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Implementation procedures

All institutions based on international cooperation face free riding by signatories who obtain the benefits of an international agreement while avoiding the costs by non-compliance. The likelihood that signatories to a Climate Change Convention might try to avoid meeting their commitments poses the question of monitoring, verification and enforcement of compliance.

Monitoring and verification

Analysts concur that a multi-gas agreement will be much harder to monitor and likely impossible to verify. Taxes, traceable permits, and abatement services all require monitoring to ensure that the terms and conditions of the scheme to fulfil commitments under a Climate Change Convention are being met. Monitoring, however, must be scientifically credible. Monitoring of nonCO₂ greenhouse gases such as methane from paddy fields or from diverse, mobile point sources such as cattle is not feasible due to the uncertainty as to emission rates. While rice production is relatively well known, methane emissions vary greatly with soil type, nutrients, light, and temperature. Estimates for rice paddy in Spain and Italy vary by more than 100 per cent.

Also, sinks for and terrestrial reservoirs of greenhouse gases must also be monitored, both to ensure that sinks endowed as property rights are maintained, and to verify any claims made as to additional carbon fixation. Yet rates of re- and de-forestation are highly contentious, and satellite-based remote sensing cannot yet provide adequate monitoring and verification of biotic carbon sinks. The deforestation rate in Brazil, for example, is highly controversial (estimates range by a factor of five). Similar arguments apply to other greenhouse gases such as nitrous oxide.

For all these reasons, therefore, I conclude that it is only meaningful to cost monitoring and verification of carbon dioxide released from fossil fuels at the outset of the implementation of the Convention.

In Chapter 5, however, I assumed that property rights are created in proportion to national carbon sinks that are the basis of determining permissible emissions in future years. It is possible to monitor and verify the status of the forest stocks and thus carbon reservoirs in those forests although it is not feasible to track the carbon flows to and from them. A monitoring system is feasible that would use remote sensing and in situ, ground-based validation to determine the fulfilment of commitments made to maintain or to expand these reservoirs. I assume, therefore, that biotic stocks of carbon will be included eventually under a protocol for monitoring and verification, although not the carbon emissions from these sources.

Verification is the international control of compliance with agreed measures and behaviour by means of tools and procedures agreed upon in an instrument of international law - for example, a protocol on compliance to a Climate Change Convention. Verification can be defined as having different densities depending upon the level of distrust between parties to the agreement and the technical difficulty of obtaining information with an adequate level of confidence on the other.

I assume that the verification procedures that are adopted in a verification protocol will be multilateral rather than bilateral in implementation (although they may rely heavily on national/unilateral monitoring and verification capabilities such as satellite systems). Assuming that all parties will be accorded equal treatment in the protocol, it is reasonable to suppose that all parties also will be subject to monitoring and verification by an implementing organization established under the Convention.

Nature of emission sources
Anthropogenic sources of CO₂ vary greatly with respect to characteristics that affect greatly their suitability for monitoring and verification. Some are stationary, emit copiously and continuously, and are suitable for direct, quantified monitoring. Power stations and large factories exemplify this type of emitter. Other sources are stationary and numerous but only emit intermittently very small quantities of gas. Fireplaces and open fires are typical. There are also very many mobile point sources that are sporadic emitters such as vehicles and livestock. Finally, there are very diffuse sources such as non-commercial fuels based on animal wastes.

Only the first category is suitable to direct monitoring and verification. There are, for example, well-developed techniques for determining gaseous emissions such as ultrasonic instruments in the off gas stack which measures the effluent density and velocity and thereby volume to within 3-5 per cent accuracy. The other sources all exhibit characteristics that would make information collection enormously onerous due to their number or the lack of observational methods.

Determining emissions
Good statistics are available for energy production and consumption balances for most countries. However, to convert these energy data to emissions on an international basis, energy balances must be made more complete and accurate, carbon content and conversion into emissions must be made more precise, and statistics must be collected according to consistent and compatible ground rules. The parties to the Convention must agree on the types of data, required disaggregation and detail, and common reporting rules for national reports. Fortunately, the Intergovernmental Panel on Climate Change has already produced a set of guidelines of this nature, which are being refined and updated. In particular, rules are needed to determine whether emissions are based on energy production or consumption. The latter is particularly problematic because of the difficulty of ascertaining conversion losses.

