By Chaitanya Kalia Partner - Climate Change & Sustainability Services, Ernst & Young, Mumbai It is said that great opportunities are presented brilliantly disguised as impossible situations. Restricting climate change is a significant opportunity where very high levels of risks and rewards for the global community are at stake. With every passing day, alarm is being raised by experts over the increasing threats of climate change. The impact is real, and awareness is increasing amongst citizens and Governments across the globe.

The journey that began by defining "Our Common Future," at present revolves around achievable targets, timeframes and various cost options to combat climate change. This year will again witness a round of intensive discussions to define the implementation channels of these options, which thereafter are left largely to the individual Governments and, to a great extent, to the private sector.

The Clean Development Mechanism as a business opportunity

The Clean Development Mechanism (CDM) journey has offered organizations a remarkable learning experience in the context of designated operational entities (DOEs), brokers, banks, financial institutions and Governments. Close interactions over the years with organizations associated with creating CDM projects and generating certified emission reductions (CERs) gave me a number of insights. To name a few:

• The key distinguising factor for most of these companies was management awareness of issues related to climate change, and a strong belief that they can make a contribution. Initially, attempts to derive business opportunities from climate change were experimental, but the learning has been fast and results quite tangible
• Companies that were ready to experiment had an early mover advantage, and in many cases have maintained their leadership position to date in their respective areas of work on climate change
• For the senior management, the excitement was about identifying another business opportunity or cost reduction measure. In most cases the climate change related projects (CDM, Carbon Footprinting etc) were in tandem with their environmental charter
• A new service sector has emerged catering to the needs of the entire range of climate change services, and across the globe they speak and understand the same language

Today, it’s a race against time, as the towering task of implementing effective carbon reduction measures cannot be implemented in a shorter timeframe. Development of commercially feasible technical solutions, their testing and implementation would need time.

Achieving an emission reduction target with appropriate preparedness would again begin from the private sector, and there comes a tendency to opt for a relaxed target rather than realistic ones.

Clear political signals needed by the private sector

One can find solace in the fact that there is now an entire service sector machinery that is ready to contribute by defining innovative solutions. Also, many progressive companies are on stand-by to take on this challenge by redefining their business in the climate change regime. They expect Governments or negotiators to provide them with a clear direction.

An Ernst & Young survey of global companies conducted in 2008 reflects that for long- term survival and success, developing strategies and products for a low-carbon future is imperative. The private sector today is struggling to figure out when and how a shift towards a low carbon business regime is to be made.

It has been recognized that the most critical aspect in making this shift is the timing. With an early, large-scale voluntary move that is otherwise not supported commercially, the risk of being non-competitive in the marketplace increases. On the other hand, to sustain leadership in the climate change regime, organizations have to embrace and promote low carbon technologies.

Key aspects to accelerate private sector participation towards a low carbon business regime would include:

 a) Technology
Availability of alternative, green and affordable technology. The current mechanism of  overseas development assistance-based demonstration projects, or UNFCCC-based technology transfers resulting out of technology needs assessments, may not be sufficient to support the amount of funding that is required (anywhere between USD5 to USD50 billion by 2020) to promote and establish climate friendly technologies.

There has to be an alternative way for large scale commercialization of innovative green technologies. One needs to consider investments from the R&D stage itself and every stage thereafter. What remains to be seen is how a direct technology transfer on commercial terms from industrialized to developing countries can get some relief under the future climate change regime that is being negotiated. Any positive inputs will accelerate the process.

b) Finance
Climate friendly economic growth through developing commercially viable projects in a reasonably shorter time span would require an innovative financial mechanism. The current market based mechanisms and its machinery, such as CDM, need to be overhauled, with all bottlenecks removed. This would be one of the easier tasks. The tougher one will be to make Annex I Parties agree to commit to a large fund and define its disbursement mechanism.

Prior knowledge on the availability of additional finance would prompt speedy acceptance from the private sector. A combination of efforts from Governments, financial institutions, the financial service sector and private companies would be required. This calls for emphasis on knowledge sharing via public debates, seminars etc. in order to find a common ground for innovative financial mechanisms.

c) Mitigation
While many successful mitigation projects have been implemented, they account for only a small percentage of a country's total mitigation potential.  Focus is required to first estimate the mitigation potential and then realize most of it in a shorter time span. Ongoing discussions on this subject are encouraging, such as a sector based approach to identify mitigation potential, coupled with technological options to implement mitigation measures.

Additional effort is required to address mitigation from unorganized sectors (such as farming) where mitigation solutions are not easy, but the impact is higher, long term and much more sustainable. The programmatic CDM (PoA) can be effectively used to propagate sound technologies to harness large- scale mitigation potential.  Beyond CDM, it’s the sector based approach that is likely to be a suitable alternative for large-scale coverage of mitigation measures.

d) Adaptation
Most of the adaptation related work is expected to be driven by Government programmes. However, involving the private sector would certainly speed up adaptation measures. For example, many developing countries, such as India, are making substantial investments in infrastructure that need to be supported by adaptation requirements. The challenge would be to meet such incremental costs,  and Governments must factor such costs at the design and funding stage.

The private sector as major player

Because of the large North-South divide, the climate change negotiations are likely to be dynamic and political. Nevertheless, commitment to reduce green house gas emissions is real, and requires close coordination between various players.

The private sector has to play a major role in the speedy implementation of emission reduction measures, while at the same time keeping the overall cost under control. It would require clear direction and less uncertainty for companies to realign their business models around the low carbon developmental regime.

“Be the change you want to see in the world” – Mahatma Gandhi.

The views expressed herein are the personal views of the author and do not necessarily represent the views of Ernst & Young Global or any of its member firms.