The COP15 meetings in Copenhagen left  many of us discouraged, as I wrote here. But some smart people are taking a closer look at the Copenhagen Accord and finding reason for optimism. One is Roger Ballentine, the president of Green Strategies, a Washington-based consulting firm who is today’s guest blogger. Roger’s a longtime expert on the climate issue—he served in the Clinton White House, as chairman of the White House Climate Change Task Force,  and he remains a player in Washington environmental politics, as well as a Harvard-educated lawyer and clean tech investor. Roger will be among the speakers this year at FORTUNE’s Brainstorm Green conference on business and the environment. This is an edited version of  post-COP15 memo that he shared with his clients and friends.

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The Copenhagen Accord’s approach to emissions reductions asks nations to propose and pledge to fulfill their own emissions commitments. This approach was proposed by Australia last spring and has been a favorite of American diplomats (going back to the Bush administration) who sometimes refer to it as a “bottom-up process.” It’s unlike the Kyoto Protocol, in which emissions reduction commitments were negotiated internationally.

Under the Accord, developed nations are expected to submit by January 31, 2010 quantified economy-wide emission targets for 2020 using whatever base year they wish.  In another break from Kyoto Protocol, the Accord also invites developing countries to submit their “nationally appropriate mitigation activities” by January 31. While the copy of the Accord released by the UN [PDF]does not yet list any national commitments, most nations have already said what their emission reductions or mitigation actions will likely be. For example, in November, President Obama pledged to reduce U.S. emissions by about of 17% below 2005 levels by 2020 (consistent with the House-passed climate bill), and China agreed to reduce its “carbon intensity” (i.e. the amount of greenhouse gases emitted per unit of GDP) by 40 to 45% by 2020.

The Accord also includes two important financial commitments designed to address the needs of developing countries in mitigating and adapting to climate change. Collectively, developed countries pledged $30 billion in new and additional sources to the developing world for the period 2010-2012. The developed countries also agreed to provide up to $100 billion annually to the developing countries  by 2020. The $100 billion is to come from public and private sources and be delivered both bilaterally and multilaterally. A “significant portion” of such funding is expected to flow through the Copenhagen Green Climate Fund, which the Accord establishes as a financial mechanism operating under the UNFCCC to support adaptation, mitigation, technology transfer and forestry programs and policies.

Most importantly from the U.S. political perspective, the Copenhagen Accord requires transparency in the reporting of mitigation actions by developing countries. China had resisted international verification, but compromised in the final deal. As a result, mitigation actions taken by developing countries with financial support from the developed world will be subject to an international verification process.

Here are my key take-aways from Copenhagen:

The King is Dead; Long Live the King. The UN climate process has been badly weakened, but the likelihood of strong global action to address climate change has never been stronger. The Copenhagen Accord had little or nothing to do with COP-15 other than the fact that the leaders who negotiated it happened to be physically together because of it.

In fact, the Accord was negotiated without the participation of the vast majority of nations and thus was not subject to the requirement of global unanimity – which was and always will be impossible.  The Copenhagen Accord signaled a shift of focus to economic alliances and forums, particularly among major economies, as the place where climate policy will be developed and implemented.  The economic-diplomatic venues like the Major Economies Forum or the G-20 – along with major bilateral and regional agreements – represent far more effective processes to create markets and reduce emissions.

Capital Markets vs. Carbon Markets. Perhaps not surprisingly, the Kyoto-oriented carbon markets took a dive after Copenhagen.  Maybe the markets expected more from COP15. Or participants may have recognized that markets built explicitly around UNFCCC-defined instruments of carbon value may not have staying power.

This is not to say that Copenhagen portends a decrease in the longer term value of carbon reductions – just the opposite, for two reasons.  First, as discussed, the Copenhagen Accord increases the likelihood of meaningful multilateral actions to reduce emissions. Inevitably, as the Accord says, markets and market mechanisms will be central to those efforts.  Second, for the first time, the Accord calls for mid-term reduction targets.  And unlike pledges about 2050, “mid-term” (i.e. 2020) is within the time-frame of many capital deployment decisions being made today and in the near future.  For this reason,  Copenhagen should invigorate carbon-impact evaluations of capital market decisions and increase the argument for carbon/climate informed business decision making.