The implementing organization must be able to verify the accuracy of data such as ash content of coal or oxidation rates of conversion in power plants, etc. It cannot hope to collect the requisite data independently but only to analyse the data supplied by parties to the convention by cross-checking the reported fuel cycles and conversion to emissions with 'spot' cheeks including on-site visits to 'cheek the books' of very large, stationary emitters. In most nations, however, the latter checks would only cover 1-5 per cent of a given country's emissions. It is crucial to an effective greenhouse regime that verification be conducted routinely by subjecting national reports to independent, critical scrutiny and assessment, treated as an expert technical rather than political process.

A verification system that combines data analysis with spot checks would likely enable the implementing organization to detect an emission infringement of the Convention by a party that deviates 10 per cent or more from the party's commitments. Similarly, a verification system that uses remote satellite and air-based sensing with local inspections should be able to detect departures from declarations to maintain or to expand biotic carbon pools such as forest reserves, to within a five per cent deviation from commitment. (The verification protocol would have to define the ground resolution at which it requires monitoring, the calibration and interpretational rules to be followed, and the density of selective observation needed for confidence to exist that parties are complying with their commitments.)

Verification cost
The cost of the verification system will consist of the direct costs of the implementing organization engaged in checking the annual national reports of compliance and field inspections, plus the indirect costs of obtaining independent sources of information needed to cross-check national claims about emissions or the status of carbon stocks or sinks.

It is reasonable to assume that the implementing organization will not have to meet the capital or direct operating costs of remote sensing satellites. Rather, these costs will be covered in the budgets of the space agencies in Europe, Japan, and the United States which already pay for the huge cost of earth-observing satellites.

By way of comparison, the International Atomic Energy Agency's (IAEA) safeguards department currently consists of 450 persons including 190 field inspectors. The implementing organization for verifying a Climate Change Convention would probably require about twice as many staff given the much larger number of facilities to be visited and much broader international scope of the verification system compared with that applied in the nuclear field.

In 1987 the IAEA safeguards applied to about 230 tonnes of plutonium, 30,000 tonnes of enriched uranium, and 50,000 tonnes of depleted uranium, thorium or uranium. In 1983, the IAEA safeguards agreements applied to a total of 881 installations such as power reactors and other fuel cycle facilities. A carbon monitoring system will apply to billions of tonnes of fuels, and millions of hectares of forest at hundreds of thousands of sites a much bigger task.

The safeguards surveillance and materials balance inspectorate system for the sensitive nuclear materials run by the IAEA costs about US$30 million per year. The cost of a system that verifies compliance with a Climate Change Convention might therefore approach $100 million per year. It is doubtful that more than three times the IAEA's budget would be provided to the implementing organization at a time when the IAEA already finds it difficult to obtain funds for such a politically sensitive field of concern to great powers.

The source of the funds for the implementing organization and its activities would either be charges that follow the UN scale of payments or a special formula similar to that developed by the IAEA in 1971 (and later revised) that levies states on a per capita income basis (with a ceiling) and a cap on contributions by poor states.

Verification or confidence building?
The previous sections have argued that the greenhouse arena is characterized by complexity due to multiple gases (unless limited to carbon dioxide); an effectively infinite number of point and mobile pollution sources; mostly national information on energy use which is subject to distortion, withholding, and differing reliability, varying analytical methods, and underlying assumptions; reliance on extrapolation from existing energy statistics rather than new monitoring of greenhouse gas emissions; and a long lead time before an effective monitoring system and verification could be created.

In Chapter 5, I analysed three mechanisms to achieve agreed reductions and to fund the South's 'excess' incremental abatement costs: carbon taxes, traceable permits, and trade in abatement services. Each of these mechanisms poses different demands on a verification system. A carbon tax system, for example, requires that a baseline emission be set and updated each year to confirm that states are reducing emissions to agreed targets. A traceable permit system within an overall global emissions target demands that trading be monitored continuously in addition to establishing national emissions relative to an agreed baseline. Trade in abatement services requires that claimed reductions by one country actually have been achieved in another country. Monitoring compliance of such claims could be politically difficult for an international monitoring system.

In all three cases, achieving a high degree of certainty seems to require an extensive monitoring system and bureaucracy. Yet most states do not (yet) perceive the stakes in the greenhouse regime to demand monitoring and verification like that imposed on flows of special nuclear materials. Only a small international bureaucracy based on national reports and data cross-checking seems politically feasible at this time.

