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Copenhagen and the carbon conundrum

Felicia Jackson

10th August, 2009

It's too late to create an entirely new global climate framework, argues Felicia Jackson. We need to put a price on carbon to reflect its true cost, and Copenhagen, while flawed, is our best hope

Catastrophic climate change can be considered a tragedy of the commons - where different individuals acting in their own self-interest are destroying a common resource, despite the fact that it's in no-one's best interest.

To counter it, we must align individual interests in such a way that responsible action is encouraged and irresponsible action discouraged. One way to achieve this is to set a high price on what we agree to be irresponsible action. Carbon trading is one of the first mechanisms to do this in an international framework, potentially offering the best hope for change.

Kyoto

The Kyoto Protocol was the first attempt by the international community to address climate change, and in December in Copenhagen, the 15th Conference of the Parties hopes to negotiate a successor agreement. There are however some serious barriers to achieving this goal.

Developing countries are reluctant to accept hard carbon emissions targets as they struggle to develop their economies. Richer countries don't want to accept hard targets, or be responsible for funding mitigation, if developing economies won't also accept limits.

Under Kyoto, carbon caps, credits and trading were intended to reflect the inclusion of externalities (relating to climate change impacts) into the price of action. It was also intended to transfer funds and technology from the developed to developing world, in a way that was beneficial to both.

Carbon trading


There are undoubtedly serious flaws in the overall framework but the concept of carbon trading has been controversial and in some instances attacked unreasonably. Primarily, it has been criticised as enabling richer countries to offload responsibility for emissions reduction to the developing world.

The reality is that our economic structure is based on companies focusing on profit for shareholders and, without financial incentives, effective change is unlikely. Whether we want to hear it or not, the predominant global economic model is capitalist and that means that using price to change behaviour is the approach most likely to work.

One of the biggest hurdles in negotiation is getting countries with totally different agendas to agree on how to move forward. While politicians talk about the need for urgent action, few countries are prepared to stand alone and act.

Self-interest

Those negotiating the treaty may be genuinely concerned about the potential impact of climate change - but their goal is to agree to a treaty which achieves the common good but has as little negative impact on their own country as possible.

A central tenet of the Kyoto agreement is ‘shared but differentiated responsibilities' and the Protocol accepted that richer nations would fund adaptation and mitigation measures in poorer countries, yet an effective means is still to be agreed.

There are enormous costs associated with tackling climate change, from the need to invent and deploy new technologies, to adaptation measures and mitigation. These costs must be met, and within a framework that all parties accept as fair.

Developing such a framework could fundamentally change our economic models and, in so doing, may force a change in our lifestyles. This is key to understanding how the interplay of politics and money will define what is achieved in Copenhagen.

Real cost


Effectively addressing climate change is going to require an understanding of the ‘real cost' of the way in which we live: not just the price but the actual cost in terms of resources we consume and waste we generate - the external costs and benefits of our lifestyles.

Our economic framework is only just beginning to encompass the idea that social justice, biodiversity, health and clean air and water have a value. It has been argued that by putting an economic value on intangibles like ecosystem or species protection, we devalue them overall.

It's probably true that there is no way in which we can quantify the full worth or value of an ecosystem, and any attempt certainly defines the natural world in relation to its worth to humankind. Unfortunately, it is only by giving intangibles an economic value that they will be fully considered in an international economic and industrial context.

Value of the environment

There is little question that we must bring consideration of the ‘value' of an environmental good to the forefront of our economic approach if we are to survive the coming resource crunch.

Whether you believe that climate change is a real problem or not, providing food and water to the 3 billion people that are expected to swell the global population in the next forty years is going to put a massive strain on global resources.

We have to find some way to manage this if we're to avoid battling over water, food, oil and power. Exploring the ways in which the international community is currently addressing climate change could provide a framework for doing exactly that.

One thing that is rarely discussed with regard to carbon trading is the need for it to evolve. It is lauded or loathed but, in reality, it's a framework that's been in effect for less than five years - it needs time to grow up.

It's arguable that we don't have the time to improve the system and that we should begin again. Against that stands the length of time it took to move from agreement on action on climate change to the implementation of the Kyoto Protocol.

There are clear flaws with the carbon trading mechanism, current carbon targets and current financing methodologies, but it is likely to be easier to amend systems already in place than create entirely new agreements, and it is beginning to be understood.

Lessons from Kyoto

Kyoto took 10 years to move from agreement to implementation and there is significant momentum for a post-Kyoto agreement in Copenhagen in 2009. While there are significant barriers to overcome in terms of the details of a post-Kyoto deal, it's likely to be far easier to move an existing framework forward than start again from scratch.

Without strong action by individual countries, carbon trading and mechanisms like it, provide a pragmatic approach to changing behaviour. It will have a fundamental impact on the way our economies function. It will change the price of action, and therefore is likely to change actions.

In understanding the real cost of our actions and the ways in which we can address those costs, we can take the first step towards supporting political change. Some individuals are concerned that their actions on climate change will have little impact on the overall problem, and that drastic action by government is required.

It is worth remembering that it only by acting collectively, by giving government the necessary political mandate, that we are likely to achieve any significant progress.

Felicia Jackson is the founding editor of New Energy Finance and author of Conquering Carbon: carbon emissions, carbon markets and the consumer (September 2009)

 

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