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Leaders and policymakers from nearly 200 nations yesterday (Monday) commenced an 11-day summit in which they will attempt to hammer out some details of a carbon treaty that could have significant impact on businesses and investment.
The Copenhagen summit aims to put finer points on what, up to this point, have been dull notions about how to respond to global climate change. World leaders from both wealthy and developing countries will attempt to set new carbon emissions goals, outline a timetable for achieving those goals, and detail on how they will be financed.
Some analysts are skeptical that such an immense undertaking will be met with success. Emerging and developed nations have clashed in the past, as poorer nations contend that climate change is a problem wrought by industrialized countries. Industrialized nations, they argue, should therefore be held to higher standards and offer financing to emerging markets that are ill equipped to deal with reform.
However, the talks' organizers are attempting to set an urgent tone for the meeting, which underscores the failures of previous attempts to reach an international consensus. For instance, the United States is infamous for signing, but never ratifying, the 1997 Kyoto Protocol. The U.S. Senate rejected the Kyoto Protocol because it didn't make any demands on emerging countries, particularly China – now the world's largest emitter of greenhouse gases.
It's important that this round of talks achieve results United Nations climate chief Yvo de Boer said in a statement on the eve of the Copenhagen summit.
"The clock has ticked down to zero," said Boer. "After two years of negotiation, the time has come to deliver."
Boer noted that the United States, China, India, Brazil, Japan, Norway, Indonesia, and others pledged to reduce emissions heading into the talks. The United States said it would cut emissions "in the range of" 17% below 2005 levels by 2020. Meanwhile, China said it would cut its emissions by 40-45%, and India pledged to cut its emissions by about 25%.
"Negotiators now have the clearest signal ever from world leaders to craft solid proposals to implement rapid actions," said Boer. "Never in 17 years of climate negotiations have so many different nations made so many firm pledges together. Copenhagen is already a turning point in the international response to climate change."
Of course it is still unclear just how much progress will be made at the talks. Still, analysts are already anticipating changes to the investment landscape. So-called "cap and trade" legislation is at the center of speculation. The implementation of such a system would mean capping the level of emissions that businesses can produce and issuing permits, or credits, to companies that go over their limit. Companies that pollute less could then profit by selling their excess credits.
As governments lower the level of allowable pollution, the value of credits will rise. Henry Derwent, the president of the International Emissions Trading Association (IETA), predicts that the market for carbon credits could expand to $3 trillion by the end of next decade, up from about $130 billion now.
"It's effectively a global treaty to control pollutants. You are intervening in the economy to control and internalize the cost of carbon," Bruce Jenkyn-Jones, managing director of listed equities at Impax Asset Management, told Reuters. "The idea that... people will pay for carbon right across the economy will have an impact on products and services. Big energy producers, utilities and industrials will be affected."
While electricity producers, utilities and transport companies could be negatively affected, analysts believe a deal at Copenhagen could be a boon for clean energy producers.
"Politicians have done a good job of lowering expectations. That's exactly why there's real opportunity here. Decisions made in Copenhagen will dramatically influence growth rates of companies you are investing in," Simon Webber, fund manager at Schroders PLC told Reuters. "[An aggressive deal] will mean nuclear power and solar growth rates will take off in these industries. There will be a major shift from combustion engine cars to electric vehicles. There's no other way of meeting tough initial targets."
Another analyst, Ruud Nijs, head of corporate social responsibility at Rabobank Group, said his company would work to mitigate risk first, and then look for profit opportunities from Copenhagen.
"Copenhagen brings us a better framework to do business with," Nijs said. "The positive outcome will automatically generate big cleantech deals, investment in solar, wind and biomass technologies. The pipeline will also increase."
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