Twelve years ago, while I was serving as an Energy and Climate Change Programme Officer with the United Nations Environment Programme, I was fortunate to have a ringside seat at one of the most important international diplomatic breakthroughs of the modern era.
During the first ten days of December 1997, high-level officials from 160 countries had gathered in Kyoto, Japan to seek an agreement that would lower greenhouse gas emissions from industrialised countries. When it was finally agreed upon at 6:00 AM on 11 December, the Kyoto Protocol to the United Nations Framework Convention on Climate Change represented the culmination of five years of negotiations following the 1992 Earth Summit in Rio de Janeiro.
At the time, there was justifiable cause for celebration. The Kyoto Protocol imposed the first quantified reduction targets for greenhouse gas emissions to be achieved during 2008-2012 relative to a baseline of 1990. But today, the Kyoto Protocol seems a world away from the current macroeconomic and macro-environmental context.
In 1997, climate change science was still in its infancy. Developing countries experienced much slower rates of growth in the 1990s, and the larger ones had not yet been branded by Wall Street analysts as “emerging markets.” It is now clear that Kyoto was a baby step along a much more complex journey.
Later this year another two week meeting in Copenhagen will cap the latest round of negotiations on climate change. I will be present in a different role – this time as a managing director responsible for carbon finance at a global financial institution. One of Kyoto's successes is that by 2008 it had resulted in a global carbon market worth more than $120 billion in annual value transacted. It is my hope that December 2009 will record a historical day when, building on the architecture of Kyoto, the world began to wrestle with the full extent of the climate change crisis, and put in place a long term strategy for reducing emissions and adapting to the potential impacts of climate change.
The upcoming meeting in Copenhagen has been made all the more crucial by a variety of important considerations:
- The latest science confirms that to avoid dangerous climate change we now need to try to peak global greenhouse gas emissions by 2020 and then move along a rapidly declining trajectory in order to achieve an 80 per cent reduction compared to 1990 levels by 2050.
- Increasingly, we find ourselves in a world of asymmetric risks, where the dieback of the Amazon, the melting of Arctic ice, the thawing of Siberian peat bogs, and excessive warming of the oceans could all contribute to the unleashing of frequent and extreme weather events. These would have devastating consequences for vulnerable populations in many parts of the world.
- While OECD countries have been responsible for the overwhelming majority of emissions since the industrial revolution, annual emissions of developing countries are growing at three times the rate of industrialised countries. China has now overtaken the United States as the world's largest emitter and Brazil and Indonesia rank third and fourth when deforestation and the loss of carbon sinks is considered.
- The election of President Barack Obama has brought about a remarkable new direction in US climate change policy, and presents a unique opportunity for a breakthrough.
- The Kyoto emissions budget period expires in 2012, and a new deal by the end of 2009 will ensure that there is no hiatus in the flow of finance towards low carbon technologies. The United Nations estimates that several hundred billion dollars of incremental finance will be required, with more than 80 per cent of it coming from the private sector. Therefore, it is crucial that a clear policy framework be put in place to avoid the lock-in of new long-duration, carbon-intensive assets.
My experience of Kyoto gives me hope that a deal will emerge in Copenhagen. The drama of the two weeks of negotiations in 1997 provides a lesson in how inter-personal relationships forged across national boundaries under extreme pressures can unblock seemingly intransigent and opposing positions.
In 1997, the deadline for completing the Kyoto climate change talks was actually 6:00 PM on 10 December, since, ironically, a Japanese automobile exhibition was scheduled to start at the Kyoto Conference Centre the next day. The talks went right to the wire, spilling well into the last night primarily because there appeared to be no way to break the impasse between developing countries and the industrialised countries. I recall a television crew from CNN – which at the time was still trying to establish itself as an international 24/7 news station – chasing down the lead Indian negotiator in the conference hall to “report live on the failure of the talks in Kyoto” at about 3:30 AM. Fortunately, between 4:00 AM and 6:00 AM, human ingenuity and the spirit of compromise for the sake of a greater global good prevailed.
The stakes will be higher in Copenhagen than they were in Kyoto. For, unlike for my banking brethren, Planet Earth's options do not include ecosystem bankruptcy, bailouts, or buy-outs.
Abyd Karmali is Managing Director and Global Head of Carbon Markets at Bank of America Merrill Lynch. He has worked for 18 years on climate change and the carbon markets and serves as President of the Carbon Markets and Investors Association and member of Her Majesty's Treasury Carbon Market Expert Group. He has also provided strategic advice on the commercial risks and opportunities posed by carbon emissions constraints to dozens of European, US, and Asian companies in the FT Global 500 as well as to several government agencies and regional development banks.