A Climate of Change: The Way Ahead

The New Business Agenda (2): The Need for New, True Pricing Paradigms

2010-02-21T14:01:00.015-05:00

Fundamental to the new agenda for business is the willingness to invest in long term gains for the collective over short-term returns. One of the key elements of classic economics is the fact that we have accounted for natural capital at its extraction cost, not at its renewal or replenishment cost. Depletion costs are an externality in this analysis and thus the cost of natural resources is set to be at or near zero, essentially free.

True pricing includes these externalities whether they be applied to forest, land use, mineral or oil reserves, appropriately requires that a new perspective on discount rates also be incorporated into the new business agenda. One can argue that typical (under 10%) discount rates do not fairly value the future and lead to decisions that favor short term profit maximization. Therefore, true discounts rates are in fact much higher.

Getting the pricing right may in fact be possible for assets where there are clear property rights, the the asset is owned or controlled by individual or corporate entities. The issues gets much muddier when dealing with the commons where pricing mechanisms or markets don't exist and complex issues of social equity/justice become large considerations. These factors are what makes the issues of climate change, conservation and environmental stewardship so complex.

The need for new pricing paradigms is not universally accepted, this change will not come easily. Over the next 5 years, I expect continued economic and social turmoil along with moves toward both significantly increased balkanization along with increased rhetoric toward multilateralism without much progress toward resolution. During this period of turmoil in another 5 years or so when the consequences of inaction are more evident will our collective behavior change. Hopefully, it will happen before the tipping point is reached.

The New Business Agenda (1): The Need for a Strong, Sustainable, Balanced Economic Growth

2010-02-18T12:14:00.031-05:00

The New Macroeconomic Reality

A shift is beginning to decouple economic growth from ecosystem destruction, natural resource depletion and material consumption toward a concept of sustainable economic development where environmental externalities (true costs) are incorporated and prosperity and societal wellbeing are the goals and define success. In future months, look for structural/behavioral economics to become increasing prominent in the discussion.

The G8's "RESPONSIBLE LEADERSHIP FOR A SUSTAINABLE FUTURE" declares:

"The interlinked challenges of climate change, energy security and the sustainable and efficient use of natural resources are amongst the most important issues to be tackled in the strategic perspective of ensuring global sustainability. A shift towards green growth will provide an important contribution to the economic and financial crisis recovery. We must seize the opportunity to build on synergies between actions to combat climate change and economic recovery initiatives, and encourage growth and sustainable development worldwide."

Recently, France, Germany and Australia as pushing the G20 to adopt a new framework for sustainable growth, the G20 Sustainable Growth Accord. At the same time, the field of economics is moving beyond its 500 year old roots in classical/neoclassical macroeconomics to embrace new models and methods.

The focus at the recent G20 meeting in Pittsburgh, Pennsylvania was on the current financial crisis including much discussion on the issue of sustainable growth. The following is an output of the Pittsburgh meeting on this topic:

G-20 Framework for Strong, Sustainable, and Balanced Growth*

1. Our countries have a shared responsibility to adopt policies to achieve strong, sustainable and balanced growth, to promote a resilient international financial system, and to reap the benefits of an open global economy. To this end, we recognize that our strategies will vary across countries. In our Framework for Strong, Sustainable and Balanced Growth, we will:

implement responsible fiscal policies, attentive to short-term flexibility considerations and longer-run sustainability requirements.
strengthen financial supervision to prevent the re-emergence in the financial system of excess credit growth and excess leverage and undertake macro prudential and regulatory policies to help prevent credit and asset price cycles from becoming forces of destabilization.
promote more balanced current accounts and support open trade and investment to advance global prosperity and growth sustainability, while actively rejecting protectionist measures.
undertake monetary policies consistent with price stability in the context of market oriented exchange rates that reflect underlying economic fundamentals.
undertake structural reforms to increase our potential growth rates and, where needed, improve social safety nets.
promote balanced and sustainable economic development in order to narrow development imbalances and reduce poverty.

2. We recognize that the process to ensure more balanced global growth must be undertaken in an orderly manner. All G-20 members agree to address the respective weaknesses of their economies.

G-20 members with sustained, significant external deficits pledge to undertake policies to support private savings and undertake fiscal consolidation while maintaining open markets and strengthening export sectors.
G-20 members with sustained, significant external surpluses pledge to strengthen domestic sources of growth. According to national circumstances this could include increasing investment, reducing financial markets distortions, boosting productivity in service sectors, improving social safety nets, and lifting constraints on demand growth.

3. Each G-20 member bears primary responsibility for the sound management of its economy. The G-20 members also have a responsibility to the community of nations to assure the overall health of the global economy. Regular consultations, strengthened cooperation on macroeconomic policies, the exchange of experiences on structural policies, and ongoing assessment can strengthen our cooperation and promote the adoption of sound policies. As part of our process of mutual assessment:

G-20 members will agree on shared policy objectives. These objectives should be updated as conditions evolve.
G-20 members will set out their medium-term policy frameworks and will work together to assess the collective implications of our national policy frameworks for the level and pattern of global growth, and to identify potential risks to financial stability.
G-20 leaders will consider, based on the results of the mutual assessment, and agree any actions to meet our common objectives.

4. We call on our Finance Ministers to develop our process of mutual assessment to evaluate the collective implications of national policies for the world economy. To accomplish this, our Finance Ministers should, with the assistance of the IMF:

Develop a forward looking assessment of G-20 economic developments to help analyze whether patterns of demand and supply, credit, debt and reserves growth are supportive of strong, sustainable and balanced growth.
Assess the implications and consistency of fiscal and monetary policies, credit growth and asset markets, foreign exchange developments, commodity and energy prices, and current account imbalances.
Report regularly to both the G-20 and the IMFC on global economic developments, key risks, and concerns with respect to patterns of growth and suggested G-20 policy adjustments, individually and collectively.

These are important steps in addressing the financial crisis and moving toward strong, sustainable, balanced growth. Despite the current fiscal challenges it is possible to make significant strides towards these goals if nations are effective in execution of policies. The OECD has done extensive work and shown there is clear benefit in job creation and growth when policies incorporate sustainability components. OECD studies have found reforming education systems could raise living standards significantly. In one finding, an additional year of education can raise GDP/capita by 4 and 7 per cent through increasing the labour supply. This directly impacts standard of living, is a coordinated program of job creation is also put in place to create a virtuous cycle of growth.

Where will the growth and jobs comes from? ALong with the G20 frame work above. The G8 Declaration “Responsible Leadership for a Sustainable Future” includes significant and detailed language along the following theme:

"New sources of growth will have to be supported by investments in infrastructure, innovation and education to facilitate productivity growth, while ensuring sustainable use of resources in a greener economy, within a context of open markets."

While the OECD “Declaration on Green Growth” recognizes and specifically targets the opportunities for tackling global financial, environmental and social crises together in transparent and accountable ways. Specifically:

"The OECD can, through policy analysis and identification of best practices, assist countries in their efforts to respond to the growing policy demands to foster green growth and work with countries to develop further measures to build sustainable economies.

DECLARE that we:

STRENGHTHEN our efforts to pursue green growth strategies as part of our response to the current crisis and beyond, acknowledging that “green” and “growth” can go hand-in-hand.

ENCOURAGE green investment and sustainable management of natural resources. In this respect, we are resolved to make further efforts to use efficient and effective climate policy mixes, including through market-based instruments, regulations and other policies, to change behaviour and foster appropriate private sector responses. We will consider expanding incentives for green investment, in particular in areas where pricing carbon is unlikely to be enough to foster such private sector responses. Such areas may include smart, safe and sustainable low-carbon infrastructure and R&D technologies that can contribute to building a sustainable low-carbon society. Approaches to recognise the value of biodiversity should be encouraged through appropriate instruments and consistent with relevant international obligations. We are resolved to share information on green investment flows and policies, and best practices.

ENCOURAGE domestic policy reform, with the aim of avoiding or removing environmentally harmful policies that might thwart green growth, such as subsidies: to fossil fuel consumption or production that increase greenhouse gas emissions; that promote the unsustainable use of other scarce natural resources; or which contribute to negative environmental outcomes. We also work towards establishing appropriate regulations and policies to ensure clear and long-term price signals encouraging efficient environmental outcomes. We call on other major economies to follow the OECD countries’ lead.

ENSURE close co-ordination of green growth measures with labour market and human capital formation policies. We note that these can support the development of green jobs and the skills needed for them, and ask that work on implementing the Reassessed OECD Jobs Strategy pays due attention to this objective."

* Source: Leaders' Statement: The Pittsburgh Summit, September 24 – 25, 2009

I am 3,996,308,755 people old

2010-02-15T09:30:00.013-05:00

According to UN estimates, global population is expected to increase from 6.9 billion to more than 9 billion by 2050. Roughly the same increase in population as since I was born in 1956. I find it hard to relate to these figures as they feel rather abstract but when juxtaposed against life events, as in the chart below, they seem much more concrete. Using UN population estimates, I was born when the world population was about 2,834,078,230 people. With the current world population estimate at 6,830,386,985, that makes me now about 3,996,308,755 people old.

What I Do and Why

2010-02-15T08:41:00.005-05:00

As a teacher across two departments; one which focuses on issues of Policy, Law & Ethics and the other on issues of Strategy, Innovation & Entrepreneurship, you can say I live at the intersection of two worlds. That is my nature. Within that intersection, that confluence of thoughts, ideas, principles and disciplines, I concentrate on what I feel are the most important policy, strategy and development problems of the world today. At a time when society, individuals and education are becoming ever more specialized, I pursue the development of “the mind” at a time when great business minds are desperately needed.

We live in an age of great political, social and economic challenge on one hand and seemingly insurmountable opportunities on the other. To paraphrase Bill Clinton, the challenge before us in the 21st century is:
“… whether the 21st century will be marred by scarcity, deprivation, environmental degradation, terrorism and conflict of all kinds or whether it becomes the most peaceful and prosperous time the world has ever known.”

My ambition is to create the latter.

As Thucydides suggested in the fifth century BC, “The events which happened in the past will at some time or other and in much the same way be repeated in the future.”. The past can suggest much about the future – the nature of change, progress and its impact on society and our environment, and the interplay among human societies in times of peace and conflict. While much will change, human nature being what it is will continue to be a driving force in the affairs of the world. We must work with this nature, these instincts, not against this them in shaping the future.

