With future investments in clean technology heavily dependant on the outcome of the 15th Conference of Parties (COP 15) to the UN Framework Convention on Climate Change (UNFCCC), the private sector waits to hear what target the world leaders will commit to and what mitigation actions developing countries will undertake. Without the legislation and international agreements private companies will be timid in making large scale investments in clean technologies, according to Frost & Sullivan. Failure of the Copenhagen Conference is likely to result in insufficient financing of low emissions projects and slow down the battle against global warming.
"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," states Frost & Sullivan Renewable Energy Analyst Zeinegul Hassan.
Some countries have already stated plans to further reduce their emissions; however, nearly all of these plans are contingent on reaching an international agreement. Japan pledged to cut 25% of its emissions below 1990 if an international agreement is reached in Copenhagen. The EU countries committed to cut 20% with a gradual increase to 30% subject to an international accord. Pledges from the US and China are crucial for such an agreement, as their decisions will motivate other countries to commit to higher targets.
Last week the US announced its intention to cut emissions by 17% below 2005 only. This is a mere 3% reduction from 1990 levels. Shortly after this, China announced its plan to cut emissions by 40-45% below 2005. In essence, this means China's emissions will still grow along with the country's economic development. The global community is not impressed, feeling that industrial countries have higher responsibilities for climate change than developing countries.
At a Carbon Conference last October in London, the European carbon trading community discussed certain measures that should be taken in Copenhagen. The private sector agreed on four actions to address climate change issues from a commercial perspective.
The first point of consensus is that the Carbon Development Mechanism (CDM) should be reformed to include more countries and, thus, bring funds to developing countries to invest in clean technologies.
Second, that the projects on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries (REDD) should be a part of the CDM to bring more capital into the sector. One fifth of all emissions are believed to be a result of deforestation.
Third, the Carbon Capture and Storage (CCS) projects need to be recognized as well as a clear methodology on their assessment as CDM projects has to be developed; this will attract more investments and help to curb emissions.
Finally, by linking trading mechanisms in the EU, the US, Australia and New Zealand, a guide price for carbon will be created and, thus, investments in abatement technologies will be incentivized. 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.
If the COP 15 outcome does not bring more certainty to the market, Frost & Sullivan believes that industrial companies would 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," observes Zeinegul Hassan.
For more information about European Carbon Emissions Market, opportunities and challenges for business after Copenhagen please email Chiara Carella, Corporate Communications, at chiara.carella[.]frost.com.
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