The Cancún climate negotiations to replace the expiring UN's Kyoto Protocol suggest that there must a real sense of urgency around the issue of climate change, considering the bruising that took place last year in Copenhagen. For those who are most concerned about climate change, another failure maybe the best possible outcome in Cancún.
It is also the most likely one. Little interim progress has been made since Copenhagen on any issue. Deep differences remain among the negotiating parties in Cancún, and ambitions have been set very low by many observers including the new chairwoman of the UN's governing body for the talks. Most participants are desperate to achieve progress of any kind -- or risk process obsolescence of the entire framework.
The current guiding principle in advancing these negotiations is based on incrementalism -- the notion of concluding even a modest treaty that would allow for more serious commitments over time. This approach is seen to have worked in other international treaty contexts, including the Montreal protocol protecting the ozone layer. The logic goes "start small, don't let the perfect be the enemy of the good, and anything's better than nothing."
Kyoto was also forged under this mentality and may itself offer the best evidence against incrementalism. Developing countries, particularly China, India, and Russia, which are all in the top five emitters worldwide, are as reticent to sign on to a new treaty today as they were to assume any binding commitments under the Kyoto protocol. In the US, support for joining a global climate deal is as low as it has ever been. If incrementalism is happening under Kyoto, it is at an undetectable pace.
Yet, here we go again. The fundamental belief driving thousands of exhausted negotiators and advocates to Cancún is that we must do something. But it turns out that doing something is not the only option -- and is not even the best option -- when that something is at best a watered-down treaty.
Instead, doing nothing in Cancún may be a better strategy for advocates. A failure to enact a post-Kyoto agreement does not mean that there will be no price on greenhouse gas emissions. What most treaty advocates fail to understand is that businesses today are already changing their behavior based on expectations of the future and that carbon emissions already have a de-facto price in their minds.
This de-facto price comes from a mounting swarm of national and sub-national efforts to curb carbon, including renewable portfolio standards, fuels standards, regional trading schemes, and indirect measures including the US EPA's recent authority to regulate carbon dioxide as a pollutant. Businesses are being forced to report their risks of carbon exposure to shareholders and regulators. Debt providers are pricing in the risk of future carbon prices when lending capital. All of these create an implicit price for carbon that is meaningful and rising.
Uncertainty around how fast and how far prices will rise further impacts business behavior. Businesses that want to install long-lived carbon emitting assets are finding it difficult and expensive to access capital. Lenders need a stable carbon price to get comfortable with the long-term costs and risk of carbon emitting investments. Considering this, it is not surprising that CEO Jim Rogers of Duke Energy, a major coal consuming electric utility, supports a global climate treaty.
Inevitably, any treaty that would be forged in the current political environment would be the lowest common denominator across the negotiating parties; with low initial carbon prices, exempted sectors, safety valve clauses, and exceptions for the fastest-growing economies in the world. It would perpetuate a system that has shown little efficacy in reducing global emissions.
Worse, a weak global treaty would take pressure off fighting climate change through existing national and sub-national measures. In the US, it would probably require the suspension of EPA authority over greenhouse gas pollutants. It would also make contemplated trade sanctions on environmental grounds harder to impose under WTO rules. In short, any weak treaty would give politicians an excuse to turn their attention elsewhere, as they did immediately after Kyoto.
The instinct in Cancún will be to capitulate to any agreement that can show progress in negotiating and justify efforts to date. However, more can be accomplished by either holding out for a seriously good deal or walking away and "letting a hundred flowers bloom" in other more effective ways. Unless a climate agreement is powerful, businesses -- and more importantly their capital providers -- will be better motivated by living with their current deep uncertainty about the future.
Conversely, for businesses or governments most exposed to a future increase in carbon prices, the winning strategy would be to lock in an agreement, complete with grandfathered emission rights, in Cancún. Failure to do so will result in an expensive mix of local responses that will only drive up the cost of carbon emissions faster from here.
