The Way Forward

It is critically important that all efforts – whether regulated or voluntary - deliver absolute and material reduction in global GHG emissions. The Kyoto Protocol, at this stage, does not include all nations; Brazil, China, India and South Africa are all developing rapidly; the US is currently without binding targets.  As such, we do not yet have the regulatory framework to bring global emissions under control.

The first phase of the EU Emissions Trading Scheme (EU-ETS), which ran from 2005-7, is widely regarded as having failed to deliver actual emissions reductions because the emissions caps on companies were set too high. It was successful, however, for learning - pioneering a large-scale trading scheme and getting those companies involved into the mindset of operating in an environment where carbon emissions have a changing monetary value.

The second phase of the EU-ETS started on 1st January 2008 and the price for EUA’s (EU Allowances – the ‘currency’ of the EU-ETS) has been above €20 throughout 2008 indicating that the emissions caps for phase 2 have been set at a tighter level – which is more likely to deliver real emissions reductions.

At the COP13 meeting (Bali, December 2007) signatories to the UNFCCC committed to work together to negotiate a successor to the Kyoto Protocol, which expires at the end of 2012. The commitment was to finalise these negotiations within 2 years – by COP15 which will take place in Copenhagen in December 2009.

The EU has made its own commitment to taking on a 30% emissions cut across all member states (compared to the 1990 baseline used for the original Kyoto targets) if an acceptable global deal is agreed at Copenhagen. If no such deal can be agreed then the target drops to 20%. There has been no clear definition of exactly what constitutes an ‘acceptable’ deal, but the expectation is that it is one that involves the USA taking on an emissions cap and China and India making some commitment to reduce.

In the USA, there is a strong expectation that following the Presidential Election, US Federal policy on climate change will be rewritten. Both Presidential Candidates have committed to engaging with other countries on the issue in a way that has been lacking during the last few years. However, while there is a strong expectation that something is likely to happen at Federal level during 2009, there is a great deal of uncertainty about what exactly this will be and what impact it will have on the emerging regional cap and trade agreements.

Most large corporates in the USA recognise that mandatory cap and trade legislation is inevitable.  Indeed some have actually been calling for it - with operations across the USA, they want to avoid being faced with a patchwork of requirements. Ultimately a single global cap-and-trade regime, which allows carbon positions to be optimised internationally and which provides a firm foundation on which to make long-term investment decisions is what most companies want.

Given the scale and complexity of the climate change challenge, we see a continuing need for voluntary regimes to complement and extend the impact of regulated responses to climate change.  The voluntary regime urgently needs independent global rules and standards to ensure integrity of these critical efforts to extend the reach of regulation.  And a number of organizations are leading the way – including our own company,  The Climate Group, the World Resources Institute, the PEW Centre on Global Climate Change and the UK Government’s Department for Environment, Farming and Rural Affairs (DEFRA).