United Kingdom
COPENHAGEN UNRAVELLED: The implications of the climate change summit on UK industry
Representatives from the nations of the world descend on Copenhagen on 7 December.
The objective: to reach binding new emissions targets to replace the current Kyoto protocol which expires in 2012. - Ian Plunkett
Much rests on the Copenhagen summit, but over recent weeks it has looked less likely that binding commitments (crucially including undertakings from US and China) will be reached. On the to-do list is to establish a global carbon cap and trade system to create a universal price for carbon which will encourage investment in low/no carbon forms of energy. Hopes for global cap and trade may founder owing to legislative uncertainty over cap and trade bills currently in front of the US Senate and unwillingness by developing nations to commit to absolute caps on emissions. Fundamentally, a successful conference depends on nations agreeing on how much developed nations should pay, and how much technology they should transfer, to developing nations for their support.
A successor to the Clean Development Mechanism(CDM), under which developing nations earn carbon certificates for development of clean energy projects is needed. A global industry of carbon intermediaries and a huge carbon market (much of it centred in London) has already been created which sources, finances and administrates the registration of schemes (mostly in China) in return for carbon credits. These are then sold to emitters in the EU and North America. Carbon intermediaries will be looking closely at the son of CDM and what it means for them.
The consequences of Copenhagen could also be wide ranging for industry. A price on carbon at the levels currently spoken about (above €40 per tonne) will increase energy costs and, it Is said, increase the risk of "carbon leakage" (the migration of heavy industry from developed to developing countries where carbon has no price) unless a level playing field is achieved. Industry in the UK is already facing increased costs and regulation from the UK's ambitous low carbon and renewables programme. These include incentives for low carbon solutions (Nuclear, Wind, Carbon Capture and Storage) funded by energy consumers and the tax payer and energy efficiency levers like emissions reporting and the Carbon Reduction Commitment. For the UK, its difficult to see what more can be done without damaging competitiveness and distorting markets further. It remains to be seen whether the US, China and India show willingness to follow the European lead. The modest emission reduction targets announced last week by the US (15 per cent reduction on 2006 emissions by 2020, the equivalent of 3 per cent abatement compared with 1990) and the vague agreement by the Chinese to reduce their "energy intensity" don't signal the basis for a breakthrough agreement this month.
From my perspective, the three priorities for Copenhagen should be:
- Consensus on how to ration carbon in a way that's consistent with overall targets. A global cap and trade scheme or a method to link current schemes is needed. This will provide an environment for fewer government incentives and better signals for long term low carbon investment by private enterprise.
- Flexibility for EU targets to abate if faced with half hearted and protectionist attitudes from our competitor markets in Asia and North America. Industrial competitiveness in the UK cannot be allowed to be eroded by unilateral costs and regulation.
- Much higher levels of collaboration between nations on the major carbon abatement technologies, principally Carbon Capture and Storage ("CCS") but also others. Nations are funding their own research programmes when a jointly funded programme should be much more effective and enable controlled technology transfer to China and India in return for absolute emission reductions.
We will watch Copenhagen with interest.
Ian Plunkett is an Audit Partner within Manufacturing and Industrial Markets. He can be reached at ian.plunkett@bdo.co.uk