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ROAD TO COPENHAGEN

THE COPENHAGEN CLIMATE CHANGE TALKS: WHAT IMPACT ON BUSINESS?INTRODUCTION

CLIMATE CHANGE

KEY ISSUESAny agreement at the talks on climate change will be a complex matrix ofenvironmental, economic, scientific, political and social considerations –comprising emissions targets, the role of emerging economies, compensationfor vulnerable low-lying nations, and the use and funding of new technology.

Four necessary building blocks of a successful climate change

framework at Copenhagen will be agreements on the following

broad key negotiation issues1:

Emission reduction commitments from developed countries

should be the basis of any global agreement. The criteria for judging thecomparability of targeted reductions – and the degree of enforceability – lieat the heart of the negotiations. Opinions diverge deeply because manycountries use different criteria and a different benchmark year to assesstargets. This debate focuses on whether to calculate individual targets bycomparing the clear-cut economic costs of making emission cuts or bycomparing a set of criteria such as ability to pay, mitigation potential,business-as-usual (BAU) emissions growth and historic GHG emissions.

Matching commitments from developing countries are needed toreach a peak in global emissions in the next two decades, since the rates ofgrowth in their emissions are much higher than in the developed world.However, developing countries point out that they bear less historicalresponsibility for the emissions already in the atmosphere, and that theiremissions per capita are far less than those of the developed world. Theyview demands for binding emissions reductions as being at odds withthe Millennium Development Goals. The role of so-called ‘offsets’ is alsoimportant since emerging economies deplore this approach, which allowsdeveloped countries to pass up domestic emission reductions by paying forefficiency projects in developing countries where it is cheaper.

Funding and the financial architecture refer to the necessaryarrangements for money transfers from developed countries to developingcountries. It is still unclear exactly what wealthier countries, especially theUnited States, will propose. According to European estimates, the totalnet additional cost of mitigation and adaptation in developing countriescould amount to 150bn USD annually by 2020. This bill needs to beshared between domestic financing, carbon market-based financing andinternational aid. A quasi-global emissions market could lessen the need forgovernment funding, generating billions in financial flows. However, inrecent negotiations, developing countries have requested up to 400bn USDa year by 2020, far outstripping the money that developed nations arelikely to propose.

Technology transfer arrangements refer to the process of sharingskills, technologies, processes and R&D to ensure that low-carbon energyand mitigation technologies are accessible to a wider range of countries. Forexample, the EU has announced plans to finance pilot projects of carboncapture and geological storage technology in cooperation with China. Thiscould act as a model for international action to combat climate change.Intellectual property (IP) rights are critical to this, as most of the low carbontechnology is usually owned by the private sector in developed countries.Developing nations, with the support of key environmental NGOs, argue thatclimate technologies should either be open-sourced as common property orprovided on highly favourable terms.

1 Other issues on the table include reform of the Clean Development Mechanism (CDM; agreed under theKyoto deal), and inclusion of issues such as forestry, the global carbon market, aviation and shipping.

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Despite much optimism earlier this year that Copenhagen wouldproduce a breakthrough deal on climate change, the odds are nowequally on a breakdown. We are presently witnessing official and poli-tical efforts to lower expectations for a substantial deal, and to shiftfocus to the detailed negotiations that are expected to follow theconference.

However, climate change is now almost universally accepted as the keyglobal challenge facing human civilisation. The upward trend in extremeweather events, changing patterns of rain and drought, melting polar icecaps and rising sea levels are seen as signs that we are already experiencingearly impacts of climate change due to greenhouse gas (GHG) emissions.

The United Nations Climate Change Conference, which will take place at theBella Centre in Copenhagen, Denmark, from 7- 18 December 2009, is a keymilestone in global action against this problem. The conference is comprisedof the 15th Conference of the Parties (COP15) to the United NationsFramework Convention on Climate Change and the Fifth Meeting of theParties (COP/MOP 5) to the Kyoto Protocol.

The meeting aims to agree a new framework for coordinated internationalresponses to climate change beyond 2012 to supersede the Kyoto Protocol.The key political challenge will be to reach an agreement in which both thedeveloped world and developing nations accept mutual obligations that areequitable, proportionate, measurable and accountable.

This Burson-Marsteller Insight looks at the main players and issues for thesevital talks – and at the impact of the climate change conference on business.

It is generally accepted that the COP-15 outcome criticallydepends on four key players: the ‘developed world’ economicpowers of the European Union and the United States, and thetwo emerging powerhouses of India and China:

The European Union has made a commitment to cut

emissions by 20% below 1990 levels by 2020, as

stipulated in the ’climate change package‘ passed last year. The

EU has provisions to increase its commitment to 30% if other

developed nations commit to “comparable reductions”. In the

mid-term, the EU says that developed countries could achieve

collective reductions of 80% by 2050. The EU advocates that

developing countries must reduce their emissions by 15-30%

below BAU levels by 2020, following the principle of “common

but differentiated” responsibilities. The European Commission

has put forward a blueprint for a proposed EU contribution of

some 3-22bn USD a year by 2020 for climate change financing

to developing countries. After the last negotiations between the

EU and US, EU officials expressed concerns that the American

position is weak, and as a result the Copenhagen agreement

could turn into a mere ’political declaration’.

