2010 promises to be an interesting year for industrial energy managers. Potential regulations and the associated costs could be competitively critical for businesses as a whole, and climate change legislation could change energy managers’ roles significantly.
More than 200 heads of state attended the UN climate meeting in Copenhagen in December. Through 2009, there had been strong expectations that a binding global deal on emissions reductions would be struck, which triggered a high level of lobbying from every side of the climate debate. Amid all the noise, let’s take a step back and see what actually came out of Copenhagen.
There was no binding agreement to reduce emissions. Developed countries proposed targets that could limit climate change to an average of two degrees Celsius. Some developed countries made this commitment conditional on major developing countries, notably China, India and Brazil, agreeing to accept binding targets. This wasn’t forthcoming, though China did, for the first time, suggest it would be prepared to accept binding intensity targets.
The dialogue between the developed and developing countries was further complicated by the developing countries most vulnerable to climate change pushing to limit temperature rise to 1.5 degrees. This standoff ended with the developed countries, including the United States, agreeing to submit their firm emissions targets no later than the end of January. The two-degree limit would call for reductions of 25% to 40% relative to 1990 by 2020, a level deeper than any proposed at Copenhagen; the estimate of current non-binding pledges yields about a three-degree increase, so there’s a large gap to be closed.
China and the United States specifically agreed to internally measure and report on the results of their mitigation actions. Some interpret this as a breakthrough in that it represents a first step in reporting and ultimate verification. Others saw it as a weak compromise, with limited accountability for the two major global emitters. While agreeing to the overall conference summary, the smaller developing countries remained skeptical that there would be sufficient commitment to even the two-degree target, which they already deemed too high for comfort.
Their concerns were mitigated somewhat when the developed countries, again including the United States, agreed to fund as much as $100 billion for technology transfer to accelerate the development of low-carbon economies and adaptation measures in the developing world. Details of the contributions, timing, supported activities and technologies, and governance were lacking. At best this is a work in progress. In an associated proposal, Brazil and Norway proposed an international fund to support deforestation reductions in developing countries.
The next UN Climate Conference will be in Mexico in November 2010. There is a growing sense that this meeting will deliver a binding agreement, based on the general outcomes of Copenhagen. For the United States, this will mean targets at least equal to the levels already proposed in the various versions of legislation wending their way through the House and the Senate, with significant consequences for both power generators and large energy-consuming industries. One way or another, U.S. energy managers need to be comfortable with monitoring and managing greenhouse gas emissions as a part of their normal job responsibility.
The EU already is committed to 20% below 1990 levels, but has agreed to 30% if other major emitters, notably China, the United States, India and Brazil, make meaningful commitments. This higher level will mean some radical rethinking of everything from building codes to energy supply. However, while challenging domestically, the EU's overall climate policy is acting as a catalyst for some world-class businesses.
China remains an interesting case. Following Copenhagen, China was criticized by many as being a major barrier to a deal. Specifically, it wasn’t ready to commit to intensity reductions or outside verification. In the same month, China established some of the most ambitious renewable energy standards anywhere in the world, backed by strong domestic policy and guidelines. This follows its recent implementation of tough vehicle efficiency standards, systematic development of high-speed rail and radical upgrading of building codes. The need to grow with far less pollution is becoming clearer to the Chinese, and they aren’t overlooking the potential world market for energy-efficient solutions and climate-friendly products.
In December, I visited the headquarters of three major companies in cement, chemicals and steel as part of a benchmarking exercise. Their organizations now have senior managers with titles like “Head of Corporate Ecology” and “Chief Climate Protection Officer.” This is a clear sign of the importance world-leading companies are attaching to managing climate change, legislation and market opportunities.
While Copenhagen didn’t deliver the binding deal many hoped, it was the first meeting for a long time where nearly all the countries of the world, mostly represented by their heads of state, agreed on the need and the urgency for a deal. We all need to be adapting our work priorities to recognize the changes this may bring.
Peter Garforth is principal of Garforth International LLC, Toledo, Ohio. He can be reached at email@example.com.