Thursday, 4 February 2010

Plugging the holes left by Copenhagen

Without a binding deal on climate change, countries need to find ways to bring carbon emissions under control before it is too late
Edward Fennell
The Copenhagen climate change summit was a classic adolescents’ house party. Over-anticipation, chaos, gate-crashers and then the tears and disappointment when the grown-ups arrived to bring it all to an end.
Now it’s time to pick up the pieces. Last weekend marked the deadline for governments to reaffirm their commitment to the agreement reached at Copenhagen and, by Sunday, 55 countries (accounting for 78 per cent of global emissions from energy use) had signed up. But what does this mean?
Well, the Copenhagen Accord is not legally binding but, as Matt Towns-end, of Allen & Overy, says, it was unrealistic to think that it might be. “The hyping up of expectations by the NGOs to pressurise governments into a deal was never going to succeed. Nonetheless, the Copenhagen Accord represents an important first step in what is bound to be a long journey.”
The challenge now is to establish what direction that journey should take. In particular whether it is even possible to achieve restraint on greenhouse gases through a global, legally binding agreement, or whether other measures should be pursued.
Anthony Hobley, of Norton Rose, is clear that worldwide agreement is essential. “If we are to restrict temperature increase to two degrees or less then it needs a global, concerted push expressed through an international agreement. Otherwise we will achieve nowhere near the scale of reduction needed by 2020.”
However, Tallat Hussain, of White & Case, predicts that it will be at least a decade — maybe two — before the world unites to create such an agreement. And some people believe that the chaotic elements of Copenhagen may mean that the international community loses confidence in the UN’s ability to deliver at all.
“The outcome may be that there will be a splintering of international efforts so that individual groupings of countries adopt go-it-alone policies.” Townsend says.
Such a gradual approach is seen by some as a viable way forward. In the European Union, for example, there are mechanisms in place for emissions trading. “Carbon trading is the mechanism to deliver climate-change measures,” Townsend says. “The EU is taking the lead in carbon emissions trading and providing incentives for renewables. Despite some of the failings of Copenhagen, the EU Emissions Trading Scheme will continue after 2012.”
The aim would be for similar schemes to be established by countries belonging to, say, the North American Free Trade Agreement (Nafta) and the Association of South East Asian Nations (Asean). In time, all the systems would be linked together.
However, Hussain foresees that regionally based systems could become “tools of protectionism” with “regional differentiation” emerging. As a result, the big trading blocs would compete with each other and deploy their “climate change” regimes — like their tax or health and safety regimes — as a way of attracting investment. This does not mean “a race to the bottom” in terms of the least onerous requirements. For example the EU could offer incentives for greenhouse gas reductions that would more than off-set the costs to companies of introducing green technology.
In any case, Hussain says, market forces will do most to shape the world’s response to climate change. “Business has got the message about energy costs, and shareholders will put pressure on management to introduce energy-saving measures because they will impact on the bottom line.”
Certainly, as things stand, market forces may be the vital factor in shaping the development of emission-free industries, such as wind energy. Andrew Iyer, of Ince & Co, who is heavily involved with the offshore wind turbine sector, points out that the huge costs of building these vast structures in inhospitable environments make them viable only when the price of oil is high. “Oil at $80 dollars a barrel means good profits for the oil companies but without being prohibitive for the consumer,” Iyer says. But it does not create an incentive to invest in offshore developments. So oil prices may need to be consistently higher if offshore wind power is to become a really attractive option.
The result is that intervention by a regulatory framework may still be essential to steer the world away from its addiction to carbon.
While regional fragmentation may have its merits, it could be disastrous for industries such as aviation and shipping. As Georgina Crowhurst, of Clyde & Co, points out, the Copenhagen Accord failed to address the shipping industry at all. “Shipping industry observers had expected that, at a minimum, the Copenhagen summit would reach a political agreement on bunker fuels [used to power ships and aircraft], perhaps together with a carbon emissions trading scheme,” she says. “But the bunker fuels working group was unable to reach consensus. In the end nothing was included in the Accord which, in the words of the International Chamber of Shipping, leaves the way ahead uncertain.”
With doubts also about the ability of the International Maritime Organisation to make significant progress, it is possible, Crowhurst says, that the European Commission will introduce legislation to include shipping in the EU Emissions Trading Scheme. That may sound good, but if the world ends up with a patchwork of incompatible regimes for ships and aeroplanes then gridlock could result — and illustrate graphically why a global, legally binding agreement is needed after all.