Next week will mark the most significant gathering ever of the international community to address the issue of human-induced climate change. Known officially as the 15th Conference of the Parties (COP15), the meeting in Copenhagen from December 7-18 will attract government leaders, journalists, NGOs, and other climate advocates -- an estimated 10,000 people from more than 190 countries.

Rather than having every detail of a new global climate treaty ironed out in Copenhagen, the hope is for the conference to produce general agreement on four political essentials: (1) the degree to which the industrialized world is willing to reduce greenhouse gas emissions, (2) the degree to which the developing world is willing to reduce emissions, (3) the amount of aid from the industrialized to the developing world for climate change mitigation and adaptation, and (4) how the aid financing will be managed.

American business leaders should be asking themselves, "How will the outcome of this conference affect us?" There is no doubt that the future of the American economy will be impacted by the fate of a comprehensive global treaty to limit greenhouse gas emissions. What remains at issue is whether American business will benefit more from a failure at Copenhagen or from a success.
Copenhagen's Impact Already Felt

If the Kyoto Protocol was the dress rehearsal, then Copenhagen is opening night. Many believe that for Copenhagen to be a success it must produce a politically binding agreement that makes compulsory emissions reductions -- from industrialized economies and developing ones -- inevitable. An eventual treaty must create a global system for trading carbon as a commodity, with liquidity and price transparency. It must provide compensation to those countries that avoid deforestation and thus preserve important carbon sinks. And it must ensure that emission reductions can be verified.

However, despite an unclear outlook for an agreement, the Copenhagen conference is already influencing government policy. Chinese President Hu Jintao announced at the UN in September that his government will commit to unilateral reductions in greenhouse gases. He promised a decrease in the intensity of emissions "by a notable margin" by the year 2020. The Chinese government also announced a voluntary carbon reduction scheme being set up within China called The Panda Standard.

Climate Treaty History

The U.S. has some experience with climate treaties. In fact it was the first industrialized nation ever to adopt a treaty dealing with climate change when the U.S. Senate ratified and President George H.W. Bush signed the United Nations Framework Convention on Climate Change in October 1992. That treaty committed the nation to the goal of preventing “dangerous anthropogenic interference with the climate system.” While the treaty confirmed the U.S. intention to avoid endangering the earth’s climate, it required no action to reduce greenhouse gas emissions. In the ensuing years, while science made clearer the need for urgent action, the rate of growth of greenhouse gas emissions accelerated. The trajectory of ever-increasing emissions was only reinforced by the failure of the U.S. Senate to ratify the Kyoto Protocol in 1997 with its binding commitments on limiting greenhouse gases. The U.S. eventually abandoned the Kyoto Protocol in 2001. The Protocol went into effect in 2005 when Russia ratified the treaty. The implementation experienced start-up difficulties especially in the allocation and exchange of CO2 emissions credits -- a system known as cap-and-trade. Kyoto’s defenders pointed out that the treaty was always envisioned as a dress rehearsal, a learning experience for real climate action in the future. As flaws surfaced they could be corrected. In hindsight, the biggest flaw could not be corrected -- i.e. the absence of binding emissions reductions on both China and the U.S. No global climate treaty would ever be effective without the participation of the world’s two largest emitters. China and the U.S. together are responsible for 40 percent of global greenhouse gases.

Most observers believe that both the substance and timing of this announcement was influenced by the upcoming Copenhagen conference. Then last week, Jintao revealed that the country plans to reduce the carbon intensity of its economy by 40-45 percent by 2020. Clearly, China, with an economy that emits more greenhouse gases than any other in the world, has already positioned itself for Copenhagen and beyond. And it has taken away one of the more powerful arguments many Americans have used for inaction -- that the Chinese are not taking action either.

In fact, China is taking action on climate change in spite of -- or perhaps because of -- its other huge environmental problems. It is true that China has a carbon-intense economy -- it commissions two new coal-fired power plants ever 10 days. Yet at the same time it is retiring one much older and dirtier coal plant for every two it opens. China is also erecting new wind turbines at the rate of one every hour. China is home to the largest solar panel company in the world. It is fast becoming the renewable energy exporter to the world. And by building a renewable energy economy today, China is securing a first mover advantage in a critical 21st Century industry.

As Copenhagen approaches, other greenhouse gas emitters in the developing world are also adopting new attitudes toward action on climate change. A year ago, for example, Mexico made headlines by vowing to halve its emissions by 2050. In recent weeks, Brazil pledged to reduce its emissions to 1990 levels by 2020, while South Korea unveiled a goal to cut emissions by 4 percent. 

India is spending less time pointing fingers at the West, and more time looking inward, seeking to verify its own initiatives to mitigate the problem; reports this week suggest the country is on the verge of announcing its own carbon intensity reduction goal. Saudi Arabia is leading research into renewable energy with one of the most sophisticated solar laboratories in the world at King Abdullah University. The Saudis hope that in a matter of a few decades exports of solar energy will exceed that of oil.