Copenhagen, Consensus and The Gathering of the Trees

“The trees gathered to agree a response to the growing threat of the Homo sapiens,” said the story-telling old lady who waylaid me in a park.  “After several weeks of debate had passed, up rose Sam Sequoia who said, ‘You have spent so much time in organising and fighting for who will be leader that you have all completely lost sight of your objectives.’”

The tale could almost be a complete summary of the UN summit on climate change which took place in Copenhagen in December.  After decades of research, years of talks and months of preliminary negotiations, the summit ended with a whimper and a partial agreement that is worse than no deal at all.

The debate over climate change certainly has plenty of grounds for controversy.  The difference between long-term climate and short-term weather is confusing for short-memoried humans.  Environmental activists’ determination to find someone to blame, and their Calvinist obsession with original sin, has needlessly brought additional heat to a debate that already has plenty.

In the 1980s, forests of denuded trees created sufficient pressure to motivate governments to act against sulphur emissions.  In the 1990s, legislation was enacted to allow global trading in sulphur emissions.  Within a decade, sulphur dioxide levels fell faster than anyone had predicted and for much lower cost.

A similar mechanism to reduce carbon emissions would be expected to work just as well.  There is a difference, however.

Creating an ostensible tax on sulphur emissions affected very few companies around the world.  The additional costs were small enough to go unnoticed. Carbon affects everyone. 

Plus, for countries still well down the development cycle – countries which still intend to build power stations and whose citizens still don’t own microwave ovens and motorcars – any decision to limit carbon emissions will also limit the economic growth necessary to improve their citizens’ livelihoods.

No country is willing to increase economic costs without everyone else also agreeing to do so.  No country is willing to consider the job-losses that will follow the massively increased prices on every single thing that will result from a carbon tax.

The debate in Copenhagen became a miserable circle of discussing raising carbon prices on select industries and then returning the tax through direct subsidies to industries that will be most harmed by the price rises.

Poorer countries recognise that they can only lose if rich countries start to subsidise their worst carbon producers.  So they demanded a bribe.

“Africa demands up to five percent of the GDP of industrialised nations every year, because of their historical debt and the continuation of causing the harm,” said Sudanese G77-chair Di-Aping Lumumba.  “We are talking roughly about $2 trillion annually till 2050 for adaptation, mitigation and technology transfer.”

That was always a pipe dream and probably hardened hearts in the US and EU.  In the end, they offered only $ 30 billion of aid over the next three years.

For the world’s largest investors and companies, now emerging dazed and bedraggled from the ruin of the credit crisis, all of this is quite worrying.  Investment decisions into new plant and capital take months to investigate and years to return profits.

The cost of carbon in a production process can determine which technology to use or even whether to invest at all.

Further muddying decision-making is governments’ determination to pick alternative energy winners.  Which technology should one choose?  Biofuels?  Hydrogen? Nuclear? Solar? Wind? Wave? What?

Rainy and perpetually dreary Germany favours solar.  Sugar-bereft America favours biofuels.  None of these decisions is cost-effective or carbon-efficient.

World leaders and – by extension – their electorates must be willing to confront the higher prices that will result in the short-term from any meaningful effort to reduce carbon emissions.  Until they do so, it is impossible to expect that companies will know how to respond to a global demand to limit climate change.