The challenges faced demand the best from us as individuals, organizations and as a society. Solutions will require integrative, systemic thinking, the ability to take on and reconcile seemingly intractable problems combined with the confidence to lead change and act amidst great uncertainty. Quoting Einstein, "We can't solve problems by using the same kind of thinking we used when we created them." Thus our current challenges demand the development of great minds, engaged minds, minds with the awareness of, understanding of and commitment to solve the challenges before us. This is why I do what I do.

Dare we be optimistic about the future? To answer the question with a question, "Is there any other choice?". To address the question directly, my answer is a resounding yes.

Shifting Gears: Moving Beyond Copenhagen

2010-02-13T17:38:00.007-05:00

In 2050, just 40 years from now, it is estimated the some 30%, about 3 billion, more people will be living on this planet. For classic growth-oriented development, the good news is that this growth will deliver billions of new consumers who want a better lifestyle. For sustainable development, the bad news is that shrinking natural resources, environmental degradation, and climate change will limit the ability of all 9 billion of us to attain or maintain the consumptive lifestyle that is commensurate with the middle class in today’s affluent markets. To resolve this conflict one must redefine the political, economic and social agenda where the global population is not just living on the planet, but living well and within the limits of the planet. “Living well” describes a standard of living where people are secure and have equitable access to and the ability to afford education, healthcare, mobility, the basics of food, water, energy and shelter, and consumer goods. “Living within the limits of the planet”, means living in such a way that this standard of living can be sustained with the available natural resources and without further harm to biodiversity, climate and other ecosystems.

Areas of focus toward a vision of a sustainable economy in 2050:

Population growth, migration/urbanization and demographics shifts.
Evolutionary economics the toward structural/behavioral true-value economics that include true cost of the classic externalities of natural resource depletion and environmental impact.
Property ownership rights of both hard assets (primary property vis-à-vis De Soto) and intellectual property.
The definition of State, the boundaries of sovereignty, the effectiveness of governance and the role of existing and emerging multilateral institutions.
The social and economic drivers of conflict and terrorism.
The systemic and integrated (co-dependent) nature of economic and the food, water, energy and environmental ecosystems.
The social systems of healthcare, education, social services and urban development.
Globalization opportunities, threats and regulation related to trade systems, financial markets, healthcare (pandemic), environmental impact, wealth creation and social/cultural diversity.
Social and technological creativity, breakthrough invention and disruptive innovation related to products services and business models and their diffusion.
Entrepreneurship and risk capital as an engine of sustainable development in both developed and developing economies.
Empowerment of individuals, particularly women and youth in the developing world, the development of leaders to create radically more eco-efficient solutions for improved business competitiveness, enhanced social equity and sustainable economic development.

Each area unto itself is technically challenging, socially complex, and presents potential intractable problems. Even understanding these problems requires the integration of diverse perspectives, insight into the interconnectedness and interdependencies and the factors that amplified or attenuate efforts to implement change.

This is the path we are about to embark upon. Hope you enjoy the journey.

Copenhagen Accord Update: Good News and Bad News

2010-02-13T14:24:00.016-05:00

The good news first:

More than 50 nations including major greenhouse gas emitters China and the United States have submitted voluntary commitments for greenhouse gas emissions under the Copenhagen Accord's January 31, 2010 deadline.

The bad news:

While the Copenhagen Accord reaffirms the goal of limiting the rise in global temperatures to below 2 degrees Celsius above pre-industrial levels, analysis of the voluntary commitments submitted will miss this goal by a wide margin. Pledges submitted to the UNFCC would allow a temperature increase to 3.9 degrees Celsius (7.0 degrees Fahrenheit) by 2100.

Much work remains to be done before COP16 in Mexico later this year.

The United States, Post-Copenhagen: Where do we go from here?

2010-01-20T10:09:00.011-05:00

The UN COP15 climate change conference in Copenhagen ended with disappointing results but the challenges to find solutions to mitigation and adaptation continue. The UN process has no formal agenda in the near term and will not likely begin the preparation meetings for COP16 before mid-year.

The focus in the United States leading up to COP16 will be on legislation. With Waxman-Markey off the table, the focus is on the compromise Boxer-Kerry Senate bill.

General Cap & Trade or Cap & Trade II - Without binding agreements with specific targets and methods, cap and trade legislation is facing an uphill battle in the United States. (One could argue that a treaty wasn’t achieved in Copenhagen because the U.S. and others didn’t have legislation in place at home prior to the conference.) The Boxer-Kerry bill is seeks to bridge gaps and is looking at coupling cap and trade with new incentives for expanding nuclear power and oil and gas drilling in the United States. Essential elements for Republicans and a lightening rod for Democrats. Look for the messages to focus on national security, energy independence and job creation.
General Carbon Tax - Anything called tax is unlikely to gain any traction in the U.S. Legislature.
Limited/Focused Programs - Should general carbon legislation not pass in the U.S. Congress, other alternatives actions include:

Incentives for Clean Energy - American Clean Energy Leadership Act of 2009 was approved months ago by the Senate Energy committee encouraging utilities and others to use more alternative, clean energy sources. These programs could be expanded although this approach but alone would not be enough to achieve the 2 degree target.
Industry Specific Programs - Bringing high carbon industries such as utilities, cement iron and steel up to state of the art technologies and best practices. Such programs would limit emissions in specific high emission industries, while providing funding for R&D in those specific industries. Critics say it's unfair to single out one industry.
EPA Regulation - The Environmental Protection Agency has begun taking steps to regulate carbon, in case Congress fails to pass legislation. This approach is less comprehensive than legislation and already is being hit with legal challenges.
4. Do Nothing - Do nothing at the national level. Leaving action to the sub-national regions and states. Hope for the best.

Climate Change Comes of Age: Reflections of the 15th Conference of the Parties, Copenhagen 2009

2010-01-08T19:54:00.006-05:00

Forty-five thousand people descended on the fifteen thousand person, Bella Center in Copenhagen in early December to participate in the COP15, the UN’s Climate Change Summit. A logistical nightmare on the outside; needless to say, not all the pre-registered and credentialed attendees got into the venue. After standing in line in snow and subfreezing temperatures for 13 hours over two days, I was one of the lucky ones who got in. A failed result on the inside; the acknowledgment of the creation of the non-binding, BASIC Copenhagen Accord. A step forward…yes, progress…yes, but not what the, perhaps unachievable, pre-conference rhetoric called for. The conference was unprecedented in many ways. Every one of the 192 UN member states was represented at the meeting, which was attended 119 heads of state, the largest such gathering outside of the UN’s New York City headquarters. In many respects, this was the “coming of age” event for climate change on the global stage. What follow are highlights of my personal thoughts and reflections from participating in this amazing event and what lies ahead:

What happened in Copenhagen was a failure of the process, not a lack of commitment by the Parties.

Attempting to create a binding treaty of this complexity with unanimous vote of 192 highly diverse members is challenging in the face of a clear and present threat, impossible on a complex issue such a climate change. First, look for the structure to evolve toward that of the WTO & WHO, smaller consensus-based subgroup, with clear voting rules and the focus to be sharper on the development of the framework of goals, monitoring, verification and enforcement policies. Second, look for increased emphasis on building financial, intellectual resources and knowledge sharing capabilities to effectively and equitably deal with climate change as a “commons” problem. There’s a big role for business schools in this arena.
COP15 was more about development than about climate change.

Several countries, particularly poor low-lying or drought-stricken countries are feeling the effects of climate change now and are intensely focused on the CO2 emissions issue. For most others, the fundamental discussions in Copenhagen always revolved around questions of economics. How could development nations balance their responsibilities while protecting job and economics competitiveness? How can poor countries protect financial subsidies promised by developed countries in Kyoto and Bali? How do fast growing emerging economies minimize restrictions and continue to grow? If Copenhagen taught me anything, it taught me that economics and climate charge are even more inextricably interwoven than I have understood in the past. All of which is context for business.
Sub-national regions step into the spotlight.

Arnold Schwarzenegger generated more buzz than Al Gore. Schwarzenegger along with Jose Serra Mayor of Sao Paulo spoke of the future and how sub-nationals regions such as California, Sao Paolo and others are paving the way toward green economies that are delivering both economic growth and reduced environmental impacts in advance of national initiatives. Yes, an emotional story of hope and promise, Arnold never the less spoke of actions being taken, results being delivered now and path for moving forward. Given, the outcome of COP15 and the time it will take to move to the next step, look for the groups to become immediately more active taking action on their own.
Climate Change involves politics, get used to it.

Much of the world looks to the U.S. for leadership and to take a leadership role, not because it is the biggest, the most powerful or bears the greatest responsibility, but because it is one to the few nations that can and historically its record of success if pretty good. As the World looks to the United States for leadership, transparency is critical, such that its intentions and actions are clear and coherent. What others must keep in mind when looking to the U.S. for leadership is that our leaders in the Executive Branch much work with the Legislature and within the Constitution when making promises and commitments to its nation partners. This is the political process. It requires procedure and must follow protocol to be effective, and must ultimately answer to the electorate. This is true in many of the other 192 countries that have effective, representative government.
China came to play

Much has been made of China’s role in the negotiations in Copenhagen and only those close to the discussions really know what went on behinds closed doors. That said, let there be no doubt, China came to play. Flexing its political and economic muscles on the world stage, China firmly established that the climate change negotiations are in integral part of an overall strategy to gain the leadership position for the coming Low Carbon Economy. Game on.
The Elephant in the Room

Battling climate change is a global challenge where technology will play a central role, in many ways analogous to that of vaccines and pharmaceuticals in fight for global health. Most fundamental research and technology development will occur in the developed world with a need to be transferred and deployed, whether in its original or locally modified form, in many third world countries. As with the intellectual property issues of pharmaceuticals in global trade environments, I expected to learn about Intellectual Property Rights (IPR) issues being central to the discussion in Copenhagen.

While IPR was not a prominent theme of the week and language was not explicitly included in the Copenhagen Accord IPR is the elephant in the room. Moving forward beyond Copenhagen IPR solutions could follow a number of paths ranging from; developed countries having no patent protection on green technology, to setting up a patent pools for green technology, to ensuring that developing countries can make full use of the flexibilities found in the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) - including compulsory licensing - and cooperation on future research and development of green technology. Stay tuned.

7. For Want of a Price

Governments want it. Economists want it. Regulators wanted it. Investors want it. Industry wants it. NGOs want it. What is it? Honest, fully–cost pricing, where environmental costs (carbon emissions) are incorporated in product pricing. Copenhagen didn’t provide it. Without a regulatory framework in place and resulting price set for carbon emissions, market forces cannot be leveraged to address these challenges on a universal basis. While pricing was not to be and should not be set in a forum such as the UNFCC, the failure to achieve a binding agreement puts the carbon markets into limbo for at least another year, until COP16 in Mexico.

Climate change came of age in Copenhagen, but much work remains to be done. Research-oriented business schools in large universities, such as Boston University, are in a unique position to participation in the coming transformation to a sustainable economy. Not only will this experience find its way directly into my teaching this spring and it also shines a light on emerging field, rich with research opportunities and new curriculum development in areas such as, of policy, economics, finance, operations, innovation and technology commercialization, while shaping a vision of the future an the role academic institutions will play in the development of the sustainable economy.

Is the concept of the nation-state getting in the way?

2010-01-02T12:28:00.007-05:00

On the 12th day after Copenhagen a final conclusion came to me….

Will climate agreements will follow the evolution of trade agreements? I believe as trade agreements have evolved beyond the multilateral agreements envisioned when the WTO was formed in 1995 toward a wide variety of regional/local trade agreements, so too will, will climate agreements.
Multilateral negotiations need to focus on getting the policies/infrastructure right, establishing emissions targets, timing and carbon pricing policies, (managing the commons) but leave bottoms-ups implementation to entities at the local level. A combination of clears goals with flexible execution will address the technological investment challenge, prove to be economically feasible and politically the most practical.
Success in has been achieved at the regional level, in the U.S. California and Sao Paulo, Brazil were strict climate legislation has been put in place in advance of national level legislation without dampening economic development. Many other regional initiatives are being formed, in Asia, Latin America and most recently in New England/Mid-Atlantic regional in the United States. The EU is also moving in this direction as it tries to cope with differences between the oil dependent west and the natural gas dependent east.
Is the concept of the nation-state dead and ready to be cast aside? No, not in our lifetimes, but as with trade & natural resources, there is there is comparative advantage in regional areas on energy & energy resources that dictate a regional approach to implementation within the larger multilateral frame work.

For Want of a Price... A Climate was Lost

2010-01-02T11:13:00.013-05:00

Much of the focus and cause of the non-result in the Copenhagen climate negotiations has on the “how” of climate change and opposed to the “what” in terms of targets. (We Have It Backwards - Dec 21, 2009). Focusing exclusively on reductions from historical emissions has greatly hampered the negotiations thus far, but is in fact only half the problem. While targets may satisfy the need on the policy side of the issue, they do not satisfy the need on the market side. A price signal in needed to make the market work, but way the negotiations are going now, the markets must wait for the political process to set pricing on carbon. Focusing on energy as a driver of climate change, the lack of pricing hampers mitigation efforts in three profound and related ways in terms of production, distribution and consumption.

First, on the consumption side, the lack of a price on carbon is leaving the low hanging fruit of energy efficiency investments still hanging on the tree. The now famous Mckinsey study demonstrates approximately 40% of the emission reductions could be achieved by conservation/efficienty investments that have a positive NPV. (Left half of Exhibit 1 below.) While these investments currently have a positive NPV without carbob porcing, setting a price for carbon will give consumers a complete picture of the true cost of their energy, demonstrate even shorter payback periods and should drive more rapid adoption of conservation/efficiently measures. At the same time, it will justify investment in the information infrastructure necessary support this implementation of these systems.

Source: McKInsey Study "Unlocking Energy Efficiency in the U.S. Economy"

Second, the economic uncertainty surrounding investments in new technologies, be they wind, solar, electric vehicles, carbon sequestration or others, is a significant barrier to investment in the potentially beneficial technologies. Here again, carbon pricing establishes true cost and allows industry players to develop confidence in their risk-adjusted return models for investments in these areas. A price on carbon makes investments on the right side of the chart (Exhibit 1) more attractive.

Finally, lack of discussion on carbon pricing has greatly hampered negotiations on climate commitments form the standpoint of developing countries where the uncertainty about the future and the cost is greatest. Carbon pricing offers a transparent and verifiable assurance of the comparability of effort across countries and incorporating price-based commitments into the treaty along with an emissions goal also establishes a basis for compliance during, as well as after, the treaty has expired. Ultimately, carbon pricing would clearly establish a leapfrogging strategy to clean emerging technologies in developing countries would be a clear advantage while diminishing the need for aid or new financing mechanisms beyond traditional sources from the World Bank/IMF.

Moving forward, a price-based framework has several advantages over the historical emissions based approach. It would get investment moving now rather than later, could break the log jam in the current negotiations and be enacted by COP16 in Mexico City next year.

If Copenhagen proved anything, it's that climate and trade/economic policies are inextricably intertwined

2010-01-01T11:36:00.008-05:00

Paul Krugman opens this NYT Op-Ed piece with the following statement:

Op-Ed Columnist - Chinese New Year - NYTimes.com

"It’s the season when pundits traditionally make predictions about the year ahead. Mine concerns international economics: I predict that 2010 will be the year of China. And not in a good way."

In my post below, "China: Copenhagen Spoiler or Keen Strategist?", China is investing aggressively toward a Low Carbon Economy.

Question: Should the West be willing to cede economic/trade leadership to China if it's "profits" were to continue to be directed toward environmental protection and climate change mitigation?

Comments welcomed...

Posted using ShareThis

China: Copenhagen Spoiler or Keen Strategist?

2009-12-31T10:22:00.011-05:00

On the 8th day after Copenhagen, the obvious whacked me upside the head...

In recent weeks, I've observed several events that support the theory that China wants to be economically and geopolitically dominant in the coming Low Carbon Economy.

First, China does not want Copenhagen to establish a flat playing field in the low carbon economy and got everything it wanted at the summit; no binding agreement, no targets, no timetable and contention and disarray within the global community.

Second, while spot prices for coal in China have risen steadily during 2009 due to increasing demand, the government has curtailed coal production and now sits on a historically low 12-day supply. It has mandated over 1500 coal mines under 300,000 tons/year output will be closed by the end of 2010. This constrained supply will drive coal and coke prices up further raising the cost of fossil fuel-based energy across their entire manufacturing sector.

Third, on December 28^th, the Chinese government revised its renewable energy laws to mandate that utilities buy 100% of the renewable energy produced and established severe financial penalties for non-compliance. This action will dramatically raise the cost of coal-based energy and incentivize investment in renewables by guaranteeing a market for renewable energy at any/all future production levels.
Further investigation reveals other actions taken by China in 2009:

54 Gigawatts of China’s smallest, most inefficient coal-fired electrical plants were taken offline in 2009. Replaced with new plants, such as the 1 GW Huaneng Power International coal plant in Yuhuan that can generate a kWh with just 283 grams of coal, a 25% improvement on the their industry average efficiency.
The central Asian gas pipeline began operations in December. The pipeline will bring 40 billion-cubic-meters/year of natural gas from Turkmenistan, (through Uzbekistan and Kazakhstan) to northwest region of Xinjiang Uyghur Autonomous Region and from there to Shanghai, Guangzhou and Hong Kong.
In a move to augment its controversial hydro projects, China’s National Energy Administration (NEA) announced it would bring its total wind power capacity to 100 GW by 2020 from the current 12 GW and has planned six 10GW-level wind power bases Inner Mongolia, Gansu, Xinjiang, Hebei and Jiangsu. The first o be built in the Jiuquan will be completed by 2010.
Construction started in September on three third-generation, pressurized water reactor, nuclear power projects in Sanmen (Zhejiang), Haiyang (Shandong) and Taishan (Guangdong). The fleet will employ AP1000 technology from Westinghouse. The combined capacity will be almost 4GW with the first plant being on-line in 2012. At the same time, the government also revised its plans for nuclear power production capacity in 2020 from 40GW to 70GW.
Effective January 1, 2010, China will move to a market price-based scheme for oil pricing. In addition, taxes on gasoline will be raised 500% while taxes on diesel fuels will be raised 800%. These incrwases will accelerate the move to electrification of the automobile fleet.

Was China a climate spoiler in Copenhagen or a keen strategist? Are these actions the coordinated effort of a nation that is serious about climate change? Or, does it believe the low carbon economy is coming and an opportuntity to establish itself as the economic and geopolitical leader in the coming era?

Learning to love multinationals

2009-12-27T12:30:00.003-05:00

On the 7th day after Copenhagen a conclusion came to me...

It’s all about leverage. Who has it? How do you apply it?

In the fight against climate change, multinational corporations (MNCs) are on the front lines, bringing both scale and scope to the battle. Wal-Mart is the often-cited example. With over 2.1 million employees in the U.S. alone and a global supply chain of over 60,000 suppliers in 70 countries, the company’s reach is massive and the impact of its strategic decisions rapidly crosses national borders. The company has discovered sustainability makes strategic and economic sense and it reinventing itself to take advantage of the opportunity. Most of the major consulting firms (AT Kearney and Cap Gemini efforts highlighted below) have brisk business in the supply chain area helping clients implement these high leverage strategies. Perhaps more importantly there is also a secondary effect, for as Wal-Mart goes, so goes the world. All of this has been accomplished without the involvement of multilateral institutions, legislative procedure or regulatory mandate.

While historically the daemon in past, MNCs with the right kind of leadership these companies can serve society while also serving their shareholders. Educating and influencing the strategy of the world largest MNCs may be both more expedient and more effective than the rhetoric of political process.
Gci Capgemini Future Supply Chain 2016 Report

Sustainable Supply Chain Aug 09

Is the U.S. too big to fail?

2009-12-27T11:18:00.004-05:00

On the 6th day after Copenhagen a conclusion came to me...

The “failure” to reach a comprehensive and binding agreement on climate charge in Copenhagen was due in some part to two related issues, the scale of nation states and their representative forms of government.

