Some say it was a breakthrough and some say it was a flop. Did business get anything useful out of the Bali road map?
The logistical challenge of tackling climate change was displayed perfectly at the UN climate conference in Bali, Indonesia, by the constant stream of taxis queuing up to ferry conference attendees from one five-star hotel in Nusa Dua to another. Free bikes were laid on for the event, but unfortunately bike lanes were not.
The Bali bicycle situation mirrors businesses’ approach at the post-Kyoto political negotiations. “We can run the low-carbon economy,” was the message to governments, “but you need to build the infrastructure to make it work”.
What businesses wanted
Although businesses were not included in the negotiations at Bali, business groups and investor organisations such as the World Business Council for Sustainable Development (WBCSD) and International Emissions Trading Association (IETA) had a strong presence at the conference side events. The general attitude from companies towards the political process at Bali was a mixture of idealist hope for a global plan on combating climate change and increasing frustration that the politicisation of climate change was in fact holding back progress.
The main factors holding businesses back from investing in low-carbon solutions are price, price and price. The price of developing new technologies is too high, the price of carbon is too unstable, the prices consumers are willing to pay for low carbon goods is not high enough – all were recurring comments from businesses throughout the conference.
So what did they get in return for their pleas for better market conditions? Well, Yvo de Boer, general secretary of the United Nations Framework Convention on Climate Change (UNFCCC), spoke to the press at the start of the conference with a very clear view of what needed to be done to drive low-carbon investment from the private sector. Quoting figures from the UNFCCC report published shortly before the talks, he stressed that nearly nine-tenths of carbon-reducing investment would have to come from the private industry.
He acknowledged that businesses would need policy certainty and incentives to invest in new technologies and that international and public capital would need to be channelled towards climate-friendly and climate-proof investments. “The problem is that governments don’t want to pay for all of this,” he told the press.
Being an outsider, following the last few days of negotiations was a little like waiting at the hospital bed of a comatose patient. There was nothing much going on but you still hung on day and night waiting for some signs of life. Al Gore’s refreshing speech provided welcome respite and the waiting paid off. At the end of the talks we were proudly presented with a somewhat patchy but promising Post-2012 road map, with the express purpose of leading countries towards a post-2012 agreement in Copenhagen at the end of 2009.
After 13 consecutive years of UNFCCC conferences and ten years of Kyoto, it’s becoming clear that the best these global pow-wows on climate change can give us is an indication of what might happen policy-wise on the national scale. Even the Kyoto Protocol, as low as its 5 per cent emissions reductions targets for 2012 were, could not prevent Japan, Canada and a host of European countries from breaking their emissions limits.
According to press reports, at the end of 2007, Japan, Italy and Spain faced combined payments of as much as $33 billion in carbon credits for failing to reduce greenhouse gas emissions as promised under the Kyoto treaty.
Some measures agreed under the Bali road map had good prospects. Promises by developing countries to measure and cut their emissions suggested that we can expect a stronger focus on renewables and energy-efficiency policies in the big emitter nations such as China and India.
The much anticipated Redd policy, a handy acronym for “Reducing emissions from deforestation in developing countries” also came into swing. Deemed of high importance because deforestation is estimated to account for 20 per cent of global emissions, countries agreed to work on methods to preserve tropical forests, the type of forest best suited to absorbing carbon.
Provided disputes about indigenous peoples’ rights are peaceably settled, it seems the post-2012 future for forests may be based on selling avoided deforestation credits, with governments being issued the credits by a UN authoritative body for preserving their trees. Some impoverished forested states, such as Indonesia’s West Papua and Aceh, are taking the hint and trying to get in on the act early. They plan to seize on the new confidence in forestry credits to sell them on the voluntary markets as soon as possible.
Developing countries lost out at the talks. Promises by developed countries to transfer technology to developing nations (which have lingered unfulfilled since the start of Kyoto) continue to be vague. China did, however, manage to bully the European Union and US on the last day of the talks into agreeing to measure and report on their contributions to technology transfer.
Downright derisory was the agreement to set up an inadequate adaptation fund for developing countries. The fund will also be unpredictable, with the amount raised from the CDM levy estimated at somewhere between $80 million and $300 million by 2012. This is hardly a drop in the ocean for places like Bangladesh, which already needs emergency flood prevention and management measures costing billions of dollars.
Calls from the finance world and development NGOs, before the talks, to simplify the CDM’s overly bureaucratic registration process seemed to go unheeded. The problem of finding buyers for existing CDM carbon credits was tackled via the launch of a website, called www.cdmbazaar.com, the CDM’s own matchmaking website, where buyers and sellers of carbon credits are able to make contact.
Vague promises from rich countries to transfer clean technology to poor ones tend to fall down on two counts: first, private companies, not countries, own much of the technology in the first place; second, developed countries are not putting enough money into clean tech investment in their own countries, let alone being in a position to transfer the technology. Sun Guoshun, a Chinese delegate at the Bali conference, explained that China desperately needed clean coal technology from the US. Cedric Philibert of the International Energy Agency pointed out, however, that these technologies, including Integrated Gasification Combined Cycle technology and carbon capture and storage, were yet to reach the commercial stage.
