The global climate summit involving leaders from countries around the world ended last week without much for those countries or environmentalists concerned with global warming.
"The official communiqué from the Cancun climate-change conference cannot disguise the fact that there will be no successor to the Kyoto Protocol at the end of 2012. Japan, among others, has withdrawn its support for extending the treaty," wrote investor George Soros in a recent blog post.
That there was a different tone to this meeting versus prior ones, such as last December's summit in Copenhagen, was obvious. There were reports that large areas of the press room were empty, as far fewer journalists travelled to Cancun this year than for the 2009 meeting. Even among news major outlets, coverage was modest and spotty, perhaps related to the modest expectations for what was to come out of this year's event, perhaps also reflecting a bit of global warming fatigue as other news themes take precedence.
While Christiana Figueres, executive secretary of the U.N. climate convention, said the international community sent a "clear signal" on the need to move toward a "low-emissions future," the results were more far focused on direction and guiding principles than anything with real teeth.
Participants, especially in Europe, spoke more of the Cancun meeting providing "building blocks" or showing a "path forward," as a way to state that the meeting had real value.
The bottom line for US supply chains is that it does not appear likely that the US will get anything like Cap and Trade or a carbon tax any time soon, as there is no global agreement or treaty to drive a decision, and a combination of a still weak economy and change in control in the US House to Republicans and stronger Republican numbers in the Senate mean passage of Cap and Trade type legislation in Congress is for all intents dead for at least the next two years. West Virginia Senator-elect Joe Manchin, a Democrat, featured TV ads showing a bag with the words "Cap and Trade" on it being shot full of holes, for example, to appeal to voters in his coal-dependent state.
This is huge, because as we have said all along, green supply chain practices change enormously with or without a true regulatory framework. Without one, companies can decide what to do or not do with regard to greenhouse gas emissions based solely on economics and public relations factors. With one, a whole new set of factors come into play, including new external costs and new legal requirements.
There are two wild cards, however. One is that the EPA may continue to try to reduce greenhouse gas emissions using its regulatory powers, a very controversial strategy. (See EPA Issues ''Guidance'' in Controversial Plan to Regulate Greenhouse Gas Emissions; New Requirements Mostly for Large Factories.) The other is California's law that will require the state to take unspecified measure soon to address greenhouse gas emissions so as to reach certain targets over coming years, and which may result in a regional Cap and Trade program. (See California Voters Overwhelmingly Reject Attempt to Delay Carbon Emissions Law.)
In his blog, Soros added that result at Cancun "sounds like bad news, as it means there will be no international price on carbon, and, without a market price, it is difficult to see how the reduction of carbon emissions can be efficiently organized."
Soros says that as the "top down" approach is failing, there is reason to be optimistic about a 'bottom-up" approach, and that this may well be better.
"Instead of a single price for carbon, this bottom-up approach is likely to produce a multiplicity of prices for carbon emissions," Soros wrote. "This is more appropriate in reducing carbon emissions than a single price, because there is a multiplicity of sectors and methods, each producing a different cost curve."
When there is a single price curve that does not reflect marginal costs, reducing carbon emissions ends up far more expensive than it needs to be.
"This was amply demonstrated by the working of the Kyoto Protocol in practice," Soros adds. "The carbon-trading scheme that it established gave rise to many abuses. For example, former communist countries earned emission credits at zero cost on heavy industries that they had to shut down and reaped windfall profits selling them. So the Kyoto Protocol's will be no great loss."
Soros also notes the challenge of working out real deals between groups of large, economically developed economies versus developing countries, based in part on so far vague commitments of the rich countries to send billions annually to less developed ones to compensate for the economic hit they would take in reducing emissions now.
Soros cited the case of Indonesia, where most of the heavily forested land sit on peat. When forests are cut down or peat removed, it releases huge amounts of carbon, enough to make the country the third largest emitter in the world, behind China and the US.
Indonesia is both taking action on its own to prevent more of this from occurring, and has also received financial support from countries like Norway to help in the effort.
"Eventually, it should lead to the establishment of a global fund for rainforests and agricultural adaptation. The global fund would introduce two prices: one for carbon saving by restoring forests and one for avoiding carbon emissions by preserving them," Soros writes. "This in turn sets an example for other sectors. In this way, carbon pricing will be introduced and international co-operation established from the bottom up, on a sectoral basis rooted in demonstrated results."
The next climate summit meeting will be in late 2011 in South Africa.
Are you happy or not nothing much came out of the Cancun summit? What do you think or Soros' idea for a more "bottom up" approach? Let us know your thoughts at the Feedback button below.
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