Large nation states are among the largest emitters and play a leading role at the environmental bargaining table. At the same time, they are made up of many entities with conflicting needs across geographic, industries, cultural, demographic and sociological strata. Imagine the difference one finds across a country such as the United States, Australia, China, India, Russia or Brazil and it is easy to see the many conflicts that can arise when discussing what country’s optimum position on various aspects of climate change, environmental protection, trade or economic development. Small nation state’s, particularly island state, issues are more bounded and more easily focused, i.e. Mohamed Nasheed, President of the Maldives is dealing with externally driven sea level rise and salt water infiltration of their ground water without the need to consider issues related to a domestic coal industry or loss of jobs in a major domestic industrial group, such as automotive sector.

At the same time, leaders of large nations with representative forms of government are torn between the conflicting needs of their many constituents, leaving them without a clear mandate. In essence, this leaves them powerless to demonstrate the leadership demanded by many or to take strong positions on issues that may, in the short term, negatively impact significant elements of their constituency. As an example, Australia and Prime Minister Kevin Rudd had been leading voices for bold legislative change, Emissions Trading Schemes (ETS) and aggressive GHG emission targets in the run up to COP15 and was planning to attend COP15 with signed legislation in hand. That is until Tony Abbott, a stanch climate skeptic ascend to the leadership of the leadership opposition (Liberal) party immediately prior to the summit. In preparing to attend COP15, Rudd is quoted in the "Now that Tony Abbot and the extreme right have taken over the opposition it's difficult to see legislation passing the Australian parliament." In contrast, China with its centralized form of government had significant advantages at the bargaining table in Copenhagen as a result.

Are we treating the large, industrialized nation states as we have the large global financial institutions of the recent financial crisis, i.e. too big to fail? Will climate change reforms require a new approach governance and implementation, in essence a break from Kyoto? I think yes. As we are seeing in the case of California in climate/environmental legislation and the broader global trade regime, regionalization and cross-border coalitions with tighter alignment around political, strategic resource and economic factors will evolve to fill the governance gap. It has been said political boundaries that historically have been arbitrarily set for a variety of reasons, would be better aligned according to the ecosystems boundaries and subdivisions of the natural watersheds. This is a unique point of view that triggers interesting thinking around the issues of climate change and governance.

Map Description

This map shows the location of 106 major watersheds of the world. It includes the world’s
largest transboundary watersheds and other small basins that are representative of a particular geographic area. Omitted regions, shown in white, are primarily smaller coastal drainage basins or regions with no permanent rivers.

Source: Earth Trends Institute

Sustainable Thinking - Smarter, Cleaner, Cheaper

2009-12-27T09:24:00.003-05:00

On the fifth day after Copenhagen (Christmas Day), a new mantra came to me...

Design thinking is all the rage these days in executive suites and product planning sessions these days. The 1.4 million Google hits for the phrase and in over 1,000 scholarly publications in 2009 are a testament to the attention being given this creative process that attempts to apply empathy and “out of the box” thinking to meet user needs better and drive business success. This emphasis makes sense in markets where commoditization combined with years of focus on six sigma, supply chain management, lean manufacturing, outsourcing and low cost production have both raised quality and squeezed the margins out of many product categories. This design thinking philosophy feels like an improvement while being regressive at the same time. I recall the Volkswagen ad from the 1960’s, where the jingle “longer... lower... wider... the ’49 Hudson is the car for yoooOOOoooOOOuuuu” has stuck in my head all these years. In this ad, VW contrasts “marketing thinking” of Hudson, Studebaker and Packard with its own more sustainable (in the micro-economic theory of the firm sense) “value thinking”. In the 1980s with the microelectronics, quality and globalization revolutions, the pendulum swung to “better, faster, cheaper”, a value-based philosophy that has led to too many bland, look-alike products. I see design thinking trying to bring these two opposing forces, “marketing thinking” and “value thinking” together to drive business success (revenues), as well as benefit of users. The challenge is related to the classic Porter-ian question of profits, “Does the uniqueness of the product or service create enough value such that the firm can charge a premium and that the higher price covers the incurred in offering the unique features?”. In many cases, perhaps not.

At the same time, the emerging sustainability trend will impact this balance moving forward. Macro-level environmental and sustainability demands are shifting the value proposition from product/service features of “better, faster, cheaper” to those of “smarter, cleaner, cheaper”; smarter use of scarce natural resources, cleaner (less wasteful) products/processes and lower costs that will accelerate adoption and allow penetration of Bottom of Pyramid (BOP) markets. William McDonough among other has been a proponent the life-cycle based design for many years which has seen growing adoption a number of corporations and industries. Now with the advent of the Low Carbon Economy, sustainability thinking, i.e. smarter, cleaner, cheaper has reached a tipping point and will be the mantra the permeates every element of every product, service and industry form here forward.

Would we act differently if GHG emissions were as threatening to civilization as nuclear weapons?

2009-12-24T17:28:00.002-05:00

On the forth day after Copenhagen a conclusion came to me…

There is discussion of the successes of Copenhagen, the important first step, getting all the major emitters to the table, the rain forest agreements, the financing mechanisms, the importance in reporting and validation (transparency). But, there is has been much more talk of what failed in Copenhagen. The UN let us down. Our leaders let us down. So much has slipped through our fingers, been left undone. Others suggest, as written in this week’s Time Magazine, “The very struggle to reach agreement at Copenhagen (…) that 113 heads of state attended (…) is a sign that global climate talks have moved beyond symbolic rhetoric.” Looking ahead, it will only get tougher at COP16 in Mexico City in 2010, as the stakes get higher.

It was neither the science nor the leadership that failed at Copenhagen. It was the process that failed. The process used by the UNFCC calls to mind the two familiar stories about herding both and allowing the 800-pound gorilla (China) sleep anywhere it wants to. It is the direct result of the open and democratic process being used, where one country gets one vote and the vote must be unanimous. One hundred ninety two countries involved in the negotiation process, each with veto power. This approach treats climate as a common good and thus we are at risk of suffering Garrett Hardin’s tragedy of the commons.

Rather than treat climate as a common good, what if we treated climate change as a threat to international security (which it is on many level) where the proliferation of Green House Gas (GHG) emissions need to be collectively controlled as is done with that other major threats to international security, nuclear weapons. This shift in the paradigm gives one great freedom to think differently about the process of GHG emissions proliferation while remaining within the auspices and consistent with the purposes of the United Nations.

The purposes of the United Nations laid down in Article 1 of the present Charter, shall be:

1. to further international peace and security;
2. to promote the political, economic, social, and educational advancement of the inhabitants of the trust territories, and their progressive development towards self-government or independence as may be appropriate to the particular circumstances of each territory and its peoples and the freely expressed wishes of the peoples concerned, and as may be provided by the terms of each trusteeship agreement;
3. to encourage respect for human rights and for fundamental freedoms for all without distinction as to race, sex, language, or religion, and to encourage recognition of the interdependence of the peoples of the world; and
4. to ensure equal treatment in social, economic, and commercial matters for all Members of the United Nations and their nationals, and also equal treatment for the latter in the administration of justice, without prejudice to the attainment of the foregoing objectives and subject to the provisions of Article 80.

One model to follow in moving forward beyond Copenhagen is that of the UN Security Council, whose primary responsibility is the maintenance of international peace and security. The Council is composed of five permanent members — China, France, Russian Federation, the United Kingdom and the United States — and ten non-permanent rotating members. The Presidency of the Security Council is held in turn by the members of the Security with each President holds office for one calendar month. Ten non-permanent members, elected by the General Assembly for two-year terms and not eligible for immediate re-election.

Each Council member has one vote. Decisions on procedural matters are made by an affirmative vote of at least nine of the 15 members. Decisions on substantive matters require nine votes, including the concurring votes of all five permanent members. This is the rule of "great Power unanimity", often referred to as the "veto" power.

Under the Charter, all Members of the United Nations agree to accept and carry out the decisions of the Security Council. While other organizations of the United Nations make recommendations to Governments, the Council alone has the power to take decisions that Member States are obligated under the Charter to carry out.

A climate Council could mirror this structure and purpose. This would build on the actions of the Copenhagen “Basic Five”, the US, China, India, Brazil and South Africa, who structured the Copenhagen Accord, This smaller group of this design would be more nimble, action-oriented and while being consistent with the overall UN charter.

This “Climate Council” could have functions and powers similar to that of the Security Council:

• to maintain international “climate equity” in accordance with the principles and purposes of the United Nations;
• to investigate any dispute or situation which might threaten the climate security of member nations and lead to international friction;
• to recommend methods of adjusting such disputes or the terms of settlement;
• to formulate plans for the establishment of a system of emissions targets and measurement, monitoring and validation of regulate emissions;
• to determine the existence of a threat to the global climate action should be taken;
• to call on Members to apply economic sanctions and other measures not involving the use of force to prevent or stop emissions violations;
• to take collective military action against an aggressor;
• to recommend the admission of new Members;
• to exercise the trusteeship functions of the United Nations in "strategic areas";
• to recommend to the General Assembly the appointment of the Secretary-General and, together with the Assembly, to elect the Judges of the International Court of Climate Justice.

Indeed, a conclusion after a dew days of reflection and undoubtedly an oversimplification of what needs to be done. This approach does address many of the areas seen as flaws in the current process and provides a path moving forward: leadership by a smaller groups, representative and faster decision making and majority rule, clearly defined goals, targets, measurement and independent validation, as well as the ability to impose economic sanctions and other actions on violators. Without a movement toward a more effective process, we are destined to have a repeat experience in Mexico City in 2010 and another year lost.

The Curious Incident of the Dog in the Night-Time

2009-12-23T22:47:00.003-05:00

On the third day after Copenhagen I became aware of a deafening silence…

Battling climate change is a global challenge where technology will play a central role, in many ways analogous to that of vaccines and pharmaceuticals in fight for global health. Most fundamental research and technology development will occur in the developed world with a need to be transferred and deployed, whether in its original or locally modified form, in many third world countries. As with the intellectual property issues of pharmaceuticals in global trade environments, I expected to learn about IP issues being central to the discussion in Copenhagen. What I heard related to IP issues over the five days I spent at COP15 was…..nothing.

As with the curious incident of the dog in the night-time in the Sherlock Holmes classic “Silver Blaze”, this silence piqued my interest and warranted further investigation. Are issues of IP a non-issue in the fight against global warming? Have they already been resolved? Or perhaps is it the purview of another forum, such as the World Trade Organization (WTO).

