London, UK — Considering the outcomes from December 2010’s COP in Cancun, and looking to the year ahead, what are the prospects for an effective global climate agreement, and what are the implications for the renewables industry if this is, or is not, achieved?
Steve Sawyer, Secretary General, Global Wind Energy Council
The outcome of COP 16 in Cancún was not universally applauded, and of course, there is some very valid criticism over the substance of what was agreed. However, we have to recognise that after the chaotic failure in Copenhagen in December 2009, many commentators had already pronounced the UNFCCC’s multilateral approach ‘dead’, and nobody really expected anything to be agreed in Cancún. They were wrong, and it seems that at the very least, the international process is now back on track.
In terms of the content of the Cancun Agreements, the most important consequence was that the majority of the positive elements of the Copenhagen Accord (such as the 2°C goal and the targets tabled by both developed and developing countries, and more details on financing) were in fact adopted by all the parties, within the UN process. This may look like a formality, but it is in fact a big step forward.
Of course, many important questions remain open. The emissions reduction targets will get us nowhere near the 2°C objective. We are no closer to a global price on carbon than we were before the meeting, and there is no agreement on the architecture for a new treaty. Governments will have to do much better to make any real difference in a world increasingly threatened by climatic changes.
But at least now, they have the chance to do exactly that at COP 17 in Durban in South Africa in December this year. Whether or not this will happen is unclear, especially since it is unlikely that the US will be able to make any commitments in the current political conditions.
For the wind industry, this means that we watch, and wait for the political change which will allow real progress. In the meantime, we focus our efforts on developing national markets, one market at a time. Not the most efficient way to proceed, perhaps, but the best avenue open to us for the present.
UK minister Chris Huhne ponders the outlook for renewables (Source: Department of Energy and Climate Change)
Eleni Despotou, Interim Secretary General, European PV Industry Association
The deal reached in Cancun was not rich in content but full of confidence, especially towards the UNFCCC process.
It is true that COP 16 did not bring solutions to curb our greenhouse gas emissions once and for all, but it reflects the willingness and ambition of nations to move to a low carbon economy. It has also set an encouraging path to reach a binding agreement for COP 17.
Governments have a strict work programme ahead to follow through on Cancún, including efforts to cut emissions, securing fast track and long term finance commitments and the future of the Kyoto Protocol.
With the UNFCCC progress back on track, the renewable energy industry should call on nations to integrate renewables within the national climate change agenda. Furthermore, a clear shift by decision-makers to renewables is crucial in order to guide investment decisions, provide investment security, and create green investment patterns. In addition, a price on carbon is essential in order to ensure a level playing field and factor externalities into the costs of conventional fuels.
Solar photovoltaic energy can play an important role and such technologies are available now, ready to deliver energy, reduce dependence on conventional fuels, and satisfy growing energy demands.
The establishment of binding commitments for industrialised countries to reduce their emission on average by at least 40% by 2020 compared with their 1990 level and by 15% to 30% for developing economies compared to their projected growth by 2020, should be part of the outcomes of COP 17. Failure to deliver an international binding agreement in South Africa will not only undermine investment in clean energy technologies, but will also represent a potentially irreversible threat to our planet.
Stephanie Pfeifer, Executive Director, IIGCC
The climate negotiations in Cancun ended on a positive note – the international climate process survived and partial agreements on issues such as climate finance, technology transfer and adaptation were reached. Investors welcomed an end to the uncertainty surrounding the international negotiations, which have weighed on sentiment since the disappointment of Copenhagen. There is also a growing recognition amongst developed and developing countries that low carbon development is consistent with economic growth and that private, together with public, finance has an important role to play.
The Cancun Agreements, however, marked a key change in expectations that a comprehensive international treaty will provide the incentives for action on climate change. In the absence of a global agreement, there is likely to be a greater focus on bi-lateral agreements between countries. It is also clear that national and regional policy will be the key driver for private investment for a number of years to come. The post-Cancun legacy is that national action plans will be critical, that some developing countries, particularly China, are taking the lead, and that carbon markets will not be the key tool for implementing commitments on greenhouse gas reductions.
Investment in the renewable energy sector in particular will depend on effective national policy and support schemes. During 2010 the Institutional Investors Group on Climate Change (IIGCC), representing over 65 investors in Europe with €6 trillion in assets, repeatedly expressed concerns in relation to Spain’s plans to implement retroactive changes to the subsidy regime for its photovoltaic industry. The successful outcome to the Cancun negotiations will not have reassured investors in this sector. The prospects of attracting large-scale private investment to renewables will depend very much on governments re-establishing the credibility of their support mechanisms and providing policies that support a relatively safe long-term assessment of expected risks and returns.
Delegates at the United Nations Framework Convention on Climate Change
Adnan Z Amin, Interim Director General, IRENA
An effective global climate agreement would be one that succeeds in establishing a global price for carbon, particularly through a binding commitment for ambitious emissions reductions. We are a very long way from that today. Cancun managed to put the process that was derailed in a spectacular fashion in Copenhagen back on track. It is not yet clear, however, where that track is leading as a number of countries central to a binding agreement are not able to sign up to one – either now, or in the foreseeable future.
