Beyond the Rhetoric of Financing Sources: What the private sector needs from Copenhagen.

One perspective that shouldn’t go unnoticed is the economics of climate change. This past week at the Bella Center a panel discussion held by five economists from various European countries discussed how the private sector needs results from Copenhagen. The standing economic plan towards “greening” the economic has reached a plateau.

Currently our global economy has been based of carbon intensive markets. The reason for this is that these markets appeal to investors because they have proven stable returns over the years. Other investments in carbon consuming companies include manufacturing and therefore consumerism (an American pastime). In order to reduce climate change we need to make a change where investments are made which will only occur if they appear as stable, with better or equal returns. In the original Kyoto Protocol there was a device designed to make this transition.

The Clean Development Mechanism (CDM) “stimulates sustainable development and emission reductions, while giving industrialized countries some flexibility in how they meet their emission reduction or limitation targets.” Although this sounds tempting, countries have not been meeting their goals since it was made let alone the US signing the Kyoto protocol. The net result of this is that a new solution must be met.

The panelists gave good reason for why it has been so difficult to make this switch. Like any economic endeavor the balance between risk and reward must be met from the investors standpoint. If we took for example the UN program REDD (Reducing Emissions from Deforestation and Forest Degradation in Developing Countries) which is an excellent idea for countries to reduce their emissions by preventing deforestation. However only if this method of conservation is effective enough will it eventually reach the interest of the private sector.

The private sector would want to see initial issies such as forest issues like leakage (where an area closely protected results in the heavier taking of another area). So there could be no faults in the program to begin with. Second, they would want to see governments make the initial investments to see the course they follow to ensure stability. Next the returns must rise as the risks decrease and only through public finance reduce the risk.

This may mean a couple of things. We do know that it has to be the governments that make the initial jump into the uncertain reduced carbon market. This increased confidence will help private investors join and only through careful monitoring can this happen. This may mean that we need a new mechanism to replace the CDM with the eventual hopes of building a new market that can include non-annex 1 countries that may include private investors.  The ultimate goal of rewarding countries who make the greatest strides towards reducing their CO2 emissions while increasing the non carbon intensive market.

Benjamin Ross ’10

Advertisement