The history of international arms control and environmental agreements offers six important lessons for a greenhouse verification system. First, environmental costs and benefits do not accrue as fast as the costs and benefits of abandoning arms control agreements and the stakes are not perceived as central to the immediate security of the state nor (usually) to regime survival in that state. States may therefore be less demanding of a verification system for environmental agreements than in other domains. Moreover, when states coordinate because of self-interest, there is little reason to defect or cheat and little or no verification or enforcement is needed. If the costs of carbon abatement are as low as suggested in the studies reported in this book - at least for the first 20 per cent reduction and therefore the first decade or two of an agreement - then verification measures are needed mostly to build confidence in the regime rather than to raise the question of non-compliance and enforcement.

Second, it is inevitable and proper that enforcement responsibility will be lodged primarily at the same level as implementation responsibility, that is, within nation states. The bulk of the monitoring and verification should be conducted at this level, rather than internationally.

Third, most military control regimes were created in confrontational contexts under conditions of secrecy and with little or no participation. These characteristics led to many problems of implementation for arms control agreements. This experience implies that a greenhouse regime should strive for maximal transparency and openness, including a strong role for non-governmental organizations in monitoring compliance.

Fourth, some states have skillfully used verification issues in the past to block international agreements (most notoriously, the United States with regard to the Complete Test Ban Treaty). If the analysis in previous sections is correct, then this problem should not arise in the greenhouse gas arena.

Fifth, there are important precedents for monitoring and verifying international atmospheric agreements, at the regional level in Europe, and globally in ozone depletion convention. This experience should provide some good signposts for the greenhouse regime, especially for regional (in Europe) and subregional greenhouse gas agreements (in Northeast Asia) that could be developed to supplement a global greenhouse regime.

Sixth, the history of international monitoring and inspection of nuclear power provides some useful lessons. The IAEA's history suggests that an international secretariat should be created to audit national reports and ensure that they are bona fide, consistent and follow internationally recognized procedures. An independent technical committee could be appointed to define the reporting requirements of states to the parties to a Climate Change Convention. The same technical committee could also explore with states qualitative anomalies (such as refusal to allow an on-site inspection of emission rates or a claimed efficiency improvement) and quantitative discrepancies (such as inconsistencies between national reports and international statistics) that might arise from time to time.

Disputes and enforcement

Article 14 of the Convention states that disputes between parties should be settled by negotiation or by any peaceful means that they care to select, including arbitration by the International Court of Justice, and/or in accordance with procedures yet to be adopted by the parties to the treaty. Thus, the Convention provides little guidance as to what methods of dispute resolution should be incorporated into a protocol. It casts no light at all on the appropriate means of enforcing compliance with treaty commitments.

At a meeting in The Hague in 1989, twenty-four national leaders called for a 'new institutional authority' to set and implement environmental standards. Currently, however, only national institutions can implement standards authoritatively. Moreover, there is no compulsory dispute settlement jurisdiction relating to multilateral environmental regimes. Invariably, agreement by disputants is required before it is submitted to third party adjudication. The major stumbling block had been the socialist bloc rejection, and more recently, US rejection of compulsory third party arbitration.

In relation to disputes involving the failure of developing countries to comply with emission reduction targets, it would likely be highly counterproductive to try to enforce agreed targets by economic sanctions. These would worsen the very technological and economic difficulties that cripple many developing countries' ability to comply. It would also impose substantial costs on states that meet their commitments and thereby reduce the benefits to new signatories considering joining the Convention. Moreover, using the trade system to enforce climate change policies would likely prove to be unmanageable because every product and service that is traded internationally results in greenhouse gas emissions.

Consequently, alternatives to supranational regulation have emerged. States recognize each other's licensing rather than ceding licensing powers to an international authority. Such reciprocal recognition schemes operate in many areas including phytosanitary certificates for exports, shipping oil pollution prevention certificates, marine waste disposal permits, hazardous materials trade, and trade in endangered species. States also harmonize standards and standard-setting laws and procedures, often by adopting models from overseas. (For example, the environmental impact assessment, green labelling and pollution taxes).