My subsequent investigation uncovered IP issues are in fact central to the work of the UNFCC with much emphasis placed on the topic in the preparatory meetings leading up to COP15. This work was captured in a paper interestingly called “Non-Paper 47,” which was developed in the Barcelona meeting of November 2009 under the Ad Hoc Working Group On Long-Term Cooperative Action (AGWG-LTC), with some follow-on work performed during week one of COP15.

Non-Paper 47 contains a number of IP-solution suggestions ranging from developed countries having no patent protection on green technology, to setting up a patent pools for green technology, to ensuring that developing countries can make full use of the flexibilities found in the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) - including compulsory licensing - and cooperation on future research and development of green technology.

As with pharmaceuticals, the Parties are far apart of the issue of IP protection of green technologies. Developed nations are adamant that a strong IP protection framework is essential to innovation, while the G77 group of developing countries and others take the position IP is a barrier adoption and must be removed. Much of the debate focuses on trade rules, and what has been learned from TRIPS. For example, patents on some green technology could be removed for developing countries and compulsory licensing could also be considered. Today compulsory licensing of pharmaceuticals is allowed under TRIPS, but each technology has a lot of patents and the developing countries have to go to each country and company and apply for a license, which does not make sense when technologies must be deployed are rapidly as possible.

New technologies will be at the core of new solutions that address climate change. It is important that the right IP framework is put in place the to foster innovation without creating barriers to timely and successful deployments.

Economics 1, Climate-Change 0

2009-12-23T20:17:00.001-05:00

On the second day after Copenhagen, a conclusion came to me…

COP15 may have been titled the United Nations Climate Conference, but the agenda was economics under the guise of global warming; developed countries protecting jobs and avoiding taxation, emerging economies protecting sovereign rights to unconstrained growth and poor countries seeking to protect prior commitments of financial support for development with no strings attached. Yes, there were impassioned pleas for action against climate change and global warming. Citizens of low lying island nations such as Tuvalu, Kiribati and the Maldives are especially vulnerable to sea-level rise and spoke eloquently of the immediacy of this threat and near-term loss of their homelands and extinction of their cultures. While others voiced acknowledgment of challenges to be faced, the future consequences to be endured ny all and the need to act collectively, but without a true sense of a clear and present danger, this was a case of language of climate debate being used to frame the economic discussion.

The Copenhagen Accord, akin to a non-binding letter-of-intent, recognizes the need to keep global temperature rise below 2 degrees centigrade by 2050, provides a means for protecting current rain forests and establishes a $100B fund to support poor countries in the future but does not establish emissions targets for individual countries, does not specify what developing countries will do, nor defines how the financing is to be raised and distributed to poor countries; an important first step, but much less than many hoped for.

Could the outcome have been much different? Could the world leaders really achieve what was hoped for going into COP15? In a word, no. As powerful as they are, the majority of world leaders, had neither the autonomy nor the mandate to act in a way that would give climate change priority over the economy?

Meanwhile the scientists remind us the clock is still ticking toward that environmental tipping point that will ultimately define that clear and present danger that will eventually drive us to consensus and coordinated action.

If you are one to keep score, at the end of the first inning, it is Economics 1 and Climate-Change 0.

We have it backwards – Managing Symptoms versus Investing in Cures

2009-12-21T14:47:00.003-05:00

I’ve returned from Copenhagen, had some time to reflect on what transpired, how it has affected my thinking and begun to draw some conclusions about what’s next. All this will be fodder for a series of 12 essays that will take us from today to the end of the year and serve as the basis of discussion of what now lies beyond Copenhagen.

On the First Day After Copenhagen

On the first day after Copenhagen, a conclusion came to me…

We are going about this climate change thing all wrong for three reasons. First, as was predicted by many before the UN’s summit in Copenhagen, no one party will want to concede more than other parties, therefore any negotiated agreement will be minimal and certainly not the at the level the scientists suggest are necessary to avoid global warming and dramatic climate change. Second, the UN process will just take too long. We have been working on Kyoto since 1997, and it will take several more years to get a definite and binding agreement and the resulting timetables for implementation will be too long to achieve the goals set. More simply, it’s a case of too little too late. My third point is the UNFCC process and the Kyoto Protocol are attempting to manage, control and regulate the symptoms of the climate change rather than root cause of the problem itself. This approach is fraught with fundamental problems; from the collective process of setting equitable emission limits, to rules for measuring and monitoring of emissions, to validation and compliance.

The Copenhagen Accord is a step forward in the process but was ultimately developed outside the UN process by a small handful of nations and, as predicted, is much weaker than the treaty that has been in development for the past two years. Many are calling into question the UN’s process and its role in climate change moving forward. The U.N.'s own Yvo de Boer said in an interview with Reuters after the conference, "You could argue that it would be far more effective to just address climate change in the G20, whose members account for most carbon emissions… (But) it's not correct from an equity or from an environmental point of view because that would exclude many countries already on the front lines of impacts of climate change." Another suggestion, the Major Economies Forum might be the correct venue.

At the same time, there’s good news. We know technologies can advance and be deployed very rapidly with the right investments and consumer behavior can change just as rapidly with the right incentives. Case in point, in the last two years in the US coal use has dropped 11 percent while an estimated 190 new wind farms with over 16,000 megawatts of generating capacity have come online, all without legislative or institutional mandate. An argument in favor of directly investing in cures rather than managing the symptoms.

To this point, I draw the reader's attention to a recently published report from the Stockholm Environmental Institute:

"Analyses at the global level and in regions, both in poor and rich nations, clearly show that energy transformations towards a low-carbon future are technologically possible, even over the short term, and that they are socially desirable, and to a large extent economically profitable. Recent energy scenarios show that the EU can achieve 40 per cent emission reductions by 2020 with current technologies, and that India and China can bend their emission trajectories while increasing energy access and securing their economic and development goals over the coming decades."1

The clock is ticking. The environmental tipping point, the point of no return, lies somewhere ahead with the most recent scientific data suggesting it will occur sooner than we previously thought. For example, recent studies predict the polar ice cap could be gone in summertime as early as 2015 compared to previous model predictions of 2025. It might just be that if we get the economics right, a market driven strategy of investment and deployment of new technologies along with market interventions/incentives could trigger independent or small scale collective action that will turn the tide on carbon emissions and reverse global warming before the multilateral negotiation process completes the initial step of developing a definite and binding agreement that can be ratified for the 192 member nations.

1 A Copenhagen Prognosis: Towards a Safe Climate Future

It was 3 AM and I'm not referring to the Matchbox 20 song

2009-12-20T08:48:00.010-05:00

After a 12 hour delay, the last 4 of which Party delegates waited patiently on station in the plenary room, UN Secretary General Ban Ki-moon called the session to order at 3AM on Saturday morning. Then taking less than a minute, the Secretary General made a short statement to the effect that UNFCC (United Nations Framework Convention on Climate Change) would recognize the "Copenhagen Accord" and brought down his gavel to close the session to seal "A Deal" if not "The Deal" that many had hoped for.

Copenhagen Accord

The wait is over at least for me, for now

2009-12-18T19:28:00.001-05:00

Eleven o'clock has come and gone. So has twelve. And one. While the plenary room is full of people waiting for the speaker to arrive, I will wait no longer. Any significant news will be on Twitter in the morning

Dazed and Confused in Limboland

2009-12-18T17:00:00.005-05:00

More cold. More snow. More closed door bilateral meetings. More speeches about the need to act. More speeches about capitalism at the root of all our problems. More he said. More she said. More proclamations that a deal is eminent. More acknowledgments a deal is not possible. More leaked copies of “The Draft”, distributed along with other documents, also called “The Draft”. Is it an agreement? An Accord? Or perhaps just a Policy? No one can agree on what to call it. More people with more experience than me asking each other, “Do you have any idea what’s going on?”. More waiting, and waiting….and waiting. Ombama is still trying to pull a rabbit out of a hat. At least I think so, the process is not very transparent. The next plenary is to begin at 11:00pm, 2 mins from now. The agenda has just been posted. Good magic takes time. I guess we should give it a few more minutes.

A frustrated and angry Obama opens with "Our ability to take collective action is in doubt" then lays out a framework. How will China respond?

2009-12-18T09:10:00.005-05:00

We wait...

2009-12-18T07:38:00.001-05:00

The morning is spent with Obama and the heads of 23 nations behind closed doors. Sarkoszy reports the US is ready to close the deal leaving China as the sole roadblock.

Rather than mill about aimlessly like an expectant father, I decide to use the time to finish grading my fall courses. I never imagined a time when I thought grading papers would ever sound like a way to relax and recharge the batteries. :-)

Day 11 is a roller coaster - The Drama alone is exhausting

2009-12-18T07:23:00.003-05:00

Morning dawns with the Parties hopelessly deadlocked as the major players standing their ground, eyeing each other’s moves, as if playing a high stakes game of “chicken”. The G77 showing strength in solidarity hold fast to the Kyoto protocol as the best legally binding framework for coordinated global action. The balks. Both procedural as well a substantive issues creating delays. Everyone back peddles. Gordon Brown the British PM signals of impending failure at COP15. China says a deal is out of reach. The Danish Presidency issues statement that a comprehensive framework may be unachievable and may have to wait until Mexico City in 2010. Perhaps we will only get a policy statement after two weeks of talking.

At noon, deliberations are broken into two tracks, one each in line with Kyoto and UN Climate Change Convention, each to draft a proposal and come together later in the day, a procedural move to break the log jam. The US is not in favor of Kyoto stonewalls and pushes China hard on transparency and validation, China pushes back staunchly protecting its sovereignty. India shares the Chinese position. Reports of near riots on the floor ensue, perhaps better described in UN terms as “heated discussion”. Late in the afternoon the decision is made, Kyoto is the path. The US falls in line, the G77 get one of the things they came for.

Targets are discussed and the 2 deg C goal in upheld, although current commitments won’t get us to 3 deg accroding to the scientific models. The summit remains in crisis.

Hillary Clinton now leading the US delegation, gives strong speech that injects energy into the talks, making a commitment to support a $100B global “fast track”. This is seen a breakthrough on the issue of mitigation financing for LDCs. Momentum builds. China and India then make overtures they will open up to independent validation. A sliver of hope spreads across the city of Copenhagen, perhaps the world. The night wears on.

There is a growing sentiment here at COP15, perhaps more aptly describe as frustration. Where is the US leadership? As it appears, it is only they (the US) who can bring the Parties together and exact the compromise needed.