The Triangulation of Developing Nations and the Elevation of Commerce. Many of us in the U.S. have long believed that the climate problem is best solved through markets, investment and innovation – once the rules of the game (not the least of which is the pricing of carbon) are put in place.  On an international scale, this means that commerce and trade can create wealth, improve living standards and reduce emissions.  Historically and not without some justification, most developing nations viewed this argument with great skepticism. When presented with the choice of engaging with the developed nations on the basis of commerce, investment and trade on the one hand, or on the basis of direct aid on the other, nearly all developing nations chose the latter.

The Copenhagen Accord reveals  that some major developing countries – notably China and perhaps India –  have decided that they are better off engaging on the basis of commerce than on the basis of direct foreign aid – thus their agreement to adopt some sort of carbon price/market-impacting emissions target.  It is now possible that we will see more developing nations aspire to be in the “commerce” camp and not the “aid” camp when it comes to climate.

The Copenhagen Accord signals a movement to a commerce-based climate foreign policy because of  Secretary of State Hilary Clinton’s promise that developed nations would provide $100 billion per year to “developing countries”.  What was remarkable was not the size of the pledge but the explicit acknowledgement that the funds would be a mix of public and private sources.  The wording of the Accord carefully left open a large role for private capital and private sector actions to reduce emissions, essentially as a substitute for some traditional aid.

Now it’s up to Congress. No successful multilateral climate policy can work without the commitment and leadership of the U.S.  The single biggest factor shaping the politics of t climate legislation in the U.S. has been the role of China, given its political profile and new status as the world’s leading emitter.  In Copenhagen, the U.S. demonstrated extraordinary leadership and effort (regardless of one’s view of the outcome) and for the first time China made an emissions pledge with some degree of transparency.

For these reasons alone, I think both the global dialogue on climate and the prospects for domestic legislation were strengthened at COP15. Moreover, the broadening global movement toward a commerce-centric response to climate will present more opportunities for investment in lower carbon technologies. Smart companies will pursue competitive advantage from business practices and strategies aimed at reducing their climate impact.

So the verdict is in on the UN climate negotiations that just wrapped in Copenhagen and it’s all but unanimous:

Carl Pope, Sierra Club: The world’s nations have concluded a historic–if incomplete–agreement to begin tackling global warming.  Tonight’s announcement is but a first step and much work remains to be done.

Frances Beinecke, Natural Resources Defense Council: We have taken a vital first step toward curbing climate change for the sake of our planet, our country and our children…. There’s still more work to be done.

Fred Krupp, Environmental Defense Fund: A lot of hard work remains, but a lot of hard work is finished. The new positive steps taken here…president the U.S Senate and President Obama with a n historic opportunity.

Jonathan Lash, World Resources Institute: “Much more is needed, but today marks a foundation for a global effort to fight climate change.

Elliot Diringer, Pew Center for Global Climate Change: The Copenhagen Accord is an important step forward in the international climate effort…it lays the foundation for a system to hold countries accountable. …Much remains to be negotiated.

Hmm..  I thought the 1992 Earth Summit in Rio or the 1997 Kyoto Protocol or the 2007 Bali Roadmap were first steps. Shouldn’t we be taking the second, third or fourth steps by now? Or, if you prefer the foundation metaphor, shouldn’t we hurry up and build the house, before sea levels rise and storms intensify?

This isn’t to suggest that the 15,000 or 20,000 people who descended on Copenhagen during the last two weeks wasted their time. What is being called the Copenhagen Accord sets a target of limiting global warming to a maximum 2 degrees Celsius over pre-industrial times. It promises billions of dollars of aid for poor countries. It points the way towards a resolution of the fundamental conflict between U.S. and China over their so-called “common but differentiated” responsibilities to deal with global warming. That’s important–when it comes to climate and the global economy, the G-2 of the U.S. and China tower over the rest of the world. The leaders of Europe, Japan and other countries at the summit were largely left to rubber-stamp the deal, as The Washington Post reported.