Many states have also committed themselves, outside treaties, to providing early warning and notification, for example, with respect to banned chemicals, exchange of standards, or adjustments to trade-controlled items (such as endangered species). Regimes also create transnational networks of lower level 'operational' national officials who short-circuit hierarchical communications across boundaries, or who communicate directly with international organizations that may then reintroduce environmental information at much higher political levels in the same nation state. Such structures can defuse and even prevent disputes arising in the first place.

Non-adversarial techniques have also developed to resolve international disputes from escalating to interstate conflicts. Local legal challenges have been mounted across borders thereby achieving settlement without involving the states themselves. (In Europe and North America, this technique requires that legal systems grant status to foreign parties in local judicial or administrative procedures). The filing of complaints and the launching of infringement hearings are two other techniques that have been used (in the Montreal Protocol and in the European Economic Community, respectively).

Reporting requirements are also an important means of imposing national 'discipline' on treaty parties, especially when combined with international expert auditing and public debate in committees or annual conferences. Such procedures are already well developed in the occupational health and safety agreements administered by the International Labour Organisation. Similar procedures are used by the International Monetary Fund, and multilateral funding agencies also conduct national and sectoral audits as preconditions for or requirements of development loan agreements. Environmental auditing, however, has a weak tradition although the Montreal Protocol requires substantial reporting to permit monitoring of compliance and administration of various aspects of the agreement.

As noted earlier, it seems inevitable that the national reporting requirements of a Climate Change Convention will be the heart of a monitoring and verification system, and the key to effective enforcement through self-regulation. National reporting will the core confidence-building measure that will build widespread commitment to the regime. It can be supplemented by international auditing of the kind referred to above, but such reports (as occurs with the International Energy Agency reports) buttress only the normative power of domestic proponents of fulfilling treaty commitments and have no direct legal connotations.

These measures may be supplemented by other measures that increase the incentives of signatories to comply. Large emitters, for example, can offer to match the abatement of new signatories. They can also threaten to punish offenders by reducing their own abatement by as much or more than that of the defector, thereby reducing the benefits of free riding by increasing the costs of climate change. States can also lock in their own commitments so as to reduce the uncertainty facing potential signatories as to whether they will reap the benefits of reduced climate change.

Regional building blocks

A global greenhouse regime will take a decade or more to construct. Regional efforts will likely be the building blocks on which a global regime will be built.

In this section, I examine the potential of regional approaches for funding the incremental costs of developing countries. I follow this with a review of the hopeful trend toward sub-regional cooperation on climate change scientific research.

Regional greenhouse trade initiatives

Given the limited past experience with transfer schemes based on carbon taxes, traceable permits, or the sale of abatement services, it is unlikely that they will successfully commence quickly. It is more likely that these schemes will be tested first in national and regional experiments. In this section, l examine the potential for such a scheme in the Asian Pacific region.

In many situations, regional cooperation may be more cost-effective than national initiatives in abating greenhouse emissions due to expansion of available resources of technology and information, economies of scale achieved through trade, and reduction in information and administrative costs. There is no doubt that immense scope exists in the Asia Pacific region for improving energy efficiency and reducing greenhouse emissions. One Asian Development Bank survey (based on 160 energy audits in Thailand, the Philippines, and South Korea) found that energy savings were economically justified in most industry groups.

In Thailand, energy savings of 12-13 per cent were found to be justified except for chemicals and non-metallic products where the potential was much higher. In the Philippines, energy savings of 18 per cent in industry were identified plus another 16 per cent potential by substituting natural gas and biomass for oil. And in Korea, energy savings were found to be 5.5 per cent with big potential in kilns and furnaces and additional potential for cogeneration and district heating.

In Table 14.1, I show the cumulative projected emissions, required reductions, and incremental abatement cost (calculated at the high marginal cost schedule) for four major industrial and three major developing countries in Asia Pacific in 1995, 1995-200415, and 1995-2024/5 as calculated in Chapter 5. The industrial countries have about forty per cent more projected cumulative emissions over the scenario's thirty year period, but are responsible for about three times as much required reduction as the developing countries. Because the industrial countries quickly move to the higher echelons of marginal abatement cost, they also spend much more on abatement than the developing countries over the same period. These figures indicate that markets in traceable permits and abatement services could emerge quickly in the Asia Pacific region as the industrial and developing countries appear to have complementary capabilities and needs that could reduce the cost of abatement in the North while transferring substantial resources to the South.

