If it’s all about the money, and it usually is, then the future financial landscape for cleantech development hinges on the outcome of the Copenhagen climate change conference as essentially as the meeting’s long-term impacts on environmental policy.
There will be impacts whether or not binding and comprehensive agreements on emission reductions are cobbled in Copenhagen, and that’s especially true for green investors.
According to Frost & Sullivan, the United Kingdom research and consulting firm, future investments in clean technology are heavily dependent on the outcome of the 15th Conference of Parties (COP 15) to the UN Framework Convention on Climate Change. Private sector money interests are waiting to see what targets world leaders will commit to, along with what mitigation actions developing countries will take.
“Without legislation and international agreements private companies will be timid in making large scale investments in clean technologies,” Frost says. More worryingly, a “failure of the Copenhagen Conference is likely to result in insufficient financing of low emissions projects and slow down the battle against global warming.”
Good or bad, the future of cleantech investment is closely linked to the price of carbon, whatever that may turn out to be.
“The hope of private companies is that the investments they have made into low carbon technologies would remain profitable and will be protected from sudden market changes through a mechanism guaranteeing long-term carbon price stability. The emissions targets and the cap and trade system agreed in Copenhagen will determine a future price for carbon,” Frost & Sullivan Renewable Energy Analyst Zeinegul Hassan says.
Frost reports that some countries have already begun plans to further reduce their emissions; “however, nearly all of these plans are contingent on reaching an international agreement.” That’s a huge “however.”
Japan for example has pledged to cut 25 percent of its emissions below its 1990 level if an international agreement is reached in Copenhagen. The European Union countries committed to cut emissions 20 percent with a gradual increase to 30 percent subject to an international accord. Frost adds that pledges from the US and China “are crucial for such an agreement, as their decisions will motivate other countries to commit to higher targets.”
Word that the U.S. will commit to a 17 percent reduction below 2005 levels sounds nice but that is a mere 3 percent reduction from 1990 levels. China saw the U.S. number and raised it with a plan to cut its emissions by 40-45 percent, again using the 2005 baseline.
“In essence, this means China’s emissions will still grow along with the country’s economic development,” the Frost analysis says. “The global community is not impressed, feeling that industrial countries have higher responsibilities for climate change than developing countries.”
Following a Carbon Conference in London last October, private sector attendees agreed on actions to address climate change from a commercial perspective, including reform of the Carbon Development Mechanism to include more countries and thus more funds flowing to developing countries that invest in clean technologies. Another point of agreement was that by linking trading mechanisms in the EU, the U.S., Australia and New Zealand, a “guide price” for carbon will be created, resulting in greater incentives for investments in abatement technologies.
“Once the final position of the largest emitting countries is known and the new mechanisms are created, the private sector will have more confidence to invest,” Frost says.
If the COP 15 outcome does not bring more certainty to the market, Frost believes that industrial companies likely will start selling their allowances and their surplus would bring the cost of allowances to a lower than expected level.
“The commitments made by the world leaders in Copenhagen will define the future climate change policy as well as offer more certainty to the private sector over their present and future investments,” Hassan asserts.
Do emission reduction promises ring hollow heading into Copenhagen? Quite possibly, because those fancy percentages and commitments are mere smoke wisps if the meeting ends in gridlock.