With 151 days left until COP21, business hones in on what to expect

With 151 days left until COP21, business hones in on what to expect

FlickrJoao Araujo/U.N.
Member country flags outside of United Nations headquarters.

At times it has appeared that journalists almost could get away with rehashing old news stories from the last United Nations climate summit, repeating stock phrases about "painstakingly slow progress," rows between rich and poor countries and NGOs warning of the fossil fuel lobby's malign influence on any future deal.

At the most recent meeting in Bonn, Germany last month, countries once again disappointed, when after two weeks' talking they had succeeded in reducing the unwieldy 80-plus page text by just four pages.

We are 151 days away from the day when these years of glacial progress are supposed to culminate in a new international climate change deal, but in reality there are just 10 negotiating days left, with diplomats returning to Bonn in August and October for two more rounds of talks before the crucial Paris Summit.

Set against the experience of previous summits, it is hard to see how an effective global deal to tackle climate change will be reached in Paris at the end of this year. The timeline is simply too tight and the progress to date too slow. The growing excitement and talk of momentum towards nearly 200 countries striking a meaningful agreement looks highly optimistic at best, naïve at worst.

But there is nevertheless a growing sense among diplomats, business leaders and campaigners that a bold new deal can be struck. Crucially, rather than condemning the talks to several more months of stasis, the Bonn meeting authorized the two co-chairs of the negotiations to go away and try to cut down the text further themselves. Instead of a trust-eroding attempt by a handful of countries to put together their own deal, as was alleged to have happened at the crucial Copenhagen Summit in 2009, this time a small group officially has been authorized to put together a workable text.

Meanwhile, if the text is as unwieldy as ever, this time it does sketch out a framework for an agreement that already has overwhelming support from all the key players. The proposal to move away from imposed national emissions targets to a system of nationally determined climate action plans, or INDCs in the jargon, has secured significant support from all the major economies and a growing number of countries are putting forward their national emissions pledges under the new regime that they will commit to in the event of a deal.

Christiana Figueres, head of the U.N.'s climate change secretariat, described the mood at the end of the last summit as "exceptional confidence and engagement" with every nation playing its part. Given the barely coded insults and threats that have marred previous summits, this conciliatory atmosphere is extremely important and increases the chances of a deal being done.

In particular, Figueres noted that the Bonn talks delivered a surprise breakthrough on forest protection, with a package of three decisions expected to be agreed in Paris on the policy to reduce emissions from deforestation and forest degradation (REDD+). The surprise agreement provided further evidence, alongside the new INDCs, that the basic framework for an agreement is taking shape.

But for the vast majority of businesses, the only question that matters is, "Deal or no deal?"

Business viewpoint

"The large majority of businesses are not looking to engage with the detail of Paris," said Eliot Whittington, director of the Prince of Wales's U.K. Corporate Leaders Group. "They're looking for Paris to deliver them a signal or a direction of travel that will then be reflected in national policies."

But he admitted certain policies will prove more effective at providing that business and investment signal than others. To that end, all businesses and investors will be keen to see whether the treaty includes a long-term goal to reduce emissions, regular five-year review periods to require countries to ratchet up their ambition to cut emissions, and clear transparency and rules about how the overall package of INDCs will work.

"For those who are just picking up the odd newspaper, then where you've got the negotiators going from [a negotiating text with] 89 pages to 85 pages — or whatever it was — after a week's work, that doesn't build confidence," Whittington said. "It doesn't give them a good signal."

For these mainstream businesses, a global climate deal eventually will affect their business models and investment plans, but maybe not for a good few years. The significance of any Paris agreement and the detail that has to be thrashed out over the coming months rests on the impact it will have on long-term investment plans and operational risks.

But there is also a growing group of businesses more overtly committed to decarbonization and greener operating models — businesses such as Unilever, BT, Sky and other members of the Corporate Leaders Group — who are genuinely concerned about the details of any agreement. They want to know how ambitious the deal will be, whether it will deliver on the promise to limit global warming to 2 degrees Celsius, if it will protect developing nations and vulnerable countries, how it will mobilize clean tech investment in industrialized and developing economies alike and whether it will be legally binding.

Many of these companies are predicting, or already starting to see, how climate change affects their business, such as through droughts affecting harvests, or storms causing blackouts, and they want to ensure they are sustainable for the long run — both environmentally and financially.

"Obviously there is a significant group of companies worried about global warming over 2 degrees and they won't be happy with an unambitious agreement," said Whittington.

These companies already are raising concerns that the pledges put forwards by countries through their INDCs simply will not deliver the emissions cuts required to decarbonize this century and prevent runaway climate change. Their fears appear well-founded.

Analysis by the International Energy Agency (IEA) released last month revealed countries' current pledges to cut greenhouse gas emissions through an international climate change deal still fall way short of the action required and will lead to average temperature rises of about 2.6 C by 2100 and 3.5 C after 2200.

