Climate Change Task Force

This is essential, and to my mind the most positive result from Copenhagen. We need a solution that involves everybody—industrialised and developing countries alike - or emissions will simply “leak” from the countries where CO2 rules apply to those that are not part of the agreement.

The arrival of the Heads of State near the end of the meeting added a touch of glamour. President Obama’s speech made the welcome point that all major economies need to take decisive action, and committed the US to reductions in emissions of 17% by 2020 and 80% by 2050.

(Obama didn’t mention a baseline year, but was almost certainly referring to 2005, whereas most commitments use a baseline of 1990. Since the US economy—and hence emissions—grew strongly between these years that makes a very big difference. Obama’s “17%” translates to just “4%” when set against 1990. Unlike many, I do not blame him for this. Even this target will be challenging for the US to reach.)

However, his speech also called for “transparency” of emissions reporting in a thinly veiled attack on the Chinese position. In my view, the resulting contretemps between Wen Jiabao, the Chinese premier, and Obama was mainly a cultural clash. Jiaboa has been roundly criticised for leaving a junior member of team to negotiate with other Heads of State, but he was clearly responding to what he saw as a public attempt to humiliate him. China’s record on attempting to reduce their dependence on fossil fuels is second to none and I believe that Obama’s comments reflected his own weakness at home more than any real beef with the People’s Republic.

The agreement thrashed out late on Friday night by Obama and his small, hastily convened cabal of key states, reflects this. It was not in itself very meaningful. By the time the text emerged it had lost its most important statement—a timeline to achieve a legally binding protocol by the end of 2010. This was a clear demonstration of how completely Obama is presently a hostage to his own congress and senate. If he goes beyond what they can stomach, they will certainly give him a bloody nose.

However, one positive aspect of the agreement is that it is not a fully fledged protocol. This was a relief since at this stage a weak protocol would have been very much worse than nothing at all. Second, the nations that Obama felt he needed to turn to were none of them in Annex 1. Instead, he brought in India, Brazil and South Africa and, of course, China--all rapidly emerging countries who are now seen as essential participants at the negotiating table.

Obama’s late-night accord had three main strands. First, the UN formally adopted the EU’s target of allowing temperatures to rise by no more than 2 C. This in itself was a testament to the fightback by many of the poorer nations. Because the small island states and Africa had tried to force a target of 1.5 C, this figure was seen as a compromise rather than a lower bound, and the document even contained a commitment to review the target in 2015 to see whether 1.5 C might yet be achievable.

The document also required every individual Annex 1 nation to declare its own commitment to emissions reduction by 31 January 2010. At the time of writing it is not yet clear what these will be, but it is a welcome exercise in focusing the national minds.

The third part of the accord was a fund of $30 billion for adaptation and mitigation in the poorer countries for 2010-2012. The money is coming mostly from the EU, Japan and the US and is a step towards the figure of $100 billion per year by 2020, which Gordon Brown proposed, and is also supported in the accord.

This is a necessary short-term measure. But in the longer term we need to go beyond such handouts with their associated culture of dependency. Instead, I believe that we need a fully global cap and trade scheme that puts a single high price on carbon’s head.

Let’s talk numbers. By 2050 global average emissions of CO2 must fall to 2 tonnes of CO2 per person per year. What if we set this value as a trading limit? Each nation in the industrialised world would be assigned a straightforward downward trajectory to 2 tonnes per person per year. Rapidly developing countries such as China and India, which have relatively low levels of emissions per capita, could temporarily increase their emissions before these too would start to fall towards the magic figure of 2 tonnes.

The world’s poorest countries, which are also the ones that will be hardest hit by climate change, would benefit significantly. For example, Rwanda with current per capita emissions of 0.35 tonnes, could receive carbon credits for remaining below 2 tonnes, and trade these with any country that has exceeded its cap. This naturally produces cash for poorer countries to adapt to climate change; it also provides an incentive for them to develop low carbon technology, solving the problem of leakage.

Such a scheme could set conditions that any country would have to meet to join the trade. For example, there could be standards of governance to ensure the money was not simply siphoned off into corrupt coffers. Each country would also need to demonstrate how they would use the money to achieve low-carbon growth. And to avoid encouraging population growth, the allowance could depend on the population size at a country’s point of entry in the trading scheme.

Rwanda’s President Kagame gave support to this general idea at the UN heads of state meeting on climate change in September when spoke on behalf of African Union. Strikingly, he declared that Africans want to be part of the solution not part of the problem. But to work this idea up to a fully functioning protocol will take time.

For these reasons, I think that all eyes should now turn to the next G20 Heads of States meeting, and the follow-up to Copenhagen in Mexico in December 2010. And while politicians continue to wrangle, there is more need than ever for the business community to show strong leadership and continue to press for long-term clarity on carbon pricing. Above all, the imperative remains for a high price on carbon, and business leaders should continue to plan for this. The foolish may try to ignore the problem, but the wise know that climate change, and hence the need for decisive global action, is not going away.