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COP Was Not a Flop

[Editor's Note: this article originally appeared as a guest post on Marc Gunther's website, and Marc writes the following:

The COP15 meetings in Copenhagen left many of us discouraged, as I wrote here. But some smart people are taking a closer look at the Copenhagen Accord and finding reason for optimism. One is Roger Ballentine, the president of Green Strategies, a Washington-based consulting firm who is today's guest blogger. Roger's a longtime expert on the climate issue -- he served in the Clinton White House, as chairman of the White House Climate Change Task Force, and he remains a player in Washington environmental politics, as well as a Harvard-educated lawyer and clean tech investor. Roger will be among the speakers this year at FORTUNE's Brainstorm Green conference on business and the environment. This is an edited version of post-COP15 memo that he shared with his clients and friends.

The Copenhagen Accord's approach to emissions reductions asks nations to propose and pledge to fulfill their own emissions commitments. This approach was proposed by Australia last spring and has been a favorite of American diplomats (going back to the Bush administration) who sometimes refer to it as a "bottom-up process." It's unlike the Kyoto Protocol, in which emissions reduction commitments were negotiated internationally.

Under the Accord, developed nations are expected to submit by January 31, 2010 quantified economy-wide emission targets for 2020 using whatever base year they wish. In another break from Kyoto Protocol, the Accord also invites developing countries to submit their "nationally appropriate mitigation activities" by January 31. While the copy of the Accord released by the U.N. [PDF] does not yet list any national commitments, most nations have already said what their emission reductions or mitigation actions will likely be. For example, in November, President Obama pledged to reduce U.S. emissions by about of 17 percent below 2005 levels by 2020 (consistent with the House-passed climate bill), and China agreed to reduce its "carbon intensity" (i.e. the amount of greenhouse gases emitted per unit of GDP) by 40 to 45 percent by 2020.

The Accord also includes two important financial commitments designed to address the needs of developing countries in mitigating and adapting to climate change. Collectively, developed countries pledged $30 billion in new and additional sources to the developing world for the period 2010-2012. The developed countries also agreed to provide up to $100 billion annually to the developing countries by 2020. The $100 billion is to come from public and private sources and be delivered both bilaterally and multilaterally. A "significant portion" of such funding is expected to flow through the Copenhagen Green Climate Fund, which the Accord establishes as a financial mechanism operating under the U.N.FCCC to support adaptation, mitigation, technology transfer and forestry programs and policies.

Most importantly from the U.S. political perspective, the Copenhagen Accord requires transparency in the reporting of mitigation actions by developing countries. China had resisted international verification, but compromised in the final deal. As a result, mitigation actions taken by developing countries with financial support from the developed world will be subject to an international verification process.

Here are my key take-aways from Copenhagen:

Here are my key take-aways from Copenhagen:

The King is Dead; Long Live the King. The U.N. climate process has been badly weakened, but the likelihood of strong global action to address climate change has never been stronger. The Copenhagen Accord had little or nothing to do with COP-15 other than the fact that the leaders who negotiated it happened to be physically together because of it.

In fact, the Accord was negotiated without the participation of the vast majority of nations and thus was not subject to the requirement of global unanimity -- which was and always will be impossible. The Copenhagen Accord signaled a shift of focus to economic alliances and forums, particularly among major economies, as the place where climate policy will be developed and implemented. The economic-diplomatic venues like the Major Economies Forum or the G-20 -- along with major bilateral and regional agreements -- represent far more effective processes to create markets and reduce emissions.

Capital Markets vs. Carbon Markets. Perhaps not surprisingly, the Kyoto-oriented carbon markets took a dive after Copenhagen. Maybe the markets expected more from COP15. Or participants may have recognized that markets built explicitly around U.N.FCCC-defined instruments of carbon value may not have staying power.

This is not to say that Copenhagen portends a decrease in the longer term value of carbon reductions -- just the opposite, for two reasons. First, as discussed, the Copenhagen Accord increases the likelihood of meaningful multilateral actions to reduce emissions. Inevitably, as the Accord says, markets and market mechanisms will be central to those efforts. Second, for the first time, the Accord calls for mid-term reduction targets. And unlike pledges about 2050, "mid-term" (i.e. 2020) is within the time-frame of many capital deployment decisions being made today and in the near future. For this reason, Copenhagen should invigorate carbon-impact evaluations of capital market decisions and increase the argument for carbon/climate informed business decision making.

The Triangulation of Developing Nations and the Elevation of Commerce. Many of us in the U.S. have long believed that the climate problem is best solved through markets, investment and innovation -- once the rules of the game (not the least of which is the pricing of carbon) are put in place. On an international scale, this means that commerce and trade can create wealth, improve living standards and reduce emissions. Historically and not without some justification, most developing nations viewed this argument with great skepticism. When presented with the choice of engaging with the developed nations on the basis of commerce, investment and trade on the one hand, or on the basis of direct aid on the other, nearly all developing nations chose the latter.

The Copenhagen Accord reveals that some major developing countries -- notably China and perhaps India -- have decided that they are better off engaging on the basis of commerce than on the basis of direct foreign aid -- thus their agreement to adopt some sort of carbon price/market-impacting emissions target. It is now possible that we will see more developing nations aspire to be in the "commerce" camp and not the "aid" camp when it comes to climate.

The Copenhagen Accord signals a movement to a commerce-based climate foreign policy because of Secretary of State Hilary Clinton's promise that developed nations would provide $100 billion per year to "developing countries." What was remarkable was not the size of the pledge but the explicit acknowledgment that the funds would be a mix of public and private sources. The wording of the Accord carefully left open a large role for private capital and private sector actions to reduce emissions, essentially as a substitute for some traditional aid.

Now it's up to Congress. No successful multilateral climate policy can work without the commitment and leadership of the U.S. The single biggest factor shaping the politics of t climate legislation in the U.S. has been the role of China, given its political profile and new status as the world's leading emitter. In Copenhagen, the U.S. demonstrated extraordinary leadership and effort (regardless of one's view of the outcome) and for the first time China made an emissions pledge with some degree of transparency.

For these reasons alone, I think both the global dialogue on climate and the prospects for domestic legislation were strengthened at COP15. Moreover, the broadening global movement toward a commerce-centric response to climate will present more opportunities for investment in lower carbon technologies. Smart companies will pursue competitive advantage from business practices and strategies aimed at reducing their climate impact.

Click here for full coverage of COP15 from the and 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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