The trouble is, none of this is good enough. Nations can now set own emission reduction targets. (Earlier versions of a political agreement being discussed in Copenhagen had called for specific reductions by 2020 and 2050.) It does not set a deadline for signing and binding treaty. (Until fairly recently, that deadline was supposed to be now.) Sure, aid is promised to poor countries, but aside from some token amounts, no one can be sure where the money will come from.

This isn’t a strong deal. It isn’t  a weak deal. It’s not a deal at all.

It’s a disaster waiting to happen.

Having said that, I understand the thinking behind the first-step-much-work-needs-to-be-done analysis coming from the inside the Beltway environmental groups. With the climate debate now shifting from Copenhagen to the U.S. Senate, they need to tread carefully. They can’t be overly critical of President Obama or undecided senators; they need to suggest that something real was accomplished in Copenhagen, to help persuade legislators that the U.S. can enact strong climate regulation without giving a competitive edge to China or India. Carl Pope of the Sierra Club made this argument explicitly, saying: “Now that the rest of the world–including countries like China and India–has made clear that it is willing to take action, the Senate must pass domestic legislation…”

But, again, the rest of the world has not committed to anything.

For a reality check on where we stand, let me refer you to the Climate Scoreboard put together by scientists at MIT, the Sustainability Institute and Ventana Partners, with the support of Nike, Citigroup, Fidelity Investments and others, which uses computer simulations to  model the long-term climate impacts of decisions being undertaken today. Please see the Climate Interactive blog for more detail.

Put simply, we’re not going where we need to go.

A big part of the problem here, as Bill McKibben has written eloquently, is that the world’s governments treat climate change as just another political problem–and it’s not.

Think about the health-care agreement reached this weekend. It’s the product of a series of compromises, some of them quite ugly, but it has the support of President Obama and Democrats in Congress because they believe it’s the best they can do, for now. Maybe they’ll come back to “reform” health care again in a few years. It’s a step, even a big step, in the right direction.

This is how politics usually works. It’s incremental. Even on great moral issues like civil rights, governments move piece by piece–first the military was desegregated, then came schools, then  voting rights, finally housing and employment bias were barred, if I remember my history right. This approach gives people time to get used to change. It’s the mindset behind first-step-much-work-needs-to-be-done.

But incrementalism isn’t going to do the job when it comes to climate change. Every day that goes by when we emit more global warming pollutants into the atmosphere than nature can take out, the job gets harder to do. So a small but inadequate step, even one in the right direction, can actually leave us worse off than before.

One metaphor that helped me understand this is a bathtub: The faucet (industry, transportation, deforestation) is pouring more water in to the tub than the drain (nature’s ability to absorb CO2) can take away, and there’s no way to make the drain any bigger. Just turning down the faucet a little doesn’t help; the water level in the tub can keep rising, albeit not as fast as before. The longer the faucet pours in more water than the drain can take away, the more radically we have to turn it down to stop the tub from overflowing.

McKibben explains it this way:

Physics has set an immutable bottom line on life as we know it on this planet. For two years now, we’ve been aware of just what that bottom line is: the NASA team headed by James Hansen gave it to us first. Any value for carbon dioxide (CO2) in the atmosphere greater than 350 parts per million is not compatible “with the planet on which civilization developed and to which life on earth is adapted.”  That bottom line won’t change: above 350 and, sooner or later, the ice caps melt, sea levels rise, hydrological cycles are thrown off kilter, and so on.

And here’s the thing: physics doesn’t just impose a bottom line, it imposes a time limit. This is like no other challenge we face because every year we don’t deal with it, it gets much, much worse, and then, at a certain point, it becomes insoluble—because, for instance, thawing permafrost in the Arctic releases so much methane into the atmosphere that we’re never able to get back into the safe zone. Even if, at that point, the U.S. Congress and the Chinese Communist Party’s Central Committee were to ban all cars and power plants, it would be too late.

Oh, and the current level of CO2 in the atmosphere is already at 390 parts per million, even as the amount of methane in the atmosphere has been spiking in the last two years. In other words, we’re over the edge already.  We’re no longer capable of “preventing” global warming, only (maybe) preventing it on such a large scale that it takes down all our civilizations.