In Indonesia, for example, the institutional capability to sell abatement services sought by overseas firms or utilities already exists. KONEBA, a quasi-private firm established by firms in the fertilizer sector backed by a World Bank loan, is marketing shared energy savings contracts with firms in the large industrial and commercial sector. KONEBA is also seeking energy efficiency contracts in Sri Lanka, the Philippines, and Malaysia.

Table 14.1 Asia-Pacific regional carbon abatement services trade potential

Millions of current dollars, not present valued
Part C uses incremental cost calculated with the Nordhaus marginal cost curve

In China, key industries such as iron and steel, aluminum, brick-making, glass and ammonia are very energy inefficient, as are buildings and cooking stoves. One analyst estimates that a 30 per cent reduction in projected energy use can be achieved by 2025. Major increases in energy efficiency will require replacement rather than retrofit of existing and obsolete equipment. Yet China lacks foreign exchange, has unreliable supplies of more efficient fuels such as diesel, operates at small scales of production due to poor transport infrastructure and decentralized economic activity, and accords a low priority to maintenance and repair of equipment that are crucial to energy efficient operations. China has an especially irrational energy price structure that, as the World Bank puts it, appears to be used 'primarily to generate and distribute revenues rather than to influence supply and demand.' China also requires externally funded projects to generate foreign exchange to repay the loans. Projects that increase energy efficiency do so indirectly if they reduce oil use allowing increased oil exports, but crediting the energy efficiency project with the foreign exchange earning will require China to adjust its internal procedures.

These practical obstacles imply that emission abatement programmes in China will have to cast a very wide net in order to address the real constraints on improving energy efficiency and shifting from coal to natural gas. Fortunately, China is one developing country that gives a high priority to energy efficiency. The Energy Conservation Company of the State Energy Investment Corporation spends about $300 million per year to provide project matching funds and technical advice through 156 energy management centres with 5,000 employees at the state and regional levels.

Yet China has limited ability to substitute natural gas for coal. Nuclear power and hydroelectricity are both site-constrained. China already invests about 10 per cent of total public investment in the energy sector into efficiency. The Asian Development Bank is preparing a major loan project to follow up its technical assistance project on energy efficiency in China (funded by Japan and matched by the UN Development Programme).

Projects could be undertaken through existing bilateral and multilateral channels to reorient traditional lending practices. China, for example, purchased cast-off Japanese factories to make highly inefficient appliances such as refrigerators in China - equipment that will require many extra power plants that will cost China much more than it would have to buy factories to make efficient appliances. A compact fluorescent lamp factory provides energy at about one tenth the cost of a new power plant - yet donors find it much easier to package and fund gigawatt size power plants than they do energy efficiency projects.

Greenhouse initiatives at a regional level must be sensitive above all to local conditions. The islands of Asia Pacific, for example, have very different energy economies and needs to those of the big Asian states. The islands are greatly dependent on oil for commercial energy although some also use substantial quantities of fuelwood. One cost-effective and culturally appropriate measure in many of the island microstates will be to engage in coastal reforestation and agro-forestry projects based on indigenous plants of high cultural utility to Pacific islanders.

Regional efforts are also needed to enhance the flow of technology transfer. Regional trade liberalization, for example, may stimulate competition that increases the transfer of energy efficient technology. In Thailand, for example, local refrigerator manufacturers have been locked into using inefficient and obsolete compressors made by a Thai-Australian joint venture that licensed technology from a US firm by high duties and bans on imported compressors. When another firm finally received permission to make a decade-old Japanese compressor, the Thai-Australian joint venture introduced a more recent US compressor. Increased competition thereby improved compressor efficiency in Thailand by 15-20 per cent.

Public and private initiatives to explore the potential for firms and utilities to undertake abatement projects in developing countries of Asia and the Pacific are needed urgently to demonstrate the viability of such activities. A state level utility in Australia, for example, could approach a counterpart in Asia, and then propose to part-fund an abatement project which would be credited to Australia's own national abatement in the Climate Change Convention. The project partners could seek third party private financing, and approach the World Bank/UNDP Global Environment Facility for support. Innovative financing mechanisms such as the Australian utility buying discounted private debt owned by a country like the Philippines could be used to finance the domestic costs of the abatement project.

