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Trading Carbon : December - January 2011
Dec 2011/Jan 2012 www.pointcarbon.com 18 COVER STORY the ambition of procuring billions of dollars for South Africa from the Fund to finance, for example, South Africa's Nationally Appropriate Mitigation Actions (NAMAs) -- voluntary efforts to reduce or slow the growth of GHG emissions in developing countries -- that are still to be negotiated and agreed at the international level. However, the idea that the fund will be the panacea for climate finance flows is misguided. The best agreement on the GCF that is likely to emerge from the high-level UN climate change meeting in Durban, South Africa in December is around the Fund's structure and function and not how it will be financed. Currently, and notwithstanding certain commitments of finance that have been made by developed countries to the fund's coffers, the levels of finance currently available are nothing like the $30 billion between 2010 and 2012 or the $100 billion annually by 2020 that was committed by developed countries at UN meetings in Copenhagen, Denmark in 2009 and Cancun, Mexico in 2010. Coupled to this uncertainty is the EU position that advanced developing countries, including South Africa, should move to sectoral emission reductions rather than continuing on the path of project-based emissions reductions -- such as the CDM. Unfortunately, the EU's position ignores the fact that a move to sectoral emissions reductions will, of necessity, occur within the context of the ongoing climate change negotiations and it is unlikely that the Durban meeting will pay much attention to the issue of sectoral targets or how and when these may be achieved. In the absence of the CDM, or of relevant domestic regulation backed by investment from the GCF, this would mean that there would be no market-based incentive for the South African public and private sectors to reduce their GHG emissions. Not surprisingly, South African carbon market players are looking anxiously towards Durban. In the absence of access to the CDM market, South Africa stands to lose an existing and tested opportunity for implementing projects that can contribute to the country's transition to a low-carbon economy. These losses No CDM means SA loses a tested opportunity to help transition to a low-carbon economy Andrew Gilder, IMBEWU will extend beyond investment, to employment, technology transfer and importantly, energy supply. Considering all the challenges facing South Africa from a socioeconomic and energy perspective, it is imperative for the country to utilise all available avenues for development, including the CDM. Going into the Durban climate talks, South African officials may consider undertaking in the negotiations by representatives of non-LDCs in defence of the non- LDC component of the carbon market. Engaging with the EU and other players, such as Australia, on the potential offered by concluding bilateral agreements would ensure the eligibility of South African carbon in those markets. To date, India appears to be the only non-LDC that has announced its intention to take action on behalf of its share of the market -- by seeking bilateral agreements in this regard. It is not even clear that the relevant EU policy permits such bilateral arrangements, however, even if non-LDCs pursue the uncertain route of bilateral agreements it is likely that their finalisation will take some time during which period the abovementioned market uncertainty will continue to prevail. Without any clarity on EU ETS eligibility of CERs generated by CDM project activities located in non-LDCs, including South Africa, beyond 2012, then all investment in CDM projects outside of LDCs is likely to cease from December 2011 onwards. South Africa is urged to defend its nascent carbon market in the international arena and to take action to nurture and grow the market. South Africa should also seek to establish implementation mechanisms for new streams of climate finance within the elaborate processes of the climate negotiations. This might include solidifying the GCF, securing investment flows for NAMAs, and pushing Europe on establishing a robust sectoral crediting programme with eligibility into the EU ETS. South African climate negotiators well understand a subsequent and effective roll-out of these policies will take many years before any substantial market impact will materialise. Such hurdles notwithstanding, they may present the future for South Africa's continued progress toward a lower carbon economy. l Andrew Gilder leads the climate change and carbon markets practice at sustainability legal specialists IMBEWU in Johannesburg. Lodewijk Nell is director consultancy at carbon market speciailist EcoMetrix Africa in Johannesburg. Brett Jordaan is a vice president at international brokerage firm Evolution Markets in London Email: email@example.com, lodewijk.nell@ ecometrix.co.za and firstname.lastname@example.org Lodewijk Nell, EcoMetrix: SA should look for new climate fnance streams