With Obama's arrival, the day ends on thread of hope.

“Difficult negotiations following a most difficult path”

2009-12-16T19:19:00.007-05:00

That is how UN Secretary-General Ban Ki-moon characterized the efforts of the Parties during Cop15 this evening in a panel session at the Bella Center in Copenhagen. “The eyes of the world are upon us. The world expects much of us.” The audience could feel the weight of his words. He went on to say how this is an unprecedented summit the largest every outside NYC, with 113 heads of state representing 89% of the world's GDP, 82% of the world's population and 86% of global greenhouse gas emissions expected to be in attendance by week’s end. Arrivals began on Tuesday night and already sixteen heads of state are already onsite, including Gordon Brown and Hugo Chavez, President of Venezuela.

Today marked the beginning of the second/final “High Level Phase" of the summit and started off differently than the previous days. Upon arrival at the Bella Center, I noticed the security perimeter was now two blocks from the Center. Security was doubled every you looked and supported by armored vehicles at the checkpoints. But, with most logistical issues now cleared up I breezed through security in on 30 minutes. Inside the number of media crews were almost doubled with many teams finding it difficult to get a clear shot without another competitive crew in the background most resorted to doing the spots standing on tabletops to get above the crowds. Big athletic types in black suits working their way through the crowds barking commands into their wrists in hushed tones. Curious-er and curious-er.

There was much buzz of Governor Schwarzenegger’s speech from Tuesday living proof you can have both tough environmental protection and economic growth at the same time, a reference that was cited in many deletes speeches on this morning. Soon, news quickly spread the talks had completely stalled again with negotiators at an impasse on several big issues. Although the G77 (the less developed nations) were softening on financing issues, the negotiations were at a standstill. News of clashes outside ended up with 600 arrested. The Danish President of COP15 abruptly resigned and his role taken over by the Danish Prime Minister.

In the highlight of the morning, Chavez addressed the delegation right before lunch with an eloquent but fiery speech, stating the climate change was the most devastating problem in history of mankind and how the destructive forces of capitalism are virtually eradicating life from the planet. “We will not sit idly by with our arms folded waiting for humanity to die!” He then reached out to other delegates, extolling the virtues of collaboration and collective human effort in dealing with challenges of this nature. Citing capitalism as the agent of destruction wielded by the imperialist, industrialized north, he offered socialism as the only solution to the world’s climate woes, encouraging nations to adopt socialism as the only path to salvation. In closing, Chavez thanked the UN and the Parties in attendance and hoped they had a good lunch.

Phase 2 of the summit signifies the arrival of “the Ministers”. Arrive they did, in red carpet fashion with staff in tow, around noontime. With the junior teams now handing negotiations over to the high-level decision makers there was new hope for rapid progress.

John Kerry, who has been embroiled in the negotiations for the last 24 hours, made a forceful speech on the US position and role moving forward, before returning to the US to cast his vote on healthcare tomorrow on the Hill. The same vote the will keep the Republican delegation home as well. It was a good speech that will serve a good platform and setup for the Obama speech on Friday.

My day ended with the UN High Level session to describe their unified climate management strategy and initiatives with Secretary-General Ban Ki-moon and 20 of his most senior direct reports, from organizations such as UNDP, the World Bank, the IMF and others. The Secretary General was to give the keynote but could attend due to his involvement in the negotiations. It was an interesting session because every few minutes an attendant with a cell phone to their ear would whisk one of the panelists out of the room with cell phone to their ear, supposedly to attend to some important issue that had arisen. Only to have Secretary General Ban Ki-moon appear about an hour into the session. The Secretary General listened patiently for a few minutes then took the podium to give us an update on the talks.

“These are difficult negotiations, following a most difficult path” going on to say the global crisis demands global solutions and while everyone agrees in principal there is much disagreement on the details on two main sticking points. He is pushing hard on aggressive targets below the 1990 baseline. The Less Developed Countries, in his words, are leading here by setting aggressive targets. The second point is the financial and tech transfer support that will be provided to the Less Developed Countries by the industrialized nations. Here he is pushing for a $50B fund to be established, but the support is not there yet. He closed his remarks by saying, “These are the most complicated, most complex, and most difficult negotiations the I, the UN or anyone else has ever undertaken…. The future of the world is our hands… The people are depending on us and have high expectations for the delegates… and for the UN itself.”

Whether a part of a formal delegation or just an invited observer attendees at COP15 have a profound sense that history being written at here and the eyes of the world are indeed upon them.

Today's Tweet Stream....

2009-12-15T18:51:00.004-05:00

The action today was fast and furious as the 12 ring circus called COP15 gets into high gear. So today's update includes the day's twitter stream with little thoughtful observations or insight. Al Gore, Ban Ki-moon, President of South Korea Lee Myung-bak, Senator John Kerry, Mayor Bloomberg, Governor Arnold Schwatezenegger, Bianca Jager, Tom Friedman and Prince Charles were headliners on the day. More summary to come in the following days. Stay tuned in real time via twitter at PMcManus for news updates as they happen.

1) RT @cop15: Carbon capture is put on hold http://bit.ly/5cJ2hp #cop15 #copenhagen #climate 39 minutes ago from bit.ly

2) RT @cop15: UN conference gearing up for make-or-break finale http://bit.ly/6UEiHt #cop15 #climate #copenhagen 40 minutes ago from bit.ly

3) RT @cop15: Developing world threatens battle on drafts http://bit.ly/92nQj3 #cop15 #climate #copenhagen 40 minutes ago from bit.ly

4) RT @cop15: Four world leaders discuss climate negotiations http://bit.ly/7ZTxRE #cop15 #climate #copenhagen 41 minutes ago from bit.ly

5) RT @cop15: South Korea to bridge rich and poor nations http://bit.ly/6qESKm #cop15 #climate #copenhagen about 5 hours ago from bit.ly

6) RT @cop15: China: Poor countries are first in line for funding http://bit.ly/7hDulg #cop15 #climate #copenhagen about 5 hours ago from bit.ly

7) RT @cop15: Pope calls for action on climate change http://bit.ly/4rsNyp #cop15 #climate #copenhagen about 5 hours ago from bit.ly

8 ) RT @cop15: Merkel concerned over Copenhagen pac http://bit.ly/4tsNsu #cop15 #climate #copenhagen about 5 hours ago from bit.ly

9) PMcManus: Prince Charles is in the house. about 6 hours ago from UberTwitter

10) PMcManus: Tom Friedman is on a roll in the panel session in the Danish pavillion about 7 hours ago from UberTwitter

11) RT @cop15: Forest negotiations are making headway http://bit.ly/91A6fO #cop15 #climate #copenhagen about 7 hours ago from UberTwitter

12) RT @cop15: Forest negotiations are making headway http://bit.ly/91A6fO #cop15 #climate #copenhagen about 8 hours ago from bit.ly

13) RT @cop15: Schwarzenegger says go carefully on climate change http://bit.ly/7L38Oe #cop15 #climate #copenhagen about 8 hours ago from UberTwitter

14) RT @cop15: 'Jaw-dropping' queue for climate summit - our Environment Correspondent reports: http://bit.ly/8wR59O #cop15 #copenhagen about 9 hours ago from web

15) PMcManus: JOhn Kerry & US delegaiton Press confernece at 9:30am Al Gore speaking at 12:30pm (Boston time). See them live on the C0P15 webstream. about 9 hours ago from UberTwitter

16) RT @cop15: Japan to unveil 10 billion dollars in climate aid http://bit.ly/8jArfU #cop15 #climate #copenhagen about 10 hours ago from UberTwitter

17) RT @cop15: Japan to unveil 10 billion dollars in climate aid http://bit.ly/8jArfU #cop15 #climate #copenhagen about 10 hours ago from bit.ly

18) RT @cop15: Australian PM warns of failure http://bit.ly/55HkAS #cop15 #climate #copenhagen about 12 hours ago from bit.ly

19) RT @cop15: Schwarzenegger says states key to climate fight http://bit.ly/8m8e3w #cop15 #climate #copenhagen about 12 hours ago from bit.ly

20) RT @cop15: US long-term climate aid unlikely to be disclosed http://bit.ly/8SnPKh #cop15 #climate #copenhagen about 12 hours ago from bit.ly

21) RT @cop15: China accuses developed countries on climate http://bit.ly/7XTGzI #cop15 #climate #copenhagen about 13 hours ago from UberTwitter

22) RT @cop15: China accuses developed countries on climate http://bit.ly/7XTGzI #cop15 #climate #copenhagen about 14 hours ago from bit.ly

23) RT @cop15: COP15 quietly addressing other half of the emissions problem http://bit.ly/4w1scV #cop15 #copenhagen #climate about 16 hours ago from bit.ly

24) RT @cop15: France promotes plan to fight deforestation http://bit.ly/5AlZM2 #cop15 #climate #copenhagen about 16 hours ago from bit.ly

25) RT @cop15: Rich countries behind green technology fund http://bit.ly/5WWiYm #cop15 #copenhagen #climate about 16 hours ago from bit.ly

26) RT @cop15: India sets Tuesday night deadline http://bit.ly/5qOATg #cop15 #climate #copenhagen about 16 hours ago from bit.ly

Moday's News - Day 7

2009-12-14T16:23:00.004-05:00

Polar Ice

Today in a side event at the Bella Center, Al Gore updates recent studies by the Arctic Monitoring and Assessment Program and Norwegian Polar Institute suggesting that the northern polar sea ice has been retreating dramatically and may be gone in the summertime by 2014, much earlier than foreseen by a US government agency just eight months ago. Although there is wide consensus that this will occur by 2025, many scientists take the position that this newly developed scenario is a possible, but not probable in their minds.

Poor Nations in Day Long Boycott

African nations joined by 135 other countries including India and China boycotted today’s talks in Copenhagen charging that developed nations were conspiring to reduce their commitments to greenhouse gas emission reductions. Informal talks resolved the impasse and negotiations resumed in the late afternoon.

Monday morning buzz: China

2009-12-14T04:07:00.001-05:00

China is giving signals that it will back off on its demand for funding from developed nations to combat CO2 emissions. This is a big concession by a major player at the talks and seen a very positives sign and will accelerate the talks on emerging economy financing..

Stay tuned.

