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Putting Energy into a Global Agreement
 

By Björn Stigson
President of the  World Business Council for Sustainable Development (WBCSD)

Energy, and our access to it, is at the core of the lives we live. Without it, we tend to do poorly; with it, societies prosper and grow, and become ever more reliant on an abundant energy supply. Energy is the single largest requirement for economic expansion, fuelling growth and social development. Today, one billion people living in developed countries consume half of the world’s energy supply, while 1.6 billion people do not have access to electricity.

Energy is essential to fuel industry, power infrastructure and to connect goods and services to markets. Communities need it for basic services such as heating, lighting and cooking fuel. There is no doubt that some of the world’s people have too little of it, and that others waste far too much of it. By 2050, the world’s demand for energy could double as populations rise and developing countries seek to increase the standard of living of their people. Unchecked, an increased demand for energy will create an increase in greenhouse gas emissions. This is why action on climate change is a priority for governments around the globe.

How we use and source energy in the future is critical as the world tries to find climate solutions that foster sustainable economic and social development. To do this, we must reduce our reliance on fossil fuels. I believe much of the climate solution will turn on how well, and how quickly, we can improve our energy efficiency, develop low-carbon energy sources and deploy breakthrough technologies such as carbon capture and storage. Energy efficiency measures, according to the International Energy Agency (IEA), could account for half of the potential to halve carbon dioxide emissions by 2050. We must make sure that we use all that potential.

Business knows that it will have to shoulder a big load when it comes to funding energy technology. Already, it provides the lion’s share of the investment and financial flows for developing and deploying technologies. The UNFCCC Secretariat has already said that the money available under the UNFCCC and the Kyoto Protocol will not be enough, and the IEA estimates that up to US$ 45 trillion will need to be invested up to 2050 in the global energy system.

As we all know, the current global financial turmoil means business is facing its own set of challenges. However, this will not stop it investing in the search for climate solutions. Business understands it has a role to play, and wants to protect and preserve its future too. While business has the expertise, strategic thinking, innovative mindset and some of the investment capital needed for the road ahead, what it lacks is clarity about the future climate regime. Companies know that there will be winners and losers in the new climate regime. They need as much certainty as possible about the conditions into which they will be investing to reduce their risk of being among the losers.

At the World Business Council for Sustainable Development we work with some 200 of the world’s leading companies. These companies are at the forefront of driving the technological development and deployment that will be necessary. They tell us that not enough is being done to encourage investment on the scale and within the time needed to propel the world towards a low-carbon economy.

Many of the technologies that will be needed are already available, and all of these will be needed in the climate solution. But new, breakthrough, clean energy technologies will be required too. So there should be provisions in the new framework agreement that trigger and support a reversal of the recent global decline in investment in energy research and development.

The agreement will also need to foster an unprecedented level of international cooperation on technologies, because countries and companies will need to pool their resources if technologies are to be brought to market quickly. To “push” the development of new technologies, there will need to be some level of public investment, especially in early-stage demonstration and deployment projects where the risks and costs may be too great for business to bear on its own.

Market mechanisms will need to be improved, and new ones created, to “pull” these investments through the innovation chain (discovery, development, demonstration and deployment) to generate revenue and enhance the flow of investments to developing countries. Carbon markets will have an important role to play. Though they operate in many parts of the world, unfortunately they are not yet delivering finance on the scale that will be needed in the coming decades. In the new agreement, cap and crediting systems will need to be balanced, and the long-term goal should be to create a demand that will become an incentive for the development of technologies that deliver large-scale emissions reductions. In some sectors a carbon price will not be enough, and other policy responses and mechanisms will be necessary.

One additional mechanism that business believes should be encouraged is sectoral agreements. These would be satellites to the global agreement and should focus on activities that cut emissions and support technology and financing within specific sectors. The focus should be on either efficiency improvements or emission reduction incentives, or indirectly through such actions as investing in specialized low-carbon technology for future use. These kinds of projects could help developing countries by introducing new infrastructure and technologies, and at the same time building the skills and competencies needed to get full benefit from them.

There is a lot to do before COP15 in Copenhagen in December. Efforts need to be directed towards overcoming the policy, institutional and financial barriers to the spread of low-carbon energy technologies around the world. Strengthening the protection of intellectual property rights will be essential if business is expected to invest in innovation at the required level. 

Business understands that we are all in this together and wants to get on with working, planning and investing for the future. The world can move to a low-carbon economy, but it will require a great deal of working together in Copenhagen and elsewhere. We cannot allow ourselves to fail.  

About the WBCSD
The World Business Council for Sustainable Development (WBCSD) is a unique, CEO-led, global association of some 200 companies dealing exclusively with business and sustainable development. The Council provides a platform for companies to explore sustainable development, share knowledge, experiences and best practices, and to advocate business positions on these issues in a variety of forums, working with governments and non-governmental and intergovernmental organizations. For more information on the WBCSD see: www.wbcsd.org