There’s the argument for Flopenhagen.

As for Hopenhagen, well, I saw a lot of things to get excited about during my week in Copenhagen.

Denmark itself, for one: The nation gets 20% of its energy from wind, it’s rolling out a national system for charging all-electric cars and roughly 55% of the people of Copenhagen ride a bike every day, most to go to work. You won’t be surprised to hear that they are thinner as a group than those of us in the U.S.

Speaking of wind, Tulsi Tanti, the founder of Suzlon Energy, told me that China is the world’s biggest and fastest growing market for win energy. His company is manufacturing turbines in China, and he says the government there is committed in a serious way to clean energy — even if it doesn’t want to be held to absolute limits on emissions.

Finally, the kids. There were thousands of them in Copenhagen. They are committed to organizing to stop climate change, they are smart, they are idealistic, they are not pragmatic and they are not fans of the first-step-much-work-needs-to-done approach. For more, check out 350.org or Avaaz or the Youth Climate Movement.

You know how people say we need to save the earth for our kids? I’m starting to think that it’s the other way round, that they are going to have to save it for us.

He is the most innovative and ambitious housing developer in New Orleans, but c’mon folks, let’s be real.

]]> http://www.marcgunther.com/2009/12/13/cop15-everything-is-going-to-be-fine/feed/ 0 http://www.marcgunther.com/2009/12/12/cop15-ceos-in-hamlets-castle/ http://www.marcgunther.com/2009/12/12/cop15-ceos-in-hamlets-castle/#comments Sat, 12 Dec 2009 22:05:06 +0000 Marc http://www.marcgunther.com/?p=3232

As humans, we’re wired to focus on the now. I want a new gadget now. I want a slab of pie now. I’m busy now, so I don’t have time for politics. The consequences—consumer debt, a sagging waistline, a Congress beholden to special interests–all arrive later.

You can think about global warming as a now-and-later problem. Governments need to take unpopular actions now to deal with a problem that will do most of its damage later. Businesses need to look beyond the next quarter to the next quarter century.

This evening in Elsinore, Denmark, top executives from such companies as Coca-Cola, Duke Energy, Goldman Sachs and Google took the long view in a fitting venue: Kronborg Castle, a 15th century castle best known as the setting for Shakespeare’s Hamlet. Sitting in a magnificent castle that’s been preserved for six centuries makes you wonder what impact the goings-on on Copenhagen this week will have on the world in 60 or even 600 years.

In that context, it seems prudent to invest now to insure against a climate catastrophe, no matter how distant–even if the short-term result is  a slight drag on short-term economic growth

As Tracy Wolstencroft, global head of environmental markets for Goldman Sachs, put it: “The economy is a wholly owed subsidiary of the environment, not the other way around.” That is, if we ruin the environment, there’s no economy left.

Or, as Muhtar Kent, the CEO of Coca-Cola said: “It is absolutely imperative that our voices be heard and our commitments to low carbon be fully understood.”

It turns out there’s a big contingent from corporate America in Copenhagen.  Among the high-profile companies here: GE, Microsoft, Cisco, DuPont, Johnson Controls, Nike and North Face. (Here’s a column by Mindy Lubber, president of Ceres, about efforts by some companies to lobby for a strong climate deal.)  Not surprisingly, most favor a global agreement to regulate carbon emissions.

A strong agreement, they said, will drive companies  to make the investments needed to usher in low-carbon economy.

As an example, Wolstencroft recalled that China’s five-year released in 2005 made a commitment to low-carbon energy. What followed, he said, was a $5.4 billion acquisition by Toshiba of Westinghouse’s nuclear energy business and capital investments  of another $5 billion in Chinese solar power companies, which have since emerged as world leaders.

“What we hope comes out of Copenhagen,” Wolstencroft said, “are even clearer rules that help give investors the confidence…to put money into clean technology.”

Clean tech, he said, is “one of the largest emerging markets the world has seen.”

Duke Energy’s CEO, Jim Rogers, also said that China has the ability to both plan long-term and act rapidly. “They lead in the production of solar panels and wind turbines,” he said. “They’re building 13 nuclear panels with more on the drawing board. They’re ahead in battery technology.”