Living the Talk & Finding the Leverage

2009-12-13T13:35:00.005-05:00

In planning my trip to COP15, I spent a lot of time researching the events, press meetings, side events and venues to get some idea of a game plan for the visit. When our full delegation is here on Tuesday we will have planning session to compare notes and ensure we cover as much territory as we can. Upon arrival, I found the atmosphere to be what I expected; from the airline pilot welcoming COP-15 visitors on the approach into Copenhagen, to the promotional booths and helpful guides directing sleep deprived travelers at the airport to the bustling streets the atmosphere is electric and carnival-like. What I wasn’t really prepared for was the experience of being immersed in one of the most sustainable urban environments that can be found.

As business travelers often do, I sit at the end of the day to catch up on email and other daily chores and start to acknowledge there is something different about this hotel stay at one of the Scandic hotels in Malmo, Sweden. Yes, linens are only replaced when necessary and lighting it controlled by your key card. Rehydrating after a long day, I sip tap water, yes tap water, out of a glass that is actually made from glass. I work on a small desk and wooden task chair (locally sourced), lit by a single, small compact fluorescent task light. Next to the desk on the oak flooring (recycle material) sits a waste management system, a wastebasket compartmentalized for organics, recyclables and other materials. The hotel’s brochure on sustainability lies nearby and I read the hotel chain is a Nordic Swan Award (sustainability) winner. It has developed its own water treatment capability that leaves important salts and minerals in the water and has eliminated the sale of 1.6 million liters of bottled water (3.5 million bottles) per year, in additional to 160 tons of carbon dioxide emission in transportation of that water to its hotels. Waste water streams are managed and treated separately. I even went on line to calculate the environmental impact of my stay. Seems they’ve taken this sustainability thing pretty far.

Dinner was taken tonight in the hotel restaurant and consisted of a menu of locally grown foods and fair trade coffee. In the hotel lobby, across from the restaurant, is a “small farmers market” of fruits along with locally made breads and cheeses (note to self: breakfast or at least "road food"). Typical of lone travelers, I read during dinner and learned that Malmo has been aggressively pursuing sustainable development since 2001. Its rehabilitated harbor front built since that time has been powered by renewable energy, employs green roofing, and reuses its storm runoff among other strategies.. Given the success of this effort, the entire city of Malmo is committed to be carbon neutral by 2017 and 100% powered by renewables by 2030.

Lessons learned from all this: 1) living a more sustainable lifestyle will be easier than we think and won’t require any noticeable sacrifices. 2) consumer behavior can change, if change is made easy. (it was easy to put the right trash into the right receptacle), and, 3) this experience supports my belief that there are two big leverage points for sustainable development: Multinational Corporations (MNCs) and urban development. I wasn't planning for this to occur, but it has been one of the most insightful discoveries on my visit here.

In 2008, for the first time in human history, more people lived in urban environments than rural settings. This trend is projected to grow in coming years to almost 2/3rds . Copenhagen and Malmo are not Upopia in the Thomas Moore sense, but are rather living examples of what this future might look like.

US Republican Opposition Heading to Copenhagen

2009-12-09T23:05:00.001-05:00

Representative James Sensenbrenner will lead a delegation of Republican House lawmakers critical to the President Obama’s position on climate change to Copenhagen next week to show public opposition to the policy. Citing information included in the “Danish text” the group will to draw attention to the leaked emails from leading climate scientists (dubbed “Climategate”) which they said backed their suspicions that the global warming threat was overblown and too costly to act on. Representative Darrell Issa, the top Republican on the House committee is said to be preparing to conduct any congressional investigation into the leaked emails. Republican opposition also plans to challenge the Environmental Protection Agency’s (EPA) in regulating carbon dioxide as a pollutant.

Also reported, all seven Republicans on the US Senate Environment and Public Works Committee are planning to boycott this week's work session on a domestic climate-change bill (the Kerry-Boxer Bill) , an aide said on Saturday.

More info:

Yahoo News: US Republicans vow to rain on Copenhagen parade

Reuters: Republicans Move to Delay Climate Bill Progress

New York Times, Dot Earth: Update on Copenhagen and the Climate Files

Developing Nations in an Uproar

2009-12-09T06:57:00.001-05:00

As noted in comment on previous posts, a central issue in the UN negotiations in Copenhagen is whether or not certain developing countries should make financial commitments toward mitigation. This question is based on both precedent and practicality. The Kyoto Protocol sets the precedent in that all developing countries are exempted from obligations, while in the practical sense, developing countries have very limited capacity to address mitigation and other critical issues such as poverty relief, education, healthcare, national security simultaneously. Industrialized countries have stressed that this is not feasible in the future during the preparations for the Copenhagen meeting.

The uproar in on this issue, revolves around the so-called “Danish text” published on the Guardian website. The confidentially sourced documents is describe as a draft of upcoming, says that “developing countries, except the least developed which may contribute at their own discretion, commit to nationally appropriate mitigation actions.” These commitments are suggested to be given as a percentage – to be negotiated next week – which should be achieved by 2020. However, the percentage should not be compared to present levels, rather to a business-as-usual scenario.”

Another point of concern is the draft’s suggestion to transfer more control over the enforcement of the Copenhagen agreement from the UN to the World Bank. A move would shift more control over to the industrialized world.

According to The Guardian’s sources, developing countries are infelicitous about the new proposed division between the “least developed” and other developing nations.

Perspective on the issue is provided by Kim Carstensen, head of conservation group WWF's global climate initiative, wwho said in the NYT piece cited below "Focus on the Danish text right now is a distraction from the negotiations," adding “the text did not lay out what would happen to the Kyoto Protocol.”

For further info, readers may refer to these news sites:

The Guardian, “The Danish Text”

COP15: “Danish text” raises furor”

Financial Times: “The leaked ‘Danish draft’ text of a Copenhagen agreement: an NGO-created storm that will not benefit poor countries?”

New York Tmes: “China Demands More From Rich to Unlock Climate Talks”

COP-15 Opening Day News

2009-12-07T20:15:00.002-05:00

Latest news going into the conference:

President Obama ups the ante and changes plans to attend conference on closing day, a move viewed by many as confirming a binding agreement may be within reach.

Prime Minister Manmohan Singh of India makes his decision and commits to attend the conference.

The UK and 52 other Commonwealth Nations commit $10B for a “Fast Start” climate fund to support developing nations in dealing with climate change, while EU is preparing to make 53B Euro commitment.

Opening Day News:

192 nations including Iraq and Somalia are represented as 15,000 were in attendance in Copenhagen on opening day, while an additional 19,000 registered would-be attendees were turned away. Copenhagen declared a UN site and falls under UN security

“A deal is within our reach,” Lars Løkke Rasmussen, Danish Prime Minister in his conference opening speech

“The EU is ready to raise its commitments from 20 to 30 percent, but this would require others to bring something to the table.”, Andreas Carlgren, Swedish Minister for Environment and current EU President

Prime Minister Yukio Hatoyama of Japan (#5 emitter) recommits to that countries 2020 target to cut greenhouse gas emissions by 25 percent from 1990 levels if all major emitters, such as China and the United States, agree with ambitious targets.

"The final stage is here with us. Rather than describing it in optimistic or pessimistic terms, we need to focus on the substantive work before us.“, YU QINGTAI, CHINA'S CLIMATE CHANGE AMBASSADOR

U.S. Environmental Protection Agency (EPA) labels carbon dioxide along with five other greenhouse gases are a threat to public health. As such, the six substances can be subject to regulation under the U.S. Clean Air Act and gives President Obama the tool he needs in Copenhagen.

The Door is Open

2009-12-01T12:53:00.008-05:00

As heads of state have respond to their official invitations to attend COP15 issued on Nov 13 and we are starting to see the lineup of participants. Along with commitments to participate, carbon emission reduction pledges are being offered by these leaders toward the conference’s overall goal of developing the global framework for the treaty to replace Kyoto 97.

Most notable in recent weeks are the commitments by the U.S. and China, the world’s two largest emitters of CO2. (See table below) Although there is criticism that the pledges made by these two countries are inadequate based on the science as well as commitments made by other nations, these pledges are a significant advance, unlocking the last door and building momentum toward a consensus on emissions targets.

Chinese Prime Minister, Wen Jiabao, will attend the Copenhagen climate talks and has pledged China will cut “emission intensity” relative to economic growth by 40% to 45% by 2020 compared with 2005 levels. President Obama will also attend on December 9th with a pledge of at 17% reduction in emissions in the same time period from the same 2005 level. This is a historic precedent for the U.S. as it traditionally likes to have formal legislative policy in place before agreeing to commitments of this nature. But, with the Kerry-Boxer Bill still in the Senate and unlikely to be voted on before February 2010, bipartisan leaders in Washington have agreed to the 17% reduction goal so to support U.S. negotiators at the Copenhagen bargaining table.

The complexity arises form the fact that other countries use 1990 as their base year not 2005, and not tying the target to “economic growth” as is China. In 1990 terms, the 17% reduction for the U.S. translates into roughly a 4 percent reduction relative to 1990, and China's pledge to cut carbon intensity means an actual increase in emissions. Given the projected expansion of the Chinese economy, emissions will continue to rise for at least the next ten years despite the promise to decrease “emissions intensity. Estimates are that the 40 to 45% cut in carbon intensity amounts to between zero and 12% reductions in actual emissions levels, but translating into a 40% increase in emissions due to overall growth of their economy.

Emission Reduction Pledges By Top 5 Emitters*

Country, Reduction, Baseline Year**

US, 17%, 2005
China*, 40-45%, 2005
Russia, 25%, 1990
Japan, 25%, 1990
India, No Pledge

* Comparison of 2020 Targets & Ranges
** Emission Intensity

While the door is now open to move towards a consensus on targets. large questions still remain, including the financial framework for credits, choice of the baseline year against which specific reduction targets will be measured; the duration of the emissions reductions commitment period; whether or not to call for curbs on deforestation, especially in developing countries’ tropical rainforests; and whether or not to tighten rules governing the methods used to reduce emissions.

