Climate Action - Assisting business towards carbon neutrality

European Business Review, August 2008 - My recent travels and representations in China, Japan, Turkey and Scandinavia on behalf the World Business Council for Sustainable Development (WBCSD) left me pretty concerned, more concerned, perhaps, than at any time in my last twelve years as President. In my mind, neither the pace, nor the magnitude of activity needed to combat climate change seems to be happening. Let's look at the world's energy needs unflinchingly and consider these scenarios:

Energy is the fuel for growth, an essential requirement for economic and social development. By 2050, energy demand could double as population rises and developing countries expand their economies. With the prospect of such increases in energy demand giving rise to further increases in greenhouse gas (GHG) emissions, action on climate change is now stated as a high priority for many governments. They are seeking approaches to eventually stabilize the concentration of GHGs in the atmosphere in an equitable and an economically responsible way. The focus must be on improving energy efficiency within the global economy and managing emissions from the energy we use. This will require:

    * Vastly increased societal awareness and understanding of energy and carbon emission issues leading to greater demands for energy efficiency at all levels;

    * Full deployment of established low emission energy technologies (e.g. wind, solar, hybrid drive trains, combined heat and power generation, nuclear) and development and deployment of advanced technologies (e.g. hydrogen for mobility, carbon capture and storage (CCS), next generation nuclear power) over the next two decades;

    * Rapid deployment of low CO2 emission, energy-efficient consumer technologies as they become available, driven by a range of market-based incentives and approaches;

    * Marked improvement in energy efficiency in power generation, mobility, manufacturing, buildings, goods and services.

The solution must encompass both developed and developing economies and give business the confidence to invest in low-carbon energy projects. For many low- and zero-carbon technologies to take their firm place in the market, a long-term value for GHG reductions is needed. In certain cases, such as Carbon Capture and Storage, there is no genuine business case without it.

Before business invests, it studies the future. It gauges long-term supply and demand for its products, assesses the prevailing economic conditions including tax structures and policy frameworks and decides on an investment strategy. The investments required for managing GHG emissions challenge this model. The absence of clear policy may mean no future demand for a given product or could leave a higher cost early technology project without the needed incentives. Business needs clear signals from governments as to where we are headed. Under the right conditions, and given the right tools, technologies can develop and be deployed

The WBCSD has outlined a clear agenda for governments to take on board:

    * Recognition of the “4D” technology model. Technology will be key to the changes required. Certain existing technologies must be rapidly deployed and a range of new technologies will need to be brought to market. WBCSD favours a technology pathway model built on Discover & Develop, Demonstrate and Deploy as the phases as illustrated in the adjacent figure. The stages are needed to allow the technology to progress down the cost curve.

    * A market price for emitting CO2 (and other GHGs) into the atmosphere.

    * Emission reductions across all sectors of the global economy, rather than reliance of action in specific sectors, such as transport, power generation and industry. Important additional sectors / economic areas to include are;
          o Forestry (and importantly the preservation of existing forest coverage);
          o Agriculture (also linked to the first bullet);
          o Sectors involved in the use or production of non-CO2 GHGs (e.g. HFCs, N2O, CH4 etc.);
          o Buildings and commerce related sectors.

Key Elements - International

An international climate change framework needs to focus on a number of key factors. These need to support the local, regional and national efforts already underway and drive key technologies such as Carbon Capture and Storage (CCS). A global long-term emissions objective is essential.

An international climate change framework needs to focus on a number of key factors. These need to support the local, regional and national efforts already underway and drive key technologies such as Carbon Capture and Storage (CCS). A global long-term emissions objective is essential.

The necessary architecture is shown here. “Cap-and-trade” systems are established in developed countries to create a CO2 price and drive demand for compliance instruments such as allowances and project mechanism units (often called “credits” or “offsets”). The existing project mechanism, CDM, evolves rapidly to embrace sectors and drive the deployment of key technologies. In addition, an international clean development fund must be established to seed new technologies and catalyse large-scale demonstration projects. Over time more countries will adopt emissions management, ideally using “cap-and-trade”, but tradable standards based approaches may be implemented in some cases.

The UNFCCC will be the principal body to finalise and implement the international agreement. Other international collaborative efforts and negotiations (e.g. G8) should defer to the UNFCCC as their focus turns to implementation. In particular, the UNFCCC will:

    * Administer linking of national carbon markets and provide the necessary infrastructure to facilitate the development of a global market (e.g. registries).

    * Administer the international project mechanisms.

    * Report back to the parties on progress in implementing the international framework, including an assessment of national contributions and effort sharing.