Business Recognises Costly Climate Risks

Business Recognises Costly Climate Risks

Business people are not scientists or politicians. But they are paid to evaluate risk and to recognise opportunity. That’s why business has a strong interest in a successful conclusion to next month’s climate change conference in Copenhagen. This from Richard Lambert, Director-General of the Confederation of British Industry.

Richard Lambert is Director-General of the CBI (Confederation of British Industry)

 Business people are not scientists or politicians. But they are paid to evaluate risk and to recognise opportunity. That’s why business has a strong interest in a successful conclusion to next month’s climate change conference in Copenhagen.

Either the world moves together in an orderly fashion to reduce greenhouse gas emissions by way of the legally binding obligations of an international treaty, or it risks a disorderly transition, with countries moving at their own pace and making their own arrangements. At the extreme lies the risk of belated — and therefore very costly — reactions to sudden shifts in climate conditions around the world.

Globally co-ordinated actions are important for businesses based in Britain. The EU is committed to ambitious targets for reducing greenhouse gas emissions by 2020, and to making polluters pay. If other regions do not follow, European industry would be at a serious competitive disadvantage, and manufacturers of commodities such as steel or cement would shift production elsewhere, risking many thousands of jobs. We would still need lots of cement in this country: shipping it in from distant ports would not help the planet.

The opportunity for business lies in the immense new markets opening up for low-carbon goods and services. The potential is measured in trillions of dollars, and countries such as China and Korea are now moving aggressively to build capacity in the green economy. UK businesses aspire to be leaders in this new world, and want a clear regulatory framework on which to base investment plans. Sectors where the UK could build a competitive advantage and create jobs include offshore wind, low-carbon vehicles, carbon finance and clean coal.

So the big question for business is: what will success next month look like? We will not get a fully fledged treaty: there is too much unfinished business to complete the job. But the meeting can produce positive results, provided it hits five prime targets.

First, the momentum of negotiations must be maintained. That means presidents and prime ministers must attend in person and deliver a firm political agreement that will be the stepping stone to a treaty as soon as possible next year. Worthy declarations of intent will not be enough to drive investment in research and technology on the enormous scale required to build a new kind of economy.

So Barack Obama must, as a minimum, commit to delivering the provisions of the Waxman-Markey climate change Bill, and leaders from the developed and developing world must guarantee the promises they have already, or will shortly, make to mitigate greenhouse gas emissions.

The numbers will have to be clear: global emissions should peak around the year 2020, then decline steadily to a point where, by 2050, they are less than half today’s levels. Change on this scale will require carrots and sticks, best achieved by putting a price on emissions that rewards efficiency and punishes profligacy.

So the second big challenge will be to lay the foundations for a global market for carbon, by developing schemes that cap emissions and create a market for trading in carbon permits, suchas the EU’s Emission Trading System. The value of a global carbon market could be well over $2 trillion by 2020.

Next, Copenhagen must reach outline agreement about the scale of the resources that rich countries will pass to the developing economies to ease their transition. China is setting its financial demands too high, and the US has yet to put a realistic offer on the table. They will probably need to converge on about €100 billion a year by 2020, with roughly half of that coming from the proceeds of emissions trading. Negotiating how this bill will be carved up among the rich countries will be one of the trickiest tasks of the conference.

Technology resources will have to be transferred to the poorer countries, as well as cash. But businesses would strongly object if governments from the developed countries agreed simply to hand over intellectual property, which is not theirs to give away.

Establishing a cross-border regime to curb emissions from aviation and shipping is target No 4. A way will have to be found to include them in a global cap and trading scheme to provide incentives for fuel efficiency.

Challenge No 5 is particularly important for businesses in the UK. The EU has undertaken to cut emissions by 20 per cent by 2020, or 30 per cent in the event of a successful global agreement. The higher figure would encourage others to be more ambitious, and would provide powerful incentives to develop new technologies and to drive energy efficiency.

But the big worry is that the higher target — coming on top of the EU’s costly renewable policies — could drive carbon-intensive industries out of Europe. So other countries would have to make strong commitments to contain emissions before British business agreed that this extra step was justified.

All this adds up to a very complex set of negotiations next month, and will call for political leadership of the highest order. Businesses in Britain are clear about the risks of failure and the rewards of success, and are developing products and services that will enable consumers everywhere to make the choices that will lead to a sustainable and rewarding future. Muddling through is not an option.

Having studied history at Balliol College, Oxford, Richard Lambert joined the Financial Times in 1966. He edited the Lex column in the 1970s, becoming financial editor in 1979. In 1982 he moved to New York as the bureau chief, returning to the UK a year later as deputy editor. He became editor of the Financial Times in 1991 and during his 10 years in this role launched the US version of the newspaper.

In August 2002 Richard spent a semester at the Kennedy School of Government at Harvard University. In 2003 he was asked by the chancellor to write the Lambert Review of Business-University Collaboration.

A member of the Bank of England’s Monetary Policy Committee from Spring 2003 until Spring 2006, Richard took up the post of director-general of the CBI in July 2006.

Among a number of other non-remunerated roles, Richard is also a trustee of the British Museum and became chancellor of the University of Warwick in August 2008.

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