The Carbon 20 (C-20)

Total Emissions (excluding land-use)
Units: thousand metric tonnes of carbon dioxide

SOURCE: World Resources Institute. 2003. Carbon Emissions from energy use and cement manufacturing, 1850 to 2000. Available on-line through the Climate Analysis Indicators Tool (CAIT) at Washington, DC: World Resources Institute

Decoding Copenhagen: The Swiss Perspective

2009-11-28T09:08:00.008-05:00

Prof. Martin Beniston, Chair for Climate Research at the Institute of Environmental Sciences, University of Geneva and Dr. Jurgen Weiss, leader of climate/carbon practice at the Brattle Group in Boston, spoke recently at the Swiss consulate in Boston. Their talks provided insight into the Swiss, as well as their personal, perspectives on climate change and the upcoming meeting in Copenhagen. You can find more info about the event, as well as copies of the presentations at:

http://www.swissnexboston.org/activities/blog

Nuclear Renaissance

2009-11-21T19:17:00.006-05:00

In a recent Financial Times interview, Hans-Holger Rogner, Head of Planning and Economic Studies for the International Atomic Energy Agency, stated, ”If we want to curb greenhouse gas emissions by 50 per cent to 80 per cent by 2050, and we don’t use nuclear power for base load electricity generation, what can we use instead? It is not a quick fix: it depends on public acceptance and government support. It is not the whole solution to the problem. But it can make a contribution.” Many nations around the world are starting to agree; witness the more than 50 countries developing ambitious plans for nuclear fleet build-out. Here again China, as in solar and wind technology, is leading the way. Of the 50 nuclear plants are under construction around the world at this time, 16 are in China, as are 126 of the 430 plants that in the proposal stage. But, China is not alone in its ambition. The U.K. has made a dramatic policy turnaround and begun a construction program, while Italy has at least 4 new plants on the drawing board. Countries such as Spain and Germany who once had plans to decommission their fleets, have puts those plans on hold although have not moved ahead with new plant designs as yet. The U.A.E. wants to get into the game with support from the United States bringing the highly politicized nature of nuclear issue in Iran into sharp focus. To this point, emerging countries can by and large can sidestep issues with the nuclear non-proliferation treaty by staying out of the fuel production cycle, namely the uranium enrichment and waste reprocessing stages.

Meanwhile, support for nuclear is just beginning to build in the U.S. vis-à-vis the Kerry-Boxer energy bill in the Senate but up until now federal support has been minimal with only 4 new plants, serving to take over as older first generation plants are decommissioned.

While passive safety and waste reprocessing technologies will continue to improve over time, two major issues loom over the industry: cost and fuel sourcing. On the cost side, perhaps the industry could take a lesson in strategy from one of our favorite examples, Southwest Airlines. Standardizing the fleet would go a long way to lower costs and reduce risk in future plant build outs. Given there are only a handful of firms qualified build such plants and no need to pursue competitive advantages at the plant level through proprietary designs, I’m not the first to suggest that there would great economic benefits in developing a standardized platform or sets of platforms.

Strategic sourcing is perhaps the trickier issue, particularly for the U.S. where about 30% of operating plants have are fueled in recent years by materials sourced from a one-time windfall, decommissioned Soviet warheads. Looking at the figure below we see Australia becoming the “Saudi Arabia of Uranium” and a potentially interesting realignment of geopolitical interest in the future.

We certainly do live in interesting times.

SOURCE: Source: Energy Statistics Database | United Nations Statistics Division via NationMaster

Are We Laying the Groundwork for Another Oil Crisis?

2009-11-18T13:00:00.009-05:00

Despite the environmental concerns and energy security issues, oil will continue to play a critical and central role in our energy portfolio through the transition to a clean energy economy and beyond. At the same time, let’s not forget, that oil is an important industrial feedstock with over 20% of production going into products such as plastics and fertilizer. (IEA 2008). Thus, it important to continue to invest in oil exploration and production to maintain future supplies. The concern is this is not happening.

The financial crisis has reduced demand for oil and depressed prices to as low as $30/bbl at the turn of the year। Some analysts, Veronique Lashinski of Newedge, being the leading proponent, believes that oil demand peaked in the U.S. in 2007 and will remain depressed through out the economic recovery and beyond. Peter Jackson of IHS Cambridge Energy Research Associates, cites global oil demand reached an “undulating plateau” in 2005 which will continue our to at least 2025-2030. While, Mark Cooper, a research fellow and energy expert at the Vermont Law Schoo states, "This might be an “inflection point” in the American economy." Thus, one might conclude that there is no eminent crisis.

At the same time, signs of a coming crisis are recently highlighted by IEA warnings: oil & gas investment budgets were slashed by over 20% in 2009 taking over $100B out of the new investment cycle. This follows a similar trend n 2008 where over $170B (20 planned projects) were canceled or postponed indefinitely. While OPEC in helping this situation by constraining production and driving prices higher, the concerns are based on historical precedent. Economic recoveries tend to spur sharp upticks in energy/oil demand and while speculative markets drive sharp spikes on pricing based on short term constrained supply and longer term delays discovery/production. The IEA and others foresee a potential oil crisis looming on the horizon in 2012-2014 (depending on economic recovery and growth rates) with demand outpacing production capacity and prices easily exceeding last year’s historic level of $147/bbl. While these high oil prices will spur investments in renewables, they drive up CPI for all and siphon capital away from investments.

Developing a diversified energy portfolio and investing in clean & renewable sources is essential to energy security and sustainable, long-term economic growth. At the same time, we need to continue to invest in oil (as well as natural gas for base/peak load generating and heating) as part of a coherent and comprehensive energy strategy.

Today the creation of this strategy is hampered by great uncertainties, uncertainties that weaken commitment and postpone needed investment. To move forward, cap & trade agreements (the currently preferred solution) will help to establish a markets for carbon credits that will produce pricing signals that will clarify the economics of the energy/environment trade-off and create of capital flows. The COP15 agreement will establish the second critical element; a framework for establishing quotas and managing the flow of funds.

“Copenhagen is already a success!”, declares Jeff Immelt, GE’s Chairman and CEO

2009-11-16T22:49:00.004-05:00

Speaking before a record audience last Friday at Net Impact’s 2009 Conference at Cornell University, Jeff Immelt turned his attention to COP15 and declared, “Copenhagen is already a success! Just look at the number of countries that have committed to voluntary GHG reductions prior to the meeting.”

Here's a brief summary of some recent announcements:

Nov 16 - The Australian government will commit to reductions of between five and 15 percent below 2000 levels by 2020 and if other nations agree to a 450 parts per million global target at the international climate negotiations at Copenhagen in December it will agree to more aggressive 25% reduction.

Nov 15 - High-level Turkish officials from the Ministry of Environment and Forestry said last week that they would likely reduce emission by 11 percent by 2020.

Nov 13 - Brazil on Friday became the first emerging giant to make a nonbinding promise of this kind, saying it would make a voluntary pledge to reduce its emissions by between 36 and 39 percent by 2020 as compared to anticipated trends.

Nov 10 - Seoul's presidential office announced South Korea has decided on a 30-percent reduction of greenhouse gas emissions from levels predicted for 2020, setting one of the most aggressive voluntary goals to roll back climate change.

Nov 6 - President Susilo Bambang Yudhoyono pledged that Indonesia would cut its emissions by 26 percent by 2020 on a voluntary basis.

Oct 24 - Pressure on China and India to do their share in emissions reductions has resulted in the announcement of a memorandum of understanding for regional cooperation emission reductions, renewable energy and energy efficiency programs. While no specific targets have been set, China for example has committed to derive at least 15 percent of all its energy from renewable sources by 2020. (The government since has talked of a more informal target of 20 percent.) The second is to reduce energy intensity per unit of GDP by 20 percent over a five-year period.

And the list goes on, with the notable absence of the EU and the US.

While achieving a binding agreement at Cop15 is now unlikely, voluntary initiatives such as these are gaining momentum. Perhaps Jeff Immelt is right, Copenhagen is already a success.

Welcome

2009-11-15T18:32:00.015-05:00

The United Nations conference on climate change in Copenhagen (COP15) this coming December will be the most important such meeting since Kyoto 1997. Over 190 nations will gather together to create a framework for a new global climate agreement. The challenge lies in addressing two seemingly irreconcilable goals; getting new commitments for carbon emission reductions in industrialized countries in order to safeguard society while addressing developing economy's needs to grow to raise standards of living and eradicate poverty.

The goal of COP15 is ambitious; to achieve a binding global agreement on greenhouse gas emissions. The issues of the impact of greenhouse gas emissions on climate change garner most of the attention, but is only one piece of the puzzle. Energy security and foreign policy are also top-of-mind issues for delegates, as dependence on foreign-sourced and speculatively-priced energy supplies will not be the best solution for energy and national security in the 21st century. To that end, a binding global agreement which puts a price on carbon, will ultimately reduce market uncertainties and spur investments in clean energy technologies and foster energy independence.

Thus, COP15 is not just about cutting carbon emissions to save the planet, or even about reducing the impact of highly volatile and speculative pricing of critical energy resources, it is most importantly about a nation’s strategic positioning in a future of carbon-constrained growth.

As the date of the conference opening draws near, many nations are jockeying for the leadership position. Japan announced a goal to reduce emissions by 25% of 1990 levels by 2020. Australia and Brazil have also set aggressive new targets. India has softened its position and declared it will not be a deal breaker in Copenhagen. Perhaps the most watched is China.

Having learned its lesson from the Beijing Olympics, China is burnishing its international reputation, while going through rapid and major transformation. It is aggressively investing its economic stimulus funds in renewable technologies and recently became the leading exporter in clean energy technology. Additionally in September, it announced aggressive goals to both reduce carbon emissions and vastly expand its own renewable energy resources. Some would argue China appears to be poised to establish a firm position as the global leader renewable energy technologies and reap the most benefits from the economic recovery and a future of carbon-constrained growth.

Signs in the U.S. are also positive for a better outcome in Copenhagen than in Kyoto. the U.S, enters the negotiations with a strong world position (often referred to as one member the G2 of Climate) along with much stronger and broader base of support from industry and its citizenry. At the same time, our position would be much stronger if we were see signs of a stronger economic recovery and climate legislation is passed in time for Copenhagen. Needless to say there in much work yet to be done on our economic recovery and climate legislation is unlikely to be on the President's desk in time.

In closing, I paraphrase Bill Clinton, “The challenge is whether the 21st century is marred by terrorism, environmental degradation and economic deprivation of all kinds or whether it becomes the most peaceful and prosperous time the world has ever known.”

We face seemingly insurmountable challenges, but as a participant in the COP15, I see great opportunity. Stay tuned.