Responding to Bali

2008 will be very busy both for business and policy-makers and much of what happens this year will have a strong bearing on the future, especially as concerns climate change.

"You are the key to a low-carbon future. If Bali will do what I hope it will do, we are facing the enormous challenge of shaping a post-2012 climate change deal in only two years time. Your input is indispensable to frame a deal that is not only effective in terms of emission reductions, but also makes economic sense," said Yvo de Boer, executive secretary of the UN Framework Convention on Climate Change (UNFCCC) at the Bali Global Business Day.

The Bali climate change meetings became a challenging, high-tension affair before a "Bali Roadmap" was finally agreed to on Dec. 15th, one day after the meetings were supposed to officially conclude. In the end, the strong views of some countries, in particular the reluctance of the US and India to have mandatory emissions reductions targets, coupled with issues surrounding funding and technology flows to developing countries delayed the outcome. The challenge inherent in getting the governments present in Bali to come to an agreement signals the growing importance of the climate agenda for their broader energy, economy, finance and trade policies.

What is the significance of the meetings and the Bali Roadmap?
• The Bali Roadmap charts the course for a new negotiating process to be concluded by 2009 that will lead to a post-2012 international agreement on climate change.
• The meetings shifted the focus from a discussion about "if we need a global action on climate change" to one of: "what do we have to do as a global community", putting business at the center of the Roadmap's content development.
• They addressed how important technology is in addressing the climate challenges, both through the need for scaling up research and development jointly between governments and business and by accelerating technology deployment.
• The meetings made clear that climate change and development are inextricably linked. Restrictions on carbon emissions will define the space for economic growth. But this makes developing countries very nervous as they see the need to grow to alleviate poverty. In return for being part of a global climate change regime, developing countries want support from developed countries in the form of finance, technology and capacity building to be able to grow with lower energy and carbon intensity. These competing goals must be balanced for developing countries to join a new global climate regime. Technology cooperation is an important element in this.
• The meetings put adaptation to climate change strongly on the agenda through the launch of the Adaptation Fund for support to developing countries.
• They identified deforestation and forest degradation in developing countries as a key source of carbon emissions.

But what the meetings did not do is just as important:
• Governments could not agree on a quantifiable goal for long-term emissions reductions. While business supports the efforts made, it needs more clarity; aspirational targets alone are not sufficient for business to make the necessary commitments.
• There is no appetite for reforming the Clean Development Mechanism (CDM).
• They did not identify any new ways in which governments and business can interact outside the formal intergovernmental negotiations, in spite of the recognition of the crucial role of business in the Roadmap's implementation.

The main platform for implementing the Roadmap is the United Nations Framework Convention on Climate Change (UNFCCC), which was agreed in Rio at the Earth Summit 1992. The Kyoto Protocol, a subsidiary body to the UNFCCC, is a parallel platform for policy development involving the countries that have ratified the Kyoto Protocol. The work to establish a new post-2012 international agreement will build on both and possibly merge them into this new agreement, which could eventually supplant the Kyoto Protocol post-2012.

Practically speaking, this means that ratifying the Kyoto Protocol now, like Australia did in December, has more to do with image than practical consequences. However, Australian companies can now participate in CDM and emissions trading, while companies in the US, which has not ratified the Protocol, cannot.

For companies worldwide, the stakes in the outcome of the energy and climate processes during 2008-2009 are very high. Governments are looking to business to help structure and implement the responses to climate change.

This is a unique window of opportunity that business cannot miss. Businesses carry a tremendous signaling effect when they actively engage in the policy arena on a broader platform. Because "business cannot succeed in societies that fail", we have to make sure we have thriving societies that are good places for doing business in the future.