United Nations Framework Convention on Climate Change (UNFCCC or FCCC), ‘the convention’, is an international environmental treaty that was produced at the United Nations Conference on Environment and Development (UNCED) (informally known as the Earth Summit) in Rio de Janeiro in 1992. The convention aims to stabilise greenhouse gas concentrations in the atmosphere at a level that would prevent human activity from causing dangerous interference with the climate system – commonly believed to be around 2°C above the pre-industrial global average temperature. In its original form, the convention set no mandatory limits on greenhouse gas emissions for individual nations and contained no enforcement provisions. It is therefore considered legally non-binding. The convention did, however, include provisions for updates (known as protocols) that would set mandatory emission limits. The principal update is the Kyoto Protocol adopted in 1997. Since the UNFCCC came into force, the Conference of the Parties (COP) to the UNFCCC has been meeting annually to assess progress in dealing with climate change. Countries who sign up to the UNFCCC are known as ‘parties’. There are currently 192 signed up parties. The COP adopts decisions and resolutions, published in reports of the COP. Successive decisions taken by the COP make up a detailed set of rules for practical and effective implementation of the convention. COP17 – Durban – 28 November to 9 December The United Nations Climate Change Conference in Durban will bring together representatives of the world’s governments, international organisations and civil society. The discussions will seek to advance the implementation of the Convention and the Kyoto Protocol, as well as other plans and agreements reached at previous COP conferences Principles underlying the UNFCCC A key element of the UNFCCC is that parties should act to protect the climate system ‘on the basis of equality and in accordance with their common but differentiated responsibilities and respective capabilities’. The principle of ‘common but differentiated responsibility’ comprises two fundamental duties: • A common responsibility of parties to protect the environment, or parts of it, at the national, regional and global levels; and • The need to take into account the different circumstances, particularly each party’s contribution to the problem and its ability to prevent, reduce and control the threat. Another element underpinning the UNFCCC is the polluter pays principle. This means that the party responsible for producing pollution is responsible for paying for the damage done to the natural environment. Q: Why is the Kyoto Protocol important? A: The Kyoto Protocol is an international agreement linked to the UNFCCC. The major feature of the Kyoto Protocol is that it sets binding targets for 37 industrialised countries and the European community for reducing greenhouse gas (GHG) emissions .These amount to an average of 5% against 1990 levels over the five-year period 2008-2012. Under the protocol, countries’ actual emissions have to be monitored and precise records have to be kept. Recognising that developed countries are principally responsible for the current high levels of GHG emissions in the atmosphere as a result of more than 150 years of industrial activity, the protocol places a heavier burden on developed nations under the principle of ‘common but differentiated responsibilities’. Under the protocol, countries must meet their targets primarily through national measures. However, it offers them an additional means of meeting their targets by way of three market-based mechanisms: • Emissions trading; • Clean development mechanism; and • Joint implementation. These mechanisms are aimed at helping to stimulate green investment and helping parties to meet their emission targets in a cost-effective way. Key terms Emissions trading The Kyoto Protocol allows countries that have emission units to spare (emissions permitted them but not used) to sell this excess capacity to countries that are over their targets. This creates a new commodity in the form of emission reductions or removals. Since carbon dioxide is the principal greenhouse gas, people speak simply of trading in carbon. Carbon is now tracked and traded like any other commodity in what is known as the ‘carbon market’. Clean development mechanism (CDM) The CDM allows a country with an emission-reduction or emission-limitation commitment under the Kyoto Protocol to implement emission-reduction projects in developing countries. Such projects can earn saleable certified emission reduction (CER) credits, each equivalent to one tonne of CO2, which can be counted towards meeting Kyoto targets. The mechanism is seen by many as a trailblazer as it is the first global, environmental investment and credit scheme of its kind, providing a standardised emissions offset instrument in the form of CERs. Joint implementation (JI) This mechanism allows a country with an emission reduction or limitation commitment under the Kyoto Protocol (Annex B party) to earn emission reduction units (ERUs) from an emission-reduction or emission removal project in another Annex B party, each equivalent to one tonne of CO2, which can be counted towards meeting its Kyoto target. Joint implementation offers parties a flexible and cost-efficient means of fulfilling a part of their Kyoto commitments, while the host party benefits from foreign investment and technology transfer. The Kyoto Protocol, like the UNFCCC, is designed to assist countries in adapting to the adverse effects of climate change. It facilitates the development and deployment of interventions that can help increase resilience to the impacts of climate change. The Adaptation Fund was established to finance adaptation projects and programmes in developing countries that are parties to the Kyoto Protocol. The fund is financed mainly by the proceeds of CDM projects. Significance of the Durban Conference Since the initial commitment period for the Kyoto Protocol ends in 2012, a primary focus of COP 17 will be to negotiate and ratify a new global climate change framework that can deliver the emission reductions that are needed to meet the targets set out in the convention. Q: How is South Africa preparing for COP 17? A: Government The Minister of Water and Environmental Affairs, Edna Molewa, committed to engaging all South Africans and specifically business in formulating South Africa’s negotiating positions for COP17, at