Global climate negotiations have hardly led to tangible climate policy tools over the last five years. The latest UN Climate Summit in Lima was no exception. By contrast, both businesses and local and regional authorities are developing plenty of new initiatives. Could the crucial 2015 conference in Paris take a cue from these alternatives? And to what extent do business initiatives need a supranational climate deal? Rolf de Vos from energy consultancy Ecofys argues that the worlds of policy and business could benefit from each other, but they need to bridge a deep information gap.
In September 2014, UN secretary-general Ban Ki-moon organised a meeting in New York for political leaders, with the purpose to boost the climate change policy negotiations process. At this meeting more than 100 CEOs of large companies shared their views on the low-carbon future. It was an inspiring meeting, according to many participants, especially because of the stimulating exchange of ideas between business and politicians. For instance, business leaders from companies like Philips, Nestlé and Unilever aligned to establish internal carbon pricing and invited other companies and governments to follow their example.
Unfortunately, the UN Climate Summit at Lima, at the beginning of December, did not follow up on this promising initiative. There were only a few companies hosting side events and these were not attended by many negotiators. Of course New York is more accessible than Lima. Nonetheless, the Lima conference illustrated the lack of communication that tends to prevail between policymakers and business in the climate policy process.
Did companies lose faith in ambitious policymaking? Did policymakers lose faith in business? That would be devastating for a good result in Paris, because a low-carbon future cannot be achieved without the best of both worlds. Without proper policies, business will not have a profitable business model to build a low-carbon world on. Likewise, policies will not be effective without the support and execution from the private sector.
“The world of policymakers and negotiators and the world of business need to come together to have a successful outcome at Paris,” says Preeti Srivastav, strategy director of We Mean Business, a global coalition of organisations such as The Climate Group, the World Business Council of Sustainable Development and the Prince of Wales’s Corporate Leaders Group, which together represent thousands of businesses and investors, including some of the largest and most influential companies in the world such as Nike, IKEA, General Motors and Marks & Spencer. Srivastav explains that We Mean Business has formed a common platform “to amplify the voice of business voice and promote smart policy frameworks”. She thinks 2015 will be a crucial year for real achievements: “Business and policymakers have a significant task in the next twelve months as a run up to Paris. The urgency in climate change asks for common strategies.”
There is some reason for optimism, as some policies are emerging that could be useful for the frontrunners in the private sector. One is the pricing of carbon. The business model for low-carbon activities improves a lot if high-carbon activities are made less competitive through a carbon price. A carbon price would provide the ‘carrot’, for this market mechanism would push clean industry into growth and hamper their dirty competitors. At the same time, policymakers could introduce regulations, e.g. performance standards, that would serve as the ‘stick’.
The climate negotiations in the last five years resulted neither in many sticks nor carrots. Some new emission trading schemes were introduced, e.g. in China and South Korea, but not because of the negotiations. That may be one explanation why so few companies were in Lima: apparently they don’t believe that a top-down approach through negotiations is the right way to stimulate the spread of carbon pricing.
However, in Lima, in spite of the limited presence of business, carbon pricing was something of a buzzword. Much more so than in previous climate summits. The interest in carbon pricing was related to the attention paid in Lima to financing mechanisms, both for mitigation and adaptation measures. The World Bank was one of the motors behind the buzz, because this institution is convinced of the necessity of carbon pricing. Since a few years, the World Bank has published an annual overview of the status of carbon pricing in the world, which lists new emission trading schemes, carbon taxes and similar market-based mechanisms.
‘Carbon pricing’ ended up in the conference’s end statement (the Lima Call for Action) as ‘a key approach for cost-effectiveness of the cuts in global greenhouse gas’. One mention in one sentence does not mean much of course, but it is a sign that negotiators may become more receptive to pressure from businesses that are clamouring for carbon pricing.
A second reason to be more optimistic about the chances for low-carbon business is the fact that phasing out fossil fuels before mid-century became a tangible option in the Lima Call for Climate Action. More than ever before, the document included references to the so-called ‘carbon budget’: the total amount of greenhouse gases, expressed in billions of tonnes of CO2-equivalents, which the world is allowed to emit before exceeding the limit of a global 2° temperature rise. This budget indicates that the increase of emissions should be stopped around 2020, and rapidly decrease after that date.
The discussion about the carbon budget is significant as the Lima Call is widely regarded as the ‘advance unedited version’ of a Paris agreement. If the notion of a carbon budget were to be globally accepted (which is, admittedly, far from certain), the next step for policymakers would be to translate it into policies and measures pushing for emission reductions in specific business sectors.
The carbon budget approach received quite some support in Lima, especially from developing countries, some richer countries like Denmark, and many NGOs, although it did not yet lead to tangible policies or measures. The idea actually originated from outside the regular negotiations process, which proves that inspirational ideas can really have an impact.
This long-term signal is important, because it makes it clear to industries that they have to prepare for these drastic pathways. Most companies have limited strategic horizons, of just a few years. But if policymakers introduce measures that will give substance to the carbon budget, companies will know they have to get off the carbon train. Most companies have no problem with this, as long as they know they have a level playing field.
“Companies are ahead of policymakers”
Maybe the biggest achievement of the 2009 Climate Summit in Copenhagen was that a 2°C temperature rise (compared to the pre-industrial era) was generally agreed as the upper limit that would still be acceptable for the world. However, if we accumulate all national pledges of today—six years later—the world is heading toward a temperature rise of probably around 3°C, which is expected to have severe and costly consequences. The gap of almost 1°C cannot be bridged in Paris by policies alone. Additional efforts by the private sector are needed. But neither can business manage on its own.
“In many cases, companies are now ahead of policymakers,” says Alberto Carrillo Pineda, head of climate business engagement at WWF International. “But I don’t think that all corporate initiatives together are sufficient to keep us below 2°C. That will really require a joint effort.”
Preeti Srivastav agrees: “Many more companies need to join the group of climate-responsible companies, including from the fossil-fuel sector. But an increase of this group demands adequate policies.”
Both think that the next twelve months will offer ample opportunities for corporate leaders to open up communication lines with negotiators and policymakers, to increase their influence on the negotiation process and, in the end, to help ensure a productive outcome in Paris. In particular if they can build on the concepts of carbon pricing and the carbon budget. “Both carbon pricing and the carbon budget offer good approaches to join political and corporate interests,” says Carrillo Pineda.
It will become a busy year for groups like We Mean Business and WWF who are trying to make the worlds of business and policy meet. Some intermediate events are planned to exchange ideas and join forces, such as the Business and Climate Summit in May in Paris. But communications have not been very effective in recent years and time is short.
Rolf de Vos (@qqmulti) is senior consultant and journalist working with @Ecofys. He will be writing about the relations between business and policymakers regularly in the runup to Paris 2015. If you are interested in sharing or publishing his content, send him mail at email@example.com
See his earlier publications on Energy Post: