Burson-marsteller Copenhagen Insight

CLIMATE CHANGE

ROAD TO COPENHAGEN THE COPENHAGEN CLIMATE CHANGE TALKS: WHAT IMPACT ON BUSINESS? INTRODUCTION Despite much optimism earlier this year that Copenhagen would produce a breakthrough deal on climate change, the odds are now equally on a breakdown. We are presently witnessing official and political efforts to lower expectations for a substantial deal, and to shift focus to the detailed negotiations that are expected to follow the conference. However, climate change is now almost universally accepted as the key global challenge facing human civilisation. The upward trend in extreme weather events, changing patterns of rain and drought, melting polar ice caps and rising sea levels are seen as signs that we are already experiencing early impacts of climate change due to greenhouse gas (GHG) emissions. The United Nations Climate Change Conference, which will take place at the Bella Centre in Copenhagen, Denmark, from 7- 18 December 2009, is a key milestone in global action against this problem. The conference is comprised of the 15th Conference of the Parties (COP15) to the United Nations Framework Convention on Climate Change and the Fifth Meeting of the Parties (COP/MOP 5) to the Kyoto Protocol.

The meeting aims to agree a new framework for coordinated international responses to climate change beyond 2012 to supersede the Kyoto Protocol. The key political challenge will be to reach an agreement in which both the developed world and developing nations accept mutual obligations that are equitable, proportionate, measurable and accountable. This Burson-Marsteller Insight looks at the main players and issues for these vital talks – and at the impact of the climate change conference on business.

KEY ISSUES Any agreement at the talks on climate change will be a complex matrix of environmental, economic, scientific, political and social considerations – comprising emissions targets, the role of emerging economies, compensation for vulnerable low-lying nations, and the use and funding of new technology. Four necessary building blocks of a successful climate change framework at Copenhagen will be agreements on the following broad key negotiation issues1: > Emission reduction commitments from developed countries should be the basis of any global agreement. The criteria for judging the comparability of targeted reductions – and the degree of enforceability – lie at the heart of the negotiations. Opinions diverge deeply because many countries use different criteria and a different benchmark year to assess targets. This debate focuses on whether to calculate individual targets by comparing the clear-cut economic costs of making emission cuts or by comparing a set of criteria such as ability to pay, mitigation potential, business-as-usual (BAU) emissions growth and historic GHG emissions. > Matching commitments from developing countries are needed to reach a peak in global emissions in the next two decades, since the rates of growth in their emissions are much higher than in the developed world. However, developing countries point out that they bear less historical responsibility for the emissions already in the atmosphere, and that their emissions per capita are far less than those of the developed world. They view demands for binding emissions reductions as being at odds with the Millennium Development Goals. The role of so-called ‘offsets’ is also important since emerging economies deplore this approach, which allows developed countries to pass up domestic emission reductions by paying for efficiency projects in developing countries where it is cheaper.

> Funding and the financial architecture refer to the necessary arrangements for money transfers from developed countries to developing countries. It is still unclear exactly what wealthier countries, especially the United States, will propose. According to European estimates, the total net additional cost of mitigation and adaptation in developing countries could amount to 150bn USD annually by 2020. This bill needs to be shared between domestic financing, carbon market-based financing and international aid. A quasi-global emissions market could lessen the need for government funding, generating billions in financial flows. However, in recent negotiations, developing countries have requested up to 400bn USD a year by 2020, far outstripping the money that developed nations are likely to propose. > Technology transfer arrangements refer to the process of sharing skills, technologies, processes and R&D to ensure that low-carbon energy and mitigation technologies are accessible to a wider range of countries. For example, the EU has announced plans to finance pilot projects of carbon capture and geological storage technology in cooperation with China. This could act as a model for international action to combat climate change. Intellectual property (IP) rights are critical to this, as most of the low carbon technology is usually owned by the private sector in developed countries. Developing nations, with the support of key environmental NGOs, argue that climate technologies should either be open-sourced as common property or provided on highly favourable terms.

1 Other issues on the table include reform of the Clean Development Mechanism (CDM; agreed under the Kyoto deal), and inclusion of issues such as forestry, the global carbon market, aviation and shipping.

