The second week of the Copenhagen summit opened with African nations, backed by the G77, wanting to stick to the Kyoto Protocol that requires developed countries to commit to binding emissions targets while not asking the same of the developing countries. They demanded and received assurances that the developed world would not abandon Kyoto. However, the last word has not yet been said on this as developed nations are looking for more commitment from emerging markets, including China.
 
For many people in the broader debate, however, Kyoto has not turned out to be the success it promised to be back in 1997.  They look at industry's efforts to reduce emissions and see that Kyoto's insistence on carbon markets failed to encourage business to make substantial moves. And after the financial crisis, many are nervous or skeptical of market mechanisms.  Some may be tempted to retreat from Kyoto's carbon markets to more certain ways of encouraging carbon investments.  
 
Here at Copenhagen, there's no sign that carbon markets are in retreat. Cap and trade systems are likely to become increasingly common, no matter what is agreed by world leaders here.
 
This is no time to throw out the baby with the bathwater, but sceptics would be right to say that markets like Europe's Emissions Trading Scheme (ETS) have not resulted in the investment in major low carbon alternatives that we might have wanted.  Yes, they've successfully supported more modest improvements in energy efficiency. But what of nuclear, offshore wind and other immature technologies that the market cannot always support?{related_content}
The volatility of carbon prices in recent years is one reason why carbon markets have not supported long term investments. There is a debate among our clients in the energy generation sector about how to provide the certainty that mitigates the rise and fall of the carbon price. Some here are advocating a carbon price floor. Others call for carbon taxes or point to Germany's success with feed-in-tariffs, which have resulted in a strong growth in the adoption and supply of renewables. For all their advantages, these mechanisms interfere with the market and don't encourage efficiencies. They can cost taxpayers and consumers more than is necessary.
 
Some analysis we've done has led us to focus our attention on reducing investment risk in ways that bolster the market, rather than distort it. Loan guarantees, long term carbon contracts or minimum portfolio requirements could all be key ways of encouraging nuclear and renewables investment, for instance, without actually raising the price of carbon or passing the bill to tax payers. We estimate that contracts for difference on the carbon price, offered by governments direct to nuclear generators, could improve the net project value by between €160m and €320m ($230m and $460m) per gigawatt.  And Construction Loan Guarantees could reduce the up-front risks and therefore the cost of capital, saving between €220 and €320m ($320m and $460m) per gigawatt for nuclear operators and their customers.
 
So carbon markets can play a role in helping business make the large scale low carbon investments we need. But, on one hand, governments must acknowledge that they may have to be more active to incentivize larger investments within the market. And on the other hand, industry must recognize that these incentives need not and should not come at a high cost to tax payers or customers.

Sander van 't Noordende is group chief executive of Accenture's Resources operating group, which serves clients in the utilities, chemicals, energy (oil and gas), forest products, and metals and mining industries. He is also a member of Accenture's Executive Leadership Team.

Click here for full coverage of COP15 from the GreenBiz.com and ClimateBiz.com teams, including posts from Copenhagen by Executive Editor Joel Makower and Senior Contributor Marc Gunther, and from dozens of guest contributors from the business world.

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