Nevertheless, the extreme weather events that are associated with climate change that have taken place in Australia and Brazil highlight the immediate need to address the root causes. Attention is turning to practical action now, and clean energy is a large part of the picture.
For renewable energy to overcome the practical and cost constraints it faces, the economic playing field with fossil fuels must be levelled. The intention of the G20 to address fossil fuel subsidies at their coming meeting is most opportune.
The real cost of fossil energy that includes the internalisation of costs of pollution and elimination of subsidies is essential if we are to eliminate the market distortions that have skewed economic activity in favour of carbon intensive energy models. Increasing investment, improving technology and falling costs are already positioning renewable energy as a viable alternative. The progressive movement to account for the costs of carbon emission at source will lead to exponential growth in an industry that is ready for it, a world that needs it and a global economy that requires green growth and job creation. Let us hope the G20 will start this transition.
Dr Stephan Singer, Director Energy Policy, WWF International
It is time to put international UN climate conferences and their results into context of signals to the real world. Most importantly, power supply of renewable energies grew in the last years substantially – by about 25%—35% annually in the case of solar and wind power. So did the investment into renewables. Sure, it’s a minute proportion of the approximately €1 trillion annually which is needed towards a fully renewable energy system by 2050 and which is based on complementary very ambitious energy conservation programmes.
But still, clean renewable energy power investments have been growing globally from about US$20 billion in 2004 to almost $200 billion in 2010. This is despite the economic crisis and that is a success in itself. The prognosis shows that renewables will keep on growing at a similar speed in the coming years. And that is good news.
In the meantime, global climate summits have produced stalemates and stagnation unfortunately. Previously, global drivers for renewables expansion have come from a few key policy factors, including a large degree of uncertainty about fossil fuel prices and their availability – in particular in countries with high energy consumption and imports, and exposure to economic price volatility, such as some key OECD states, India and China. Climate change concerns added to the incentives towards investors and the developers of renewables. But this was not and is not caused by the specific outcomes of a certain climate summit. It's more the overall background noise created by media, NGOs and such like on climate impacts.
But that does not mean to ignore UN climate summits. It’s certainly true that the specific outcomes of Cancun are not a direct motivation for any utility to shift investments from coal to wind power. But climate summits – as remote as their conclusions might be for the practical decisions of shareholders – continue to enhance societal engagement with low carbon development. Let us keep in mind the global share of modern renewables (excluding hydro and traditional biomass) is still only 2% of all primary energy. And sustainable renewables grew rapidly only in a dozen countries.
In order to speed up renewables' expansion the results of any specific climate conferences are rather meaningless and other drivers are more significant. Unless there is a globally binding agreement in Durban later this year and some strong carbon caps which will boost clean energy investment, Cancun is irrelevant – but we need it for maintaining momentum in the climate process.
Hannes Reinisch, Middle East Renewables Coordinator, Deloitte
The mostly civil tone in Cancun and the agreements reached on some key issues should provide a platform for relatively smooth progress in some ways. However, the elephant in the room – the complete lack of consensus on the legal form of a successor to the Kyoto Protocol – grows more restive by the minute. If Durban’s conference ends with a legal agreement still in murky waters, the UN cannot be guaranteed continued smooth sailing.South Africa’s task in 2011 is both appealing and unenviable. Companies would do well to continue to monitor the process and how it may affect them – but emphasis should be on national and regional schemes as their impact on renewable businesses will prevail over the next few years.
Let us assume for a moment that after 17 years, Durban will create a global climate agreement. What will that mean for the renewables industry?
First let’s be clear; a global agreement about carbon reduction targets does not of itself create a global carbon market and a global carbon price. The linking mechanisms in the Kyoto Protocol (or its successor) will help and it is more likely that as part of in-country mechanisms to meet a reduction target there may be local carbon pricing but it is not a prerequisite. Having said that, a global agreement means uncertainty will diminish – uncertainty about the carbon price embedded in thousands of business cases for sustainable energy. This would equip industry with more confidence in the financial returns. Insights companies should be generating can then be complemented by a global carbon price.
While this sounds positive, it’s also fairly unlikely to happen within the next 24 months. While optimism is re-established for further progress in 2011, expecting a truly global carbon price to emerge in the short term is ambitious. As with all markets, a global carbon market needs years to become efficient, even after a binding agreement is established.
The good news is the renewables industry does not depend on it. There are numerous steps that companies can and are already taking now, based on their understanding of national and regional demand for emission reductions and clean energy. The industry has understood that national schemes will rise in prominence over the next few years, and that success depends on a company’s ability to achieve competitiveness within those schemes. China, for example, has started pilot carbon markets in some provinces and cities and has plans for a domestic market in the next five years. Other examples include oil-exporting countries in the Middle East and North Africa exploring feed-in tariffs.
While a global climate agreement will differ from national schemes in its geographic coverage, structural complexity and pace of adoption – it will drive in the same direction. Arbitrage and temporary emissions off-shoring should disappear, but the overall objective, a rising price for the carbon externality, will be the same. Hence those business models built upon that simple but crucial objective are less likely to have regrets once a global agreement is reached. Such business plans will not need to be scrapped or fundamentally rewritten, only updated and enhanced.