The United States House of Representatives has passed

the Waxman-Markey climate bill proposal, which calls

for emissions from the US to be reduced to 17% below 2005

emissions levels by 2020, and 83% by 2050. However, the

2020 target translates into a reduction of around only four per

cent compared to 1990 levels. Furthermore, the Senate vote on

the Waxman-Markey bill is delayed and is now not expected

until after Copenhagen, since the Obama administration’s main

priority is healthcare reform. Without a clear view from the Senate,

it will be very difficult for the President to make any precise

commitments to reduction targets – seen by Europe as the

essential condition for “success” in Copenhagen. Moreover, in

the past, fearing economic disadvantage the US never ratified the

Kyoto Protocol because it exempted developing nations such as

China and India from mandatory emissions cuts. The Senate

could end up accepting emissions limits but only if trade penalties

can be imposed on countries that do not. That could trigger new

geo-political earthquakes along the developed-developing world

fault line. As for the financing question, the US has yet to make

any formal public offers.

India has rejected any proposals to have developing

countries reduce their emissions by 15-30% below

BAU levels by 2020. It is categorically opposed to binding commit-

ments for developing countries but has pledged that it will not

allow its per capita emissions to exceed the average per capita

emissions of developed countries. India argues that developed

countries should help finance a climate fund of up to 250bn

USD annually by 2020, as well as technology transfer cooperation.

Domestically, India has so far focused on improving energy efficiency

by introducing legislation and by establishing a Bureau of Energy

Efficiency. The country has also set itself a string of targets,

such as to improve efficiency of coal-fired stations, to better the

fuel economy of cars, and to increase the share of rail freight.

In the negotiations, India has strongly criticised proposals for

“carbon protectionism” and prefers a clause that would prevent

governments from erecting trade barriers to punish nations that

have lower carbon emissions targets.

China insists that it should not be forced to make

legally binding commitments, pointing to its efforts to

produce more renewable energy and to become more energy-

efficient. It has requested that developed countries commit to

reducing emissions at least by 40% by 2020 (compared to a

1990 benchmark). On financing, China’s position is that developed

countries should dedicate up to 1% of their GDP for climate aid

in developing countries. Domestically, China has outlined plans

to introduce alternative energies to coal which currently fuels

more than 70% of its electricity. It has set itself a target to source

15% of its energy from low carbon technologies such as solar,

wind biomass and nuclear by 2020. China considers that its

capacity for green growth and innovation is far greater than

developed countries and it has pledged to reduce the carbon

intensity of its economy from 2005 levels. Furthermore, China

wants to improve ex-ante environmental evaluation of new

economic projects.

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KEY PLAYERS

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“Unless rich nations agree to do more to cut emissions, this year's UN climate conference in Copenhagenmay be half-baked”Yvo De Boer, Executive Secretary of the United Nations Framework Convention on Climate Change (UNFCCC)

“The wiggle room is there even at the stroke of midnight when the conference is ending" Rajendra Pachauri, Chairman of the Intergovernmental Panel on Climate Change (IPCC)

CLIMATE CHANGE

ROLE OF BUSINESSThe key question for business will be whether a clear roadmap will be

agreed in the form of a deal to slash emissions without crippling the world

economy. A business-friendly deal at Copenhagen could create the neces-

sary conditions for investments to create a low-carbon global economy.

The business community is formally represented at the United Nations

Climate Change Conference by the International Chamber of Commerce

(ICC) and the World Business Council for Sustainable Development (WBCSD),

and individual member companies of both organisations (which can also

attend as part of national delegations or as members of professional and

scientific institutes). A large number of companies with low-carbon energy

technologies will also exhibit at the conference and participate in fringe

events to promote their solutions and products.

In New York on September 22, at the UN Leadership Forum on Climate

Change, 200 of the world’s largest companies joined leading NGOs

including Greenpeace and WWF to sign the Declaration by Business,

Investors and Civil Society – an appeal to world leaders for a decisive

outcome at COP-15. Among the key points in the Declaration:

A global agreement on climate and a sufficient price for carbon that will

help ensure the continuation of a global marketplace based on openness

and competition. Strong markets are needed to diffuse climate solutions.

Transition to low-carbon production and consumption presents a

tremendous value creation opportunity. By retooling the global economy in

this way, opportunities will arise in new markets, products and industries.

