Climate Change Policy Must Encourage Innovation

Published April 1, 2008

Participants at the United Nations climate change conference last December in Bali produced a roadmap for future negotiations and an agreement to complete by 2009 negotiations for a post-Kyoto climate change agreement.

Reaching an agreement that will be acceptable to developing and developed nations alike will be difficult, but any successful agreement must encourage technological innovation in the business sector.

Divergent Global Interests

At Bali, developing nations firmly rejected the notion of having to adopt rigid emissions reduction targets. The developed world (Annex I) nations remain split on adoption of firm emissions reduction targets within an explicit time frame. Many already feel the pain of trying to meet even modest emissions reduction goals, and a stricter control regime would pose even greater concern.

It may be fortunate that there is a general recognition among all parties that all options (mitigation, technology, adaptation, and finance) must remain on the table for discussion. Also on the table in the minds of some participants is whether the forthcoming national elections in the United States will usher in a new regime more favorably disposed to accepting quantitative emissions reductions targets and restrictions such as those enacted within the Kyoto Protocol.

Public Demands Strong Economy

Those who hope for such a regime change should soberly consider the general business climate in which the next administration will operate. As it stands, our nation (and many others) will continue to have to grapple with persistent economic woes–and this is a concern that in the mind of the American public is far more important than any worry about climate change policy.

For example, a January 2008 NBC News/Wall Street Journal poll confirmed Americans are far more concerned about job creation and economic growth than the environment. Other worries, such as the war in Iraq, health care, terrorism, illegal immigration, energy, and the cost of gas were also of significantly greater concern than the environment and global warming.

Simply put, any global warming policy that imposes additional costs on doing business and on consumers is likely to be viewed with considerable disfavor.

Developing Nations No Different

This brings home an important point. If Americans place a premium on economic well-being, why should it be any wonder that developing nations such as China and India have balked at accepting emissions limitations targets? Placing a similar priority on economic growth, developing nations such as China, India, Brazil, and Mexico will continue to expand their fossil-fuel dependent economies.

As a result, Kyoto Protocol or no Kyoto Protocol, these countries’ CO2 emissions will continue to grow.

Developing nations believe they have an indisputable right to grow their economies. Anyone who believes India and China will agree to severely cut their use of fossil fuels and drastically curtail CO2 emissions over the next two decades, and thereby place the growth of their economies in jeopardy, has a poor grasp of reality.

The inescapable truth is that nations will vigorously defend their right to grow and maintain healthy economies. Any climate change policy that does not allow for this is doomed to either failure or irrelevance.

No Affordable Technology Available

This clearly points to a much greater need for policymakers to focus on how to innovate and deploy clean technologies over the long term. Affordable solutions that can deliver deep emissions cuts simply do not exist today; they must be invented.

There may or may not be an urgency about addressing climate change, but one thing is certain: If the world economy falters owing to poorly designed climate policy, no one will have any desire to stay the course for the long term in addressing global warming. We have to get the framework and expectations as right as possible at the onset.

Business, Industry Role Essential

The Bali roadmap agreement initiates negotiations that will have to move at a rapid pace if they are to meet the proposed 2009 end date for a new agreement. Business and industry must play an important role in this process. Issues concerning market mechanisms and sectoral approaches will have to be carefully evaluated.

The Bali roadmap recognizes a role for business through the need for action on technology development and transfer both for mitigation and adaptation and for technology cooperation within sectors. This is particularly important because what happens in one business sector often has large spillover effects within other sectors.

Policymakers must look to business and industry for insights during the forthcoming negotiations. In order to safeguard continuing economic growth in their countries, governments are much in need of a better understanding of how businesses, particularly those operating in global markets, make investment decisions. Business leaders must help fill this knowledge gap.

William L. Kovacs ([email protected]) is vice president of the U.S. Chamber of Commerce Environment, Technology, and Regulatory Affairs Division.