Duke has a joint venture with a Chinese firm to build a coal plant that, if all goes according to plan, will capture and store carbon emissions.

“The Chinese can scale and deploy this faster than in the U.S.,” Rogers said. Duke’s investment in so-called clean coal won’t pay off in the short run, he said, “but we need a full-court press to make that a reality.”

Google, too, is investing in energy and climate projects with long-term horizons, said Dan Reicher, the firm’s climate guru. Its engineers have reconfigured Toyota Priuses into plug-in electric cars, and they are deploying Google Earth software to track deforestation.

Google’s Power Meter, which is being tested with utilities around the world, gives consumers real-time information about their electricity use, to incentivize them to conserve energy. Waving his cell phone, Reicher said: “I can get information about electricity use at my home in California on this smart phone.”

Several of the execs noted that many low-carbon technologies are available today, albeit at a price. Denmark gets 20% of its electricity from wind turbines, but wind-powered electricity costs more than coal-fired power. Denmark also has big plans for electric cars, but they require just-as-big government subsidies.

In theory, at least, there’s a future payback for those current outlays. Anders Eldrup, president and CEO of Copenhaven-based Dong Energy, which has 1 million customers in northern Europe and is shutting down many of its coal plants, says clean energy technology has surpassed agriculture as Denmark’s leading export.

While there’s no way to know for sure, my sense is that the companies here in Copenhagen don’t reflect the mainstream of corporate America, where big lobbies like the U.S. Chamber of Commerce and the National Association of Manufacturers oppose the climate bills pending in Congress. They’d rather pay later than pay now.

That’s a big a gamble, of course. It’s been a long time since I studied Hamlet but, to the best of my recollection, at the end of the play, just about everybody dies.

Let's hope the Copenhagen climate talks are not much ado about nothing

If you want to understand why it will be hard to get rich and poor countries to agree on how to deal with climate change, consider the reaction to a remark by Todd Stern, the U.S.’s chief negotiator, when he arrived here in Copenhagen the other day. Stern said:

We absolutely recognize our historic role in putting emissions in the atmosphere up there that are there now. But the sense of guilt or culpability or reparations–I just categorically reject that.

In response, Pablo Solon, Bolivia’s ambassador to the United Nations, said:

Admitting responsibility for the climate crisis without taking necessary actions to address it is like someone burning your house and then refusing to pay for it. Even if the fire was not started on purpose, the industrialized countries, through their inaction, have continued to add fuel to the fire. As a result they have used up two thirds of the atmospheric space, depriving us of the necessary space for our development and provoking a climate crisis of huge proportions.

In Bolivia we are facing a crisis we had no role in causing. Our glaciers dwindle, droughts become ever more common, and water supplies are drying up. Who should address this? To us it seems only right that the polluter should pay, and not the poor.”

We are not assigning guilt, merely responsibility. As they say in the US, if you break it, you buy it.

There you have it. Bolivia happened to speak up, but it could just as easily have been China, India,  Indonesia or Kenya.

The world’s poor countries want to get richer. Producing energy and economic growth in a cleaner way–by using wind or solar power, or nuclear energy, or electric cars–costs more than burning coal or oil. That expense, the poor countries say, should be borne by the U.S., the EU and Japan, which have emitted most of the greenhouse gases now in the atmosphere. Even now, the wealthy countries where 19% of the world’s people live account for 51% of global GHG emissions.

The principle is  simple–polluters should pay because they made the mess. Some people call this climate justice.

But where will the money come from to finance clean technology for China, India and the rest of the world? (Not to mention the money needed by some poor countries to adapt to climate change.) There’s talk in Europe of a global tax on financial transactions.  Island countries, including the Maldives, have called for a global tax on aviation.

Today, EU leaders said that they’d come up with $3 billion for a fund next year and President Obama has said he’ll support limited funding for adaptation and clean energy, but the Euros and dollars don’t add up to what the poor countries want or even what independent experts said will be needed. Besides that, there are big arguments brewing about who would manage the fund.

Much of the debate in Copenhagen will turn on these questions of morality and money.