Carbon capture
The Bali talks brought countries one step closer to accepting carbon capture and storage in geological formations for use in CDM projects. More is to be decided on this front at the 2008 conference in Poznan, Poland. The notion that fossil fuels could continue to be used “in a clean way” was a strong concept at Bali but the challenge remains to prove that the technology works and that high costs of CO2 storage can be drastically reduced.
The riddle of bringing clean technologies to the commercial stage is one that governments and companies alike are failing to solve. Clean tech solutions already exist in many cases but commercial take-up is low. Examples include the revolutionary MDI air car, a low-cost, low-carbon French-designed car that runs on compressed air. The car has been ready for years but big manufacturers have not yet taken the bait (save India’s Tata Motors, which had promised to produce 8,000 air cars this year). Not surprisingly, the rapidly developing markets in India and China are finding opportunities in the area of clean technology. Ten years on, they might have turned the issue of technology transfer completely on its head.
Leakage
It would be impossible to sum up the global political process on climate change without mentioning “leakage”. It does not sound very pleasant and indeed to most Kyoto signatories it is not. From the time developed countries started to address their responsibilities to tackle climate change at Kyoto in 1997, factories have been leaving developed countries in droves, looking for cheaper manufacturing processes in developing countries.
Leakage refers to the emissions that have leaked out of one country into another when a factory has relocated. A paper released by Chinese academics in 2007 linked 25 per cent of China’s greenhouse gas emissions directly to US and European supply chains. China, for example, is the biggest global supplier of steel, which requires a dirty, high carbon manufacturing process, and part of China’s market share was transferred from Europe in the 1990s.
Unfortunately the term used by developed countries for leakage until now has been “emissions reductions” – emissions reductions that count towards Kyoto targets.
“Kyoto signatories have to be responsible for the emissions of factories that have moved to other countries since the Kyoto agreement,” said Kevin Conrad, one of the more outspoken delegates for Papua New Guinea at Bali (who famously told the US to “get out of the way”).
The leakage debate is picking up steam as developing countries are being pressured into making their own emissions reductions, and is sure to be tackled in more depth in coming talks, though the outcome is entirely uncertain.
Already a form of environmental protectionism is being hinted at in the EU, with suggestions of a carbon tariff on dirty imports. These measures are popular with the diminishing German steel industry, whose production processes are three times less carbon-intensive than China’s.
Going it alone
Despite numerous complications in the move towards the elusive low-carbon economy, forward-thinking companies were keen to point out at Bali that they had made the most of the opportunities so far. Most moves were made in the carbon markets, which are set to take off globally.
The long-term price of carbon was subject to much speculation at Bali. While some banks have taken pains to predict a precise price for carbon on the EU Emissions Trading Scheme (ETS), other investors, such as Fortis Bank predict the price of carbon could be anywhere between zero and €100 over the coming phases of the scheme.
Companies seemed to agree that we would soon see a global roll out of mandatory carbon markets. “We’re going to see multiple markets although a unique carbon price might not happen for another ten years,” said Karen Degouve of the European Carbon Fund, a CDM project investor.
This could include Japan, Canada, Australia and the US – all of which have started voluntary carbon markets.
Mile Bess of Camco International, a big CDM project developer, predicted that within two to three years “the biggest game in town” would no longer be the EU ETS. Bess said the EU scheme was “a valuable model”, although he expected a mandatory US market to start to take over, acting as a driver for carbon markets globally.
“What we need to see is what happens post-tightening,” he said, referring to the reduction in emissions allowances given to EU nations under each four-year phase of the ETS. Phase I of the ETS collapsed after emissions allowances were too generous, and the price of carbon dropped so low as to be meaningless, so all eyes are now on phase II, which started this year. At the time of writing, carbon dioxide stood at €22 per tonne.
Fate of the CDM
The Australian renewables company Pacific Hydro has been making the most out of the Kyoto CDM, having directed much of its new investment – $500 million so far – into developing countries, such as Chile, where the company’s wind and hydro projects have earned money from carbon credits. However, the future of the CDM is left hanging in the balance from 2012, when the first phase of Kyoto ends.
Pacific Hydro chief executive Andrew Richards expressed the same sentiments, complaining at a WBCSD event about the lack of long-term planning on the international level. “Nothing exists beyond 2012 except fairly long-term targets,” he said, referring to the faraway target of a 50 per cent cut in the global emissions of 2000 by 2050, which was set by scientists at the Intergovernmental Panel on Climate Change.
Jonathan Lash, head of the World Resources Institute, attempted to convince delegates that the world would see an “explosion of low-carbon technologies” over the next ten years, driven by a price on carbon, which he believed would be a steady $25 a tonne in the US within five years. Once a green technology booms in one country, said Lash, it will spill over national boundaries regardless of politics, driven by consumer demand. He used the example of GE’s Ecomagination energy-efficient products, which he said cost $100 million to market but in the long run added to GE’s value by 10 cents a share. Backing his argument that technology has no boundaries, 65 per cent of Ecomagination sales are outside the US.
Although they have their faults, international meetings such as Bali allow fresh ideas and sometimes painful truths to be unearthed about how countries deal with climate change. Despite the political charades, it is the ripple effect of international political agreements among businesses and consumers that matters. As global talks continue, the real action on climate change will happen at home.