a series of meeting held in April 2011. The Minister said she hoped to raise the general awareness of all South Africans around climate change and has challenged business and public interest groups to assist in this mobilisation. South Africa’s response to climate change has two objectives: • To make a fair contribution to the global effort to stabilise greenhouse gas concentrations so as to ensure that average global temperature do not increase to dangerous levels; and • To effectively manage unavoidable climate change impacts through interventions that build and sustain South Africa’s social, economic and environmental resilience and emergency response capacity. The global response to climate change is guided by the UNFCCC and the Kyoto Protocol. South Africa has committed to engage in the UNFCCC with a view to securing a binding, multilateral international agreement that is inclusive, fair and effective in dealing with climate change. South Africa has taken the position that the international regime should balance priorities between adaptation and mitigation responses, striking an appropriate balance between development and climate responses that recognise the development needs of developing countries. The Department of Environmental Affairs (DEA) released the National Climate Change Response White Paper in October 2011. The White Paper will inform the country’s climate change policy and the DEA has indicated that it will put forward a legislative, regulatory and fiscal package dealing with climate change by 2012. The policy statement in the White Paper states that South Africa will ensure ‘the prioritisation of mitigation interventions that significantly contribute to a peak, plateau and decline emission trajectory, where greenhouse gas (GHG) emissions peak in 2020 to 2025 at 34% and 42% respectively below a business as usual baseline, plateau to 2035 and begin declining in absolute terms from 2036 onwards’. Business Organised business’ preparation for COP17 have been spearheaded by the National Business Initiative (NBI), a voluntary group of leading national and multi-national companies, working together towards sustainable growth and development in South. In preparation for the Durban conference, the COP17 CEO Business Forum was established in March 2011 as a vehicle for businesses in South Africa to become directly engaged in climate change mitigation and adaptation. The forum comprises the chief executive officers of 40 companies, including leading JSElisted companies and state-owned enterprises. These include Impala Platinum, Eskom and Sasol, whose CEOs also jointly chair the forum. The main objectives of the forum are: • To improve knowledge about climate change; • To become active in policy discussions and partner more closely with the Government in tackling climate change. In so doing, the forum aims to ensure that as South Africa transitions to a low-carbon economy, the country increases its competitiveness and creates new industries and jobs; and • To ensure that COP17 is a successful event. The forum was established as a short-term initiative in the build-up to COP17 and will be disbanded after the conference is concluded. Given its limited window of opportunity, the forum has set boundaries to its activities. Its main undertaking is to engage with government structures such as the DEA and National Treasury on policies such as the National Climate Change Response White Paper and the carbon tax proposals. While the creation of the forum reflects the growing seriousness with which business leaders in South Africa are viewing climate change, what has been lacking is representation of and engagement with SMMEs, which, according to the Government account for more than half of national gross domestic product. Since the forum will not exist after COP17, this is an issue that will need to be taken up by entities such as the National Business Initiative and Business Unity South Africa. Meanwhile, the NBI presented its draft plan for COP 17 at the end of May 2011, summarised below: Core purpose of business engagement in COP17 To show the commitment of South African business and promote the efforts of South African business in reducing the impact of climate change by: • Building confidence in business and attracting international investment; • Establishing trust between South African business and the South African Government; and • Fostering a sense that solving climate change is going to need the collective effort of all stakeholders. Feedback on this plan included suggestions to: • Show that South African business is committed to preventing climate change by showing what it is doing and pointing out the gaps; • Showcasing the fat that business in South Africa recognises it’s role in being part of a solution in which many stakeholders need to collaborate; • Highligh the fact that business is capable of and is working to solve the problem of climate change, but that it also needs time and incentives to achieve this; and • Emphasise the need to support business with its socioeconomic obligations in relation to climate change. Q: What are the key themes being spoken about at COP 17? A: Based on our discussions with role-players and PWC globally, the following topics are anticipated to be a focus at COP 17: • Green tax; • Green finance; • Green economy; • Green energy; and PwC contacts • Green agriculture and land use Lookout for more PwC thought leadership on these topics in the coming months. Q: What opportunities are there for business? A: COP17 offers opportunities for South African business to: • Enhance understanding and awareness of the climate change issue and negotiations; • Interact with SA government around negotiating issues – be part of the solution; • Interact with key players across sectors; • Interact with international business organisations and companies; and • Showcase South African businesses’ work around climate change. Jayne Mammatt Climate Change Project Lead +27 (11) 797 4128 [email protected] Chantal van der Watt Climate Change Project Support +27 (11) 797 5541 [email protected] Kyle Mandy Tax and Climate Change +27 (11) 797 4977 [email protected] Luther Erasmus Water and Agriculture +27 (11) 797 4106 [email protected] Kasief Isaacs Renewable Energy +27 (21) 529 2741 [email protected] pwc.com/za © 2011 PricewaterhouseCoopers Inc. All rights reserved. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Inc, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information.