CO2 Pact Leaves Businesses Feeling Up in the Air

By GUY CHAZAN
The agreement achieved at the Copenhagen climate summit leaves business leaders around the world close to where they began, facing uncertainty about how environmental policy will affect their costs and decisions about investments.
Companies around the world had hoped the United Nations-sponsored talks would bring clarity on the new rules of the game in a new low-carbon world. They have had to think again.

"It's very frustrating at this stage that we haven't got a more-comprehensive agreement," said Richard Gledhill, head of carbon markets at PricewaterhouseCoopers.
Much of the business elite in rich countries has already resigned itself to tighter restrictions on greenhouse gases. Companies in energy-intensive industries are already mapping out plans to drive down their emissions. Utility executives in the U.S. have been pouring money into lower-carbon technologies.
A legally binding treaty on emission cuts would have created a level playing field for clean energy, allowing it to compete on an equal footing with fossil fuels. No such deal emerged from the summit.
"If we'd had bankable emissions reduction targets for 2020, it would have given a stronger price signal for carbon," said Joan McNaughton, senior vice president, Power and Environment Policies, at Alstom Power SA, an engineering company which is a leader in clean coal. "That would have kick-started a lot of the needed investment in clean technology."
Steen Riisgaard, chief executive of Novozymes, a Danish biotech company, says he has the technology ready for second-generation biofuels. "But the deployment of that technology will not happen as fast as it would have had if there had been binding targets at Copenhagen," he said.
Advocates of cap-and-trade -- which lies at the heart of climate legislation now stuck in the U.S. Senate -- dream of a global network of emissions-trading systems that could one day link up. In their view that would give industry what it needs to make decisions about long-term investments -- a robust and stable price of carbon. But Copenhagen has set back those hopes.
Carbon trading is in its infancy. Europe's Emissions Trading Scheme is the world's largest market. If the U.S., the world's second-largest emitter after China, sets up its own system, that could help boost the global carbon market to $1.9 trillion by 2020, says New Carbon Finance, a London-based research firm.
But regulatory uncertainty in sectors like power generation has driven down the carbon price on Europe market, and it had its biggest fall in six months on Thursday -- nearly 5% -- and stayed at that level Friday. And now it is falling even lower. EU Allowances for December 2010, The benchmark contract fell 70 cents per tonne of CO2 Thursday, settling at 13.66 euros. They stayed at the same level Friday. It was the biggest fall in six months.
"We were hoping that a deal in Copenhagen would open up new opportunities for emissions trading," said Patrick Birley, head of the European Climate Exchange, one of Europe's main carbon marketplaces. That expectation has now faded, he says.
Some analysts think Friday's events could still stimulate carbon trading. Friday's deal "has somewhat of a market-stabilizing element," said Ben Feldman, an executive director in J.P. Morgan Chase & Co.'s environmental markets group. He said it indicates a commitment to the concept of emission reductions.
In recent months, utilities, oil and gas companies in North America have become more active in carbon offsets, even on a voluntary basis. In the third quarter, U.S. carbon-trading volume increased 8% from the second quarter in spite of falling prices, New Carbon Finance says.
"Even with Copenhagen not really coming up with any major, ground-breaking decisions, everyone realizes that some sort of climate action is coming, and they are trying to learn the market," said Anthony D'Agostino, director of emissions markets at Royal Bank of Canada.
In the clean-technology industry, executives said they weren't counting on a deal at Copenhagen. They said companies have been making investments in low-carbon technologies on their own, driven by factors like the rising cost of traditional power and increased subsidies for alternative energy at the state and local level.
"Copenhagen is important to help drive awareness of the issues, but the private sector has not been waiting for governments for solutions," said Dallas Kachan, managing director of the Cleantech Group, a market research firm in San Francisco. "They have been putting money into this for a long time."
With or without a strong Copenhagen agreement, many U.S. states will continue to shift toward lower-carbon fuels, said Michael Peevey, president of the California Public Utilities Commission, which regulates investor-owned electric, gas and water utilities in the state.
"California will continue on the path it's on, regardless," Mr. Peevey said.—Liam Pleven, Rebecca Smith and Jim Carlton contributed to this article.
Write to Guy Chazan at guy.chazan@wsj.com