Sustainability

Countdown to Copenhagen

March 01, 2009

Global

March 01, 2009

Global
Anonymous Writer

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Countdown to Copenhagen investigates the current regulatory outlook within key regions and the prospects for change within the marketplace.

Report Summary

Countdown to Copenhagen: Government, business and the battle against climate change is an Economist Intelligence Unit report that investigates the current regulatory outlook within key regions of the world and the prospects for change within the marketplace. Lead sponsors of the research include The Carbon Trust, KPMG, SAP and Shell. 

This report builds on our 2008 report on sustainability, Doing good: Business and the sustainability challenge, which highlighted that environmental issues, such as improved energy efficiency, were at the forefront of the corporate sustainability agenda. In this, our 2009 sustainability report, we therefore focus in particular on the issue of climate change, reviewing the progress being made both within the regulatory and policy environment, as well as within business.

2009 has the potential to be a watershed year for climate change. The clock is counting down to the Copenhagen conference in December, where the world’s governments will meet with the aim of thrashing out a workable successor to the Kyoto Protocol—and bringing both developing and developed countries into the framework in some way. The outcome will set the tone for climate-change action over the coming decade. Part I of this report considers the prospects for Copenhagen, and gives a more detailed overview of the specific policy and regulatory initiatives under discussion within key countries, including the US, EU, Japan, China and India, which collectively account for the lion’s share of the world’s greenhouse gas emissions.

Whatever policymakers in these various regions decide, the impact of regulation will fall primarily on the corporate sector, which is directly responsible for at least 40% of all greenhouse gas emissions.Part II of this report considers the current attitudes within business regarding climate change, the actions that are being taken and the impact of the global economic outlook on the efforts being made. It also poses questions about whether new environmental policies and strategies will blunt competitiveness within business.

Key findings emerging from the research include the following:

  • The economic downturn will have mixed effects on climate-change efforts for both governments  and business. Precisely determining the impact of the current global recession on the climate-change efforts of both business and governments is difficult, with countervailing forces at work.Many governments will be reluctant to place greater burdens on business than they have to in such challenging circumstances. However, some are also providing significant sums of money in order to mitigate the economic downturn, with major investment in renewable energy infrastructure and energy-efficiency projects on the cards in many countries. At a business level, a greater emphasis on cost control will lead many firms to embrace the easy wins of energy efficiency, which many firms are already engaging with to reduce costs (see next point). Although such gains are typically incremental, the benefits can be large—and usually rely on proven technologies: Unilever, for example, says it has saved about €250m over the past decade on carbon cutting initiatives. Moreover, a sharp drop in business activity as a result of the global economic downturn will reduce demand for energy, thereby cutting emissions in the short term. But there is bad news too. Lower demand also reduces the cost of fossil fuels, making investments in emission-reduction technologies with longer payback periods less enticing. Owing to tighter credit availability, the financing needed for larger capital-intensive projects is not as easy or cheap to come by as it once was. A lower carbon price also reduces the attractiveness for developed-economy companies to offset their emissions by investing in clean energy projects in the developing world. Two-thirds (67%) of companies polled for this report agree that the current economic environment means environmental issues will necessarily drop down the agenda.
  • More companies than not have established some kind of climate-change strategy, although most simply consider energy efficiency. More than one-half (54%) of executives polled for this report say that their companies have a coherent policy in place to address climate change, although the scope of such policies varies widely. Actions focus on core internal activities and facilities, rather than involving suppliers, business partners and customers. As one executive highlights, producing too much carbon is a new indicator of inefficiency. Indeed, for most companies, climate-change action begins (and ends) with energy efficiency. Nearly two-thirds (62%) have implemented some degree of improvement in this area over the past two years—far ahead of all other actions. This will remain the case going forward, although an encouraging minority of firms are exploring more advanced initiatives including, importantly, greater consideration of both customers and suppliers.
  • Real adaptation to climate change is out of the sights of most firms right now. Three-quarters (75%) of respondents agree that companies as a whole have been slow to prepare for the long-term impact of global warming on their business. Unsurprisingly, climate-adaptation strategies remain a vague concept today, but tend to involve two key elements. The first is risk management (assessing supplier vulnerability to things such as reduced crop yields or water supply, or business continuity in extreme weather events, for example). The second is genuine consideration of the new opportunities emerging. This is not to say that nothing is happening: nearly one in four (24%) have made some degree of preparation for possible disruptions to operations, while 8% have worked to increase the resilience of their supply chains. In terms of exploring new opportunities, the findings are more encouraging (see next point).
  • A significant minority of firms are discovering new market opportunities. Nearly one in four(23%) executives say their firms have assessed the carbon impact arising from the lifetime use of theirproducts or services (that is, considering both the production impact across a supply chain, as well as the eventual use by customers). Those who have done so often say such analysis provides unexpected results—and new opportunities. Procter & Gamble, for example, discovered that heating water for laundry cycles accounted for a huge percentage of the company’s total emissions, directly leading to the development of a cold water detergent. Overall, 40% of respondents say their firms have developed new products or services in the last two years that help to reduce or prevent environmental problems—and the demand for such goods and services is likely to rise as other firms and consumers seek to improve their energy efficiency. Even if some of this is just marketing—and eight out of ten (79%) respondents agree that too many firms use climate change as merely a marketing tool—a serious effort is under way in many industries to develop wholly new products, from electric cars and energy-efficient microprocessors to new home loans. Nearly one in three (30%) executives say such development will be a high priority in the coming years.
  • Emissions trading schemes will spread beyond the EU—and a carbon price of €30-50 is seen by business as the sweet spot for effecting change. A novelty less than two years ago, emissions trading schemes (ETSs) are become increasingly widespread today. The EU is steadily expanding the scope of its ETS, the world’s largest. The new president, Barack Obama, supports the establishment of a federal ETS in the US, while Canada, Japan and Australia are all exploring the idea. But as the EU scheme has demonstrated, an inadequate price provides an insufficient incentive for businesses to change their habits—and the EU carbon price has rarely risen above €20 since its inception. About two-thirds (65%) of respondents (for whom it was relevant) indicate that a carbon price of up to €50 would be enough to have a significant effect on their energy usage, with a price somewhere between €30 and €50 per tonne of CO2 seen as the sweet spot for change. But a change in the price of carbon of this degree looks out of prospect right now. This is primarily because of the weakness of economic growth, which will cut emissions—and thus the carbon price.
  • A growing number of companies favour more environmental regulation—providing there is a level playing field. Over one-half (56%) of surveyed companies believe that more government regulation is necessary in this sector. In fact, for the relatively few companies that do lobby, more are arguing for tighter regulation than looser—at both the national and international levels. Business is not embracing red tape: instead, executives realise that rules are coming and are seeking clarity in order to make responsible investment decisions. Above all, they want a level playing field in which to compete. This points to a concern that will also preoccupy the negotiators at Copenhagen: how to create a new framework to combat climate change, without burdening their own economies with regulations that sap competitiveness relative to other rivals globally.

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