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ROAD TO COPENHAGEN KEY PLAYERS It is generally accepted that the COP-15 outcome critically depends on four key players: the ‘developed world’ economic powers of the European Union and the United States, and the two emerging powerhouses of India and China: The European Union has made a commitment to cut emissions by 20% below 1990 levels by 2020, as stipulated in the ’climate change package‘ passed last year. The EU has provisions to increase its commitment to 30% if other developed nations commit to “comparable reductions”. In the mid-term, the EU says that developed countries could achieve collective reductions of 80% by 2050. The EU advocates that developing countries must reduce their emissions by 15-30% below BAU levels by 2020, following the principle of “common but differentiated” responsibilities. The European Commission has put forward a blueprint for a proposed EU contribution of some 3-22bn USD a year by 2020 for climate change financing to developing countries. After the last negotiations between the EU and US, EU officials expressed concerns that the American position is weak, and as a result the Copenhagen agreement could turn into a mere ’political declaration’.

The United States House of Representatives has passed the Waxman-Markey climate bill proposal, which calls for emissions from the US to be reduced to 17% below 2005 emissions levels by 2020, and 83% by 2050. However, the 2020 target translates into a reduction of around only four per cent compared to 1990 levels. Furthermore, the Senate vote on the Waxman-Markey bill is delayed and is now not expected until after Copenhagen, since the Obama administration’s main priority is healthcare reform. Without a clear view from the Senate, it will be very difficult for the President to make any precise commitments to reduction targets – seen by Europe as the essential condition for “success” in Copenhagen. Moreover, in the past, fearing economic disadvantage the US never ratified the Kyoto Protocol because it exempted developing nations such as China and India from mandatory emissions cuts. The Senate could end up accepting emissions limits but only if trade penalties can be imposed on countries that do not. That could trigger new geo-political earthquakes along the developed-developing world fault line. As for the financing question, the US has yet to make any formal public offers.

India has rejected any proposals to have developing countries reduce their emissions by 15-30% below BAU levels by 2020. It is categorically opposed to binding commitments for developing countries but has pledged that it will not allow its per capita emissions to exceed the average per capita

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emissions of developed countries. India argues that developed countries should help finance a climate fund of up to 250bn USD annually by 2020, as well as technology transfer cooperation. Domestically, India has so far focused on improving energy efficiency by introducing legislation and by establishing a Bureau of Energy Efficiency. The country has also set itself a string of targets, such as to improve efficiency of coal-fired stations, to better the fuel economy of cars, and to increase the share of rail freight. In the negotiations, India has strongly criticised proposals for “carbon protectionism” and prefers a clause that would prevent governments from erecting trade barriers to punish nations that have lower carbon emissions targets.

China insists that it should not be forced to make legally binding commitments, pointing to its efforts to produce more renewable energy and to become more energyefficient. It has requested that developed countries commit to reducing emissions at least by 40% by 2020 (compared to a 1990 benchmark). On financing, China’s position is that developed countries should dedicate up to 1% of their GDP for climate aid in developing countries. Domestically, China has outlined plans to introduce alternative energies to coal which currently fuels more than 70% of its electricity. It has set itself a target to source 15% of its energy from low carbon technologies such as solar, wind biomass and nuclear by 2020. China considers that its capacity for green growth and innovation is far greater than developed countries and it has pledged to reduce the carbon intensity of its economy from 2005 levels. Furthermore, China wants to improve ex-ante environmental evaluation of new economic projects.

“Unless rich nations agree to do more to cut emissions, this year's UN climate conference in Copenhagen may be half-baked” Yvo De Boer, Executive Secretary of the United Nations Framework Convention on Climate Change (UNFCCC)

“The wiggle room is there even at the stroke of midnight when the conference is ending" Rajendra Pachauri, Chairman of the Intergovernmental Panel on Climate Change (IPCC)

ROLE OF BUSINESS The key question for business will be whether a clear roadmap will be agreed in the form of a deal to slash emissions without crippling the world economy. A business-friendly deal at Copenhagen could create the necessary conditions for investments to create a low-carbon global economy. The business community is formally represented at the United Nations Climate Change Conference by the International Chamber of Commerce (ICC) and the World Business Council for Sustainable Development (WBCSD), and individual member companies of both organisations (which can also attend as part of national delegations or as members of professional and scientific institutes). A large number of companies with low-carbon energy technologies will also exhibit at the conference and participate in fringe events to promote their solutions and products. In New York on September 22, at the UN Leadership Forum on Climate Change, 200 of the world’s largest companies joined leading NGOs including Greenpeace and WWF to sign the Declaration by Business, Investors and Civil Society – an appeal to world leaders for a decisive outcome at COP-15. Among the key points in the Declaration: A global agreement on climate and a sufficient price for carbon that will help ensure the continuation of a global marketplace based on openness and competition. Strong markets are needed to diffuse climate solutions. >

> Transition to low-carbon production and consumption presents a tremendous value creation opportunity. By retooling the global economy in this way, opportunities will arise in new markets, products and industries. > Only through regulatory certainty can an engine of green growth emerge which drives innovation, spurs massive global investments and enhances efficiencies, allowing climate mitigation and adaptation approaches to reach full scale.