It predicts that under current plans, the world is likely to exceed, by 2040, the carbon budget that scientists say is needed to give the world half a chance of meeting the 2 C target. This would be just eight months later than would have occurred without the emissions reductions promised in the INDCs.

Stephanie Pfeifer, chief executive of the Institutional Investors Group on Climate Change, which represents more than 100 European investors with assets worth a combined $11.1 trillion, underlined that any deal therefore must include a mechanism that will require countries to review and increase their carbon reduction targets every five years. "This will help identify where countries are falling short and ratchet up ambition to keep the world on a 2 degree pathway," she said.

Documents seen by Reuters last week show that the European Union is backing just such a plan — calling for a legally binding deal that will be enforced through five-yearly reviews, as oppose to once a decade as some other countries want.

If the talks appear to have delivered a degree of consensus on how the new agreement should be structured, it is here that dividing lines are likely to re-emerge (alongside the ongoing divisions around the perennially vexed topic of climate-related funding for developing nations).

Will emerging superpowers such as China and India submit to having national emissions goals they spent many years resisting revisited in five short years? Will Republicans in the U.S. Congress ever ratify a treaty that has a legal footing? It is a more encouraging argument to be having than the traditional row over whether emerging economies should accept any emissions targets, but it still has the potential to scupper any deal.  

Meanwhile, a third group of businesses will be following the detail of the talks closely, not only because of the long-term investment signals they will send, but because the near immediate impact they could have on their competitiveness. Fossil fuel majors such as Shell or Total, or energy intensive industries such as the steel or cement sectors, will watch closely to see how the commitments contained in the INDCs will translate into higher carbon costs or legislative restrictions on their carbon intensive operations.

These firms are divided into two groups: Those who want to see a deal blocked at pretty much any costs for fear of the commercial damage it will do them; and the more progressive energy majors who support decarbonization in principle but argue it should be done through a global deal that levels the playing field between nations, especially if all countries committed to putting a price on carbon emissions. These businesses would like to see governments ensure any Paris deal includes a commitment to link up carbon markets and create a clear transparent single carbon market price.

Whittington reckoned the group opposed to any form of deal is dwindling, but behind the scenes they remain active in lobbying governments not to impose taxes on polluters. Meanwhile, some green campaigners fear the call by some fossil fuel majors for a global carbon price represents a delaying tactic, given such an ambitious policy is unlikely to be agreed in Paris.

Reasons for optimism

What is clear — and very different from the Copenhagen Summit in 2009 — is that much of the success of any Paris deal will come from a "bottom up" approach, with each country determining what it feels it best can contribute towards a global deal.

One highlight of the Bonn Summit did not actually happen in Bonn at all, but down the road in Schloss Elmau, where leaders of the G7 called for an ambitious and inclusive Paris agreement that tracks progress towards targets and promotes ambitions over time. Crucially, they also backed ambitious plans for a new global target to deliver full decarbonization of the world's economy later this century.

But Jonathan Grant, director of sustainability and climate change for the consultancy PwC, warned the G7 economies' own pledges still fall short of what is needed — a scenario that could fuel charges of hypocrisy from poorer nations.

"Keeping to a 2 degrees budget requires average annual reductions in carbon intensity (or emissions per unit of GDP) of over 6 percent each year according to the PwC Low Carbon Economy Index," he wrote in a recent analysis (PDF). "This compares with Paris targets equivalent to annual reductions of 3.1 percent for Japan, 3.9 percent for Canada and the EU and 4.1 percent for the U.S. (against 1 percent to 2 percent per year currently). As emissions from the G7 represent an ever-decreasing portion of the global total, major emerging economies now need to declare their targets for Paris."

Grant said the Bonn talks also highlight how the divisions that mark the negotiations are not between G7 economies, but between rich and poorer nations. The biggest questions remain who should make the biggest greenhouse gas cuts and who should pay to help others reduce their emissions? It is the same over-arching question that has condemned the U.N. talks to such painfully slow progress over the past five years.

However, it is equally true that the talks are in a better place than they have been for many years, not least because so many key players are stepping up, rather than blocking, calls for greater ambition.

"Now the negotiating text needs to catch up with the progress that is being made in bilateral discussions between countries and in other fora," he said. "The concern is that governments plan to agree a legal document in Paris and need time to get the language right. Doing this in the final hours of the summit in Paris risks weakening the agreement."

Thousands of businesses will gather in Paris in December looking for both policy detail and long-term investment signals. They will want to know how individual INDCs will affect their business, whether there are opportunities to be had from developing world climate funding and forest protections schemes, and whether a global carbon price and long term decarbonization target are viable.

But for those businesses already committed to decarbonization, the most encouraging aspect of the talks is that they are designed to reinforce and build on national emissions targets and policies already in the pipeline.

This article is part of the BusinessGreen Paris Hub, hosted in association with PwC.

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