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On 7th December, in Copenhagen, the long awaited two week international negotiations on climate change commence. It has been billed by Lord Stern as the “most important meeting since the Second World War”. It has the potential to achieve a step change in the world’s ambition to reduce man made carbon emissions and to definitively fire the starting gun on the race to a low carbon economy. Bruce Duguid, Head of Investor Engagement at the Carbon Trust explores the possible outcomes.

The negotiations are complex and have not always gone smoothly over the last 2 years. Specifically at stake are a number of key issues including:

• Setting the level of the overall emissions reduction ambition, such as a global target for 2050
• Agreeing individual developed nation targets to 2020 and 2050 and the nature of developing nations’ low carbon growth plans
• Putting in place new supporting mechanisms to ensure finance flows into low carbon investments including the expansion of the international carbon markets and a potential international fund to help developing nations
• Developing local capacity building for energy efficiency and technology innovation in developing countries

The most important outcome of a strong deal at Copenhagen will be an increase in certainty for business and investors that action to tackle climate change will be rewarded and that a failure to take action will result in poor business performance. It is the private sector, through its investment in new low carbon technologies, which will primarily tackle climate change. Currently, investors and business are not investing at a sufficient rate to successfully limit carbon emissions.

A continuation of today’s level of business practice and investments would result in an ultimate stabilisation level of greenhouse gases of at least 700 parts per million of carbon dioxide or its equivalent (ppm CO2e) or higher, resulting in a likely rise in temperatures of 4 degrees C or higher. The ambition of negotiators at Copenhagen is to achieve stabilisation at 450ppm CO2e and limit the global temperature rise to 2 degrees C.

A deal at Copenhagen will be of specific relevance to business and investors in two ways:

• Some industries will be directly impacted by decisions in Copenhagen, in particular those creating carbon offsets or trading in the carbon markets. In addition, aviation and maritime shipping may potentially come under new international frameworks to reduce emissions, although the nature of these is uncertain.
• Other industries will be affected by changes to national or regional policies to tackle climate change which follow a new level of ambition agreed at Copenhagen. For example, the European Union has announced that with a strong global deal, it will change its 2020 emissions reduction target vs. 1990 levels from 20% to 30%. This will involve a tightening of the cap on emissions in the EU ETS over the period 2005 to 2020 from a 21% reduction to around 30%. In the UK, the Committee on Climate Change has also recommended that with a global deal on climate change, the UK should move to its ‘intended’ budget of a 42% reduction in emissions by 2020 versus 1990 levels, compared to the current 34% ‘interim’ reduction target. This will require a further step change in policy beyond that set out in the Government’s Low Carbon Transition Plan and would particularly impact the non-EU ETS sectors such as buildings, transport, waste and agriculture.

Whilst Copenhagen has the potential to dramatically change the landscape of global climate change policy, it will not be the last word from international climate change negotiations. Even if a strong global deal is agreed, much of the detail will take many months or even years to finalise. And, in time, it is likely that with increased scientific understanding and realisation of the opportunities arising from proactive climate change policy, further tightening of ambition is achieved at further negotiating sessions.

Given the compelling need for the world to rapidly decarbonise, the enormous economic opportunities offered by the low carbon economy will go to those who move boldly and early.

For further information on the Government’s role in the Copenhagen negotiations go tohttp://www.actoncopenhagen.decc.gov.uk/