Only through regulatory certainty can an engine of green growth emerge

which drives innovation, spurs massive global investments and enhances

efficiencies, allowing climate mitigation and adaptation approaches to

reach full scale.

The transition to a low carbon economy is well within reach. Now what

is needed are the right incentives and regulatory certainty.

Equally, the Declaration was clear as to the impacts of a poor agreement

or failure to reach agreement:

Trade tensions and competitive distortions that not only threaten the

foundations of our global economy, but also any future advances in sustai-

nable economic and social development.

A lack of a global climate agreement and clear pricing on carbon will

undermine existing investments and projects and lead to higher costs for

business.

As increasingly supported by business advocacy groups, a good outcome for

business would probably include a specific target to reduce emissions by

around 50% by 2050 (which implies an 80% reduction in developed

countries); a commitment to a global carbon market mechanism, preferably

building on cap-and-trade schemes such as the EU Emissions Trading

Scheme (ETS); strong support for Carbon Capture & Storage (CCS) as a

significant abatement technology; and a mandate for climate change

technology funds to be used for early-stage R&D as well as demonstration

and deployment phases of promising technologies.

One of the key negotiations – the target for the stabilisation level of CO2-

equivalent (CO2e) atmospheric greenhouse gases – will be closely watched

by business2. The lower the target, the more difficult the adjustment will be

for high-emitting industries.

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2 The concentration of atmospheric CO2 today is around 385 parts-per-million (ppm), or 420 ppm on aCO2e basis (which includes other GHGs such as methane). Business has generally assumed targetsbeing set of 450-500 ppm – but there is now a substantial science-led push for a target of 350-400ppm.

Burson-Marsteller EMEA 37 Square de Meeûs1000 Brussels www.burson-marsteller.eu

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LOW CARBON FUTURE FOR BUSINESS

In a relatively short timeframe the drive for a transition to a low-carbon

economy – once the preserve of NGO voices on the fringe and lone crusaders

like Vice-President Al Gore – has moved to the mainstream and sits at the

centre of most government strategies for both energy security and industrial

renewal. Therefore, while Copenhagen is likely to prove to be a reality check,

we can expect this trend to accelerate and broaden.

For companies, particularly those in high-emission industrial and agri-

business sectors, it is extremely important to consider the impact of

public expectations around climate change together with government

regulations when developing their current and future business strategy.

The challenge on an operational level is to make sure that potential risks are

minimised and that potential business opportunities are identified early on in

the formulation of climate strategies.

The implications of this rapidly-shifting landscape are significant:

Companies will need to prepare scenarios for course-changing strategiesor responses based on different (lower) targets for GHG stabilisation.Compliance with existing targets or voluntary commitments is unlikely to beenough – companies should start now to plan for accelerated programmes ofemission reduction and/or offset and/or deployment of mitigation technologies.Such plans will be more credible if supported by third-party verification.

Companies should be prepared to move towards disclosure require-ments about climate risks and impacts, which could require detailedinformation on identified business risks and strategies in the overall

context of emission reduction targets. It is likely that these requirementswill build on mechanisms developed by think tanks such as CERES andthe Investor Network on Climate Risk (INCR).

A board-approved policy on climate change is increasingly seen as abasic credential for stakeholder engagement in environmental policy issues.Whether your company is concerned with reducing emissions to comply withnational or international regulations, or whether you wish to make your ownvoluntary commitments, addressing these challenges requires an integratedpublic affairs and communications strategy.

Companies and industry sectors will need to be prepared to communicatea clear vision on how they are adapting their business strategies to addressclimate change. Furthermore, such communications will need to address anincreasing degree of public scepticism over ’greenwashing‘.

Employee engagement provides a powerful opportunity for companies toboth align their people around the ‘vision and response’, but also to buildword-of mouth understanding through their employees own spheres ofinfluence and social networks. Sharing the CEO’s view of developments andoutcomes from COP-15, for example, would be a good place to start – butembedding an ongoing engagement programme on climate change issueswould constitute best practice.

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CONTACTS

Bill Royce, Managing Director

Practice Leader EMEA Energy,

Environment & Climate Change

Burson-Marsteller (London)

Email: Bill.Royce@bm.com

Tel: +44 20 7300 6310

Eric R. Biel, Managing Director

Corporate Responsibility

Burson-Marsteller (Washington)

Email: Eric.Biel@bm.com

Tel: +1 202 530 4559

Volker Wendt, Director

Deputy Practice Leader EMEA Energy,

Environment & Climate Change

Burson-Marsteller (Brussels)

Email: Volker.Wendt@bm.com

Tel: +32 2 743 66 29

Ian R. McCabe, Managing Director

Public Affairs & Government Communications

Burson-Marsteller (Hong Kong)

Email: Ian.McCabe@bm.com

Tel: + 852 2963 6700

ROAD TO COPENHAGENCLIMATE CHANGE