Governments Should Seize on Business Support for Climate Deal

Governments Should Seize on Business Support for Climate Deal
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In the world as we know it, only environmental activists are the movers and shakers in climate politics. Yet, leading up to the Cancún climate summit, international business emerged as a major apostle for bold steps towards a global climate deal. This represents a historic opportunity that governments need to seize. Otherwise, corporate backlash against climate regulation might occur -- history sounds a warning.

Conventional wisdom holds that business opposes new environmental regulation. In fact, about 13 years ago -- in the run-up to the Kyoto climate conference -- the Global Climate Coalition, the main voice of global industry at the time, lobbied hard against international emission reduction mandates. In the United States, the coalition succeeded in mobilising the Senate to unanimously pass the Byrd-Hagel Resolution, which said that the Senate would not ratify a climate treaty that did not include emission reduction commitments for developing countries. Ultimately, the United States did not ratify the protocol.

A sea change has occurred in the global business community since. Recently, the Corporate Leaders Group on Climate Change launched the Cancún Communiqué. Signed by more than 250 companies from across the globe, the statement sets out principles for an ambitious, robust and equitable climate treaty. It echoed the strong support among the international business community for progress towards a climate agreement: "the scientific evidence remains overwhelming and the case for bold and urgent action to tackle climate change is stronger than ever... It is critical that governments re-double their efforts towards securing a comprehensive international framework."

Moreover, the investor network Ceres and the UN Environment Programme Finance Initiative launched a statement last week, which called for domestic and international climate action. It is supported by 259 investors, who manage combined assets of over US$15 trillion. In the United States, the U.S. Climate Action Partnership, a coalition of major corporations and green groups, has been lobbying for a domestic cap-and-trade scheme over years. This is not to say that the voice of industry opposition has fallen silent, but it has become substantially weaker--the balance of power within industry has shifted to the supporters of an agreement. Companies have jumped on the environmental bandwagon for strong business reasons.

First, an increasing number of firms in the energy sector and in energy-intensive manufacturing sectors seek regulatory certainty. Investments in energy infrastructure have a lifespan of as many as 50 years, which calls for long-term regulatory certainty. Assuming that mandatory greenhouse gas emission controls are to come in any case, firms prefer to know sooner than later. In addition, these companies want to be ahead of the curve in influencing international and domestic climate regulation to ensure the rules of the game are favourable to them. James Rogers, chief executive of Duke Energy, famously quipped: "If you're not at the table, you're going to be on the menu."

Second, the corporate winners of a green economy have emerged as a force in climate politics, throwing their weight behind a deal. If a price is put on carbon dioxide emissions, producers of low-carbon technologies are likely to experience an increase in demand for their products. Moreover, cap-and-trade schemes -- a key pillar of climate policies around the globe -- create new commodity markets in their own rights. In 2009, the global carbon market was worth $144 billion, and it is expected to grow exponentially over the coming decade. In particular financial services providers, accountants and lawyers have taken great interest in the carbon gold rush.

Third, European companies in global energy-intensive industries, such as cement and steel, have a keen interest in creating a level-playing field with competitors in major emerging economies. Firms in the EU are already operating under emission restrictions in the EU Emission Trading Scheme. Hence, firms are pushing for an agreement that includes some form of emission reduction commitment from major competitors such as China.

Business has proven more than once to hold veto power over environmental policy. Hence, current business support for meaningful progress on a global climate deal represents a historic opportunity -- governments need to seize it. Corporate backlash against international climate regulation remains possible if international negotiations fail, carbon markets plunge and major emitters free ride. Such a return to the future would be a disastrous setback. The best way to avoid it is to ride the momentum by taking bold steps towards an international long-term regulatory framework now.

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