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
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
- 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:
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
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.
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.
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.
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.