Developing nations have as much or more at stake in the outcome of the United Nations Framework Convention on Climate Change meetings in Bali than the developed countries that will control the debate. How can businesses best resolve this contradiction and help developing nations act?
According to Exxon-Mobil Chairman Rex Tillerson, the world is now using some 150,000 liters, or about 40,000 gallons, of oil every second. Such behavior is at odds with messages that are being pushed by governments and businesses worldwide. They are saying that energy usage, especially oil, needs to be reduced because of its climate change impacts and because world supplies won’t last forever.
This behavior also makes it difficult for alternative energies, such as solar, wind, biofuels and nuclear, to gain market share. Even with prices hovering around US$ 100 a barrel, most companies do not see the incentive to take risks and jump into the renewables arena.
But energy is critical to continued economic growth – the International Energy Agency (IEA) sees population growth and increasing industrialization driving demand for energy upwards by more than 50% between now and 2030. And fossil fuels, with their associated greenhouse gas (GHG) emissions, are expected to be a major contributor to meeting these future demands.
Energy demand will rise most rapidly in developing countries as they acquire and build up energy services for growth. Without convenient, affordable and less energy-intensive alternatives, these countries are likely to follow a high-carbon pathway, similar to that of the developed world.But governments and business can work together to solve these challenges by aligning policies, mechanisms and tools with the commercial conditions under which a business typically invests.
In the run-up to the United Nations Framework Convention on Climate Change meetings in Bali and the Bali Global Business Day, the WBCSD is publishing a number of key messages for policy-makers and business on how to invest in a low-carbon energy future in the developing world.
WBCSD members see the need for scaled up investments in lower carbon technologies, as well as opportunities to establish new markets for these technologies, gain competitive advantage through innovation and reduce costs through energy efficiency. But for a project to attract investment, investors must be assured that they will make money on that investment. Current policies, such as the price companies pay to emit carbon dioxide in Europe or reduction targets set up under the Kyoto Protocol currently increase investor uncertainty. And as long as there is uncertainty, investors will continue to put their money into traditional energy projects or remain uncommitted.
Because a business’ investment cycle can last for decades, going from research and development of an idea through to actual deployment, international policy must also take a long-term approach in order to reduce this uncertainty and encourage business to jump in and take the risk.
Governments and business have already come together in limited arena to address policy investment. This is being done through instruments like the Clean Development Mechanism, an arrangement under the Kyoto Protocol allowing industrialized countries with a greenhouse gas reduction commitment to invest in projects that reduce emissions in developing countries as an alternative to more expensive emission reductions in their own countries. While this is forming new areas of collaboration and new business opportunities, it is not enough. Business is still not reassured that the right climate exists for investment, and the CDM itself is not leading to the level of investments needed to bring energy to regions such as sub-Saharan Africa.
Business and governments need to go beyond this kind of limited investment to guarantee that the energy demands of the future are met in a way that mitigates climate change. In order for business and private investors to play their role in delivering low- and zero-GHG energy technologies, key considerations in the design of future frameworks must be taken into account.
For example, business needs policy frameworks that create predictable future demand for new technologies and reward innovation; and, governments can provide them through stable and transparent regulations. The US has built and implemented a successful NOx and SOx emissions cap and trade system. This has brought emissions of both pollutants down to next to nothing while increasing investment in new technologies and innovation.
Governments can also need invest in research and development themselves and set an example by buying new, advanced technology products for government fleets and operations. In doing so, governments influence the public’s perception of such products and effectively encourage their use. Steadfast examples include hybrid cars, low-energy, high efficiency light bulbs, and even energy-saving government buildings. If governments are willing to invest in and use advanced technologies, and publically tout their performance, the public will too.
The establishment of a competitive business-to-business framework for transactions and the breaking down of trade barriers that keep technologies from crossing borders would enhance growth and competitiveness in developing countries through technology transfer and encourage investment and business participation.
Public behavior also needs to be influenced; acceptance of new technologies through awareness raising and education would ensure future demand for low-carbon energy services.
While it may seem strange for business to be asking for policy measures and regulation, they could drive the shift to a low-carbon future, promote investment in new technologies and energy services in developing countries, and contribute to economic and social progress. It is time for business to find its public voice on climate.
The link to the Bali Global Business Day information on the WBCSD site is here.