> The transition to a low carbon economy is well within reach. Now what is needed are the right incentives and regulatory certainty.

Equally, the Declaration was clear as to the impacts of a poor agreement or failure to reach agreement: > Trade tensions and competitive distortions that not only threaten the foundations of our global economy, but also any future advances in sustainable economic and social development. > A lack of a global climate agreement and clear pricing on carbon will undermine existing investments and projects and lead to higher costs for business.

As increasingly supported by business advocacy groups, a good outcome for business would probably include a specific target to reduce emissions by around 50% by 2050 (which implies an 80% reduction in developed countries); a commitment to a global carbon market mechanism, preferably building on cap-and-trade schemes such as the EU Emissions Trading Scheme (ETS); strong support for Carbon Capture & Storage (CCS) as a significant abatement technology; and a mandate for climate change technology funds to be used for early-stage R&D as well as demonstration and deployment phases of promising technologies. One of the key negotiations – the target for the stabilisation level of CO2equivalent (CO2e) atmospheric greenhouse gases – will be closely watched by business2. The lower the target, the more difficult the adjustment will be for high-emitting industries. 2 The concentration of atmospheric CO2 today is around 385 parts-per-million (ppm), or 420 ppm on a CO2e basis (which includes other GHGs such as methane). Business has generally assumed targets being set of 450-500 ppm – but there is now a substantial science-led push for a target of 350-400ppm.

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LOW CARBON FUTURE FOR BUSINESS In a relatively short timeframe the drive for a transition to a low-carbon economy – once the preserve of NGO voices on the fringe and lone crusaders like Vice-President Al Gore – has moved to the mainstream and sits at the centre of most government strategies for both energy security and industrial renewal. Therefore, while Copenhagen is likely to prove to be a reality check, we can expect this trend to accelerate and broaden. For companies, particularly those in high-emission industrial and agribusiness sectors, it is extremely important to consider the impact of public expectations around climate change together with government regulations when developing their current and future business strategy. The challenge on an operational level is to make sure that potential risks are minimised and that potential business opportunities are identified early on in the formulation of climate strategies. The implications of this rapidly-shifting landscape are significant: > Companies will need to prepare scenarios for course-changing strategies or responses based on different (lower) targets for GHG stabilisation. Compliance with existing targets or voluntary commitments is unlikely to be enough – companies should start now to plan for accelerated programmes of emission reduction and/or offset and/or deployment of mitigation technologies. Such plans will be more credible if supported by third-party verification.

context of emission reduction targets. It is likely that these requirements will build on mechanisms developed by think tanks such as CERES and the Investor Network on Climate Risk (INCR). > A board-approved policy on climate change is increasingly seen as a basic credential for stakeholder engagement in environmental policy issues. Whether your company is concerned with reducing emissions to comply with national or international regulations, or whether you wish to make your own voluntary commitments, addressing these challenges requires an integrated public affairs and communications strategy. > Companies and industry sectors will need to be prepared to communicate a clear vision on how they are adapting their business strategies to address climate change. Furthermore, such communications will need to address an increasing degree of public scepticism over ’greenwashing‘. > Employee engagement provides a powerful opportunity for companies to both align their people around the ‘vision and response’, but also to build word-of mouth understanding through their employees own spheres of influence and social networks. Sharing the CEO’s view of developments and outcomes from COP-15, for example, would be a good place to start – but embedding an ongoing engagement programme on climate change issues would constitute best practice.

> Companies should be prepared to move towards disclosure requirements about climate risks and impacts, which could require detailed information on identified business risks and strategies in the overall

Burson-Marsteller EMEA

CONTACTS Bill Royce, Managing Director Practice Leader EMEA Energy, Environment & Climate Change Burson-Marsteller (London) Email: [email protected] Tel: +44 20 7300 6310

Volker Wendt, Director Deputy Practice Leader EMEA Energy, Environment & Climate Change Burson-Marsteller (Brussels) Email: [email protected] Tel: +32 2 743 66 29

Eric R. Biel, Managing Director Corporate Responsibility Burson-Marsteller (Washington) Email: [email protected] Tel: +1 202 530 4559

Ian R. McCabe, Managing Director Public Affairs & Government Communications Burson-Marsteller (Hong Kong) Email: [email protected] Tel: + 852 2963 6700

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