The Asian Development Bank would act as honest broker, identifying the potential projects, preparing the loan documents, arranging for private cofinancing, and monitoring and evaluating performance. The maxim 'first in, first served' will play powerfully in emerging markets for traceable permits and abatement services.

Potential for sub-regional collaboration

Regional approaches may be attractive and productive for reasons other than the minimizing of cost. Because greenhouse gases are universal on the one hand, and because adjoining countries share common features and interests on the other, a regional programme on climate change may both facilitate the implementation of the Convention and foster regional cooperation. In Northeast Asia, for example, a regional environmental consultative forum is likely to be established in 1993. Initial steps to create this forum became possible in mid-1990 when the Cold War began to thaw rapidly. It will likely encompass climate change issues as well as regional oceans management, resource management, environmental technology research and development, standards, and so on.

Of course, the six nations of Northeast Asia already cooperate on some environmental issues, but mostly on a bilateral basis. The South Korean Forestry Research Institute, for example, is establishing formal cooperative arrangements with its Chinese counterpart in the Chinese Academy of Sciences. The North Korean Academy of Sciences has long cooperated with Chinese institutes. And the Mongolian Academy of Sciences has conducted collaborative research with the Chinese Academy on grasslands ecology and desertification. None of these efforts cover the whole sub-region, however.

The UN Development Programme is the only existing sub-regional cooperative framework that includes all the regional states. It has subregional programmes on transboundary acid rain, clean coal technology, new and renewable sources of energy, and the development of the Tumen River area, all of which are salient to the greenhouse gas issue. But these activities are still at an early stage of development and offer little that contributes directly to regional activity on the greenhouse gas issue.

A sub-regional climate change programme could address a variety of greenhouse related issues. Acid rain fallout, for example, affects carbon emissions/sinks. Acid rain from coal burning is transported from Manchuria and North Korea onto Japan and South Korea; and from Russia onto Mongolia. Methane emissions from the production and use of coal is another possible research priority in Mongolia, and North and South Korea. China has substantial experience in methane monitoring from coal mining and from rice paddy fields, and could provide expertise and share surplus equipment with other countries in the region.

Perhaps the most inclusive, urgent, and long term of all the tasks relates to the need to conduct regional climate modelling in Northeast Asia. All the developing countries in the region lack the basic capability to generate scenarios of climate change impact on which to base adaptation studies and national response strategies which parties to the Convention are obliged to produce. At this time, global circulation models offer poor resolution for Northeast Asia, let alone for a single country. Nations in the region are reduced to relying on qualitative scenarios of climate change with consequent uncertainty as to the range of possible costs and benefits of climate change to which they must respond.

A regional effort to develop a regional climate model is therefore an urgent priority. Such project would nest a regional model within existing global circulation models rather than attempting the extremely costly exercise of building a new global model for use within the region from scratch. The choice of regional climate modelling parameters, the data requirements to validate the model, the interpretation of the model's results, etc. are all items that require a regional rather than a national approach.

The United Nations Development Programme could convene a regional scientific collaboration along these lines that would:

1 create a regional scientific advisory board for this activity;
2 identify a regional network of collaborating institutional and scientific participants
3 convene a planning session to identify the appropriate scientific approach to the various tasks;
4 develop a detailed budget for the work for both short and long term work.

Such joint work could lay the groundwork for a regional climate centre, as has been proposed by the Academy of Sciences in Beijing. A regional climate change centre in Latin America, and a regional scientific network on climate change scientific cooperation in Southeast Asia - both of which are in advanced planning stages - provide two models from other regions that could be drawn upon in Northeast Asia.

Thus far, I have analysed the arrangements for building confidence in the greenhouse regime and the major difficulties pertaining to resource and technology transfer for greenhouse-related activities. In the next section, I explore the extent to which the North-South conflict may affect the ability of parties to the Convention to negotiate meaningful protocols. The North-South stand-off has been institutionalized since 1964 when the UN Conference on Trade and Development (UNCTAD) was established. Is it really possible to erect a global greenhouse regime in spite of North-South antagonism as to the nature of aid, the terms of trade, and technology transfer? To what extent does a global environmental issue such as climate change portend the emergence of a new organizing principle of interstate relations on a par with geopolitical and geoeconomic concerns? Is geoecology on the international agenda?

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