COP17 and Future Environment, Energy, and Resource Strategies

MANAGI Shunsuke
Faculty Fellow, RIETI

What effects does the COP17 yield?

The COP17 will yield a new platform capable of covering all major global warming gas-emitting countries, including the United States and China. The issue of climate change will require new technologies, products, and services as it will be required to reduce greenhouse gas emissions and so forth. What kind of statement will the COP17, which convened in December 2011, be able to make toward future policies and firms?

Path leading to the Durban Platform

The Kyoto Protocol is an international agreement adopted at the Third Session of the Conference of the Parties to the United Nations Framework on Climate Change (COP3) held in 1997. The intention behind it is to reduce the amount of CO2 and other greenhouse gas emissions collectively generated by advanced countries by at least 5% relative to their 1990 levels by 2012. At the COP15 convened in Copenhagen, it was confirmed that a post-Industrial Revolution increase in temperature exceeding 2°C produces serious repercussions. The Copenhagen Accord, which was resolved at the COP15, stipulates efforts such as keeping temperature rises dating back prior to industrialization within 2°C as a long-term objective of the world at large, and having advanced countries provide assistance to developing nations.

Adding up the pre-COP15 reduction targets adopted by each nation, the combined result is a temperature increase of 3°C. As such, many critics interpret the COP15 as a failure. Still, considering the trends from the latter half of the 1990s, the progress made in the last 15 years is significant. Looking at more recent times, in the EU, the EU Emissions Trading Scheme (EU-ETS) was implemented in 2005. In the United States, the Lieberman-Warner Climate Security Act was debated. Furthermore, futures trading is expected to take place in Australia as well. The EU-ETS, with trading volume increasing over time, is currently attracting attention. Moreover, this system may be utilized as an internal measure in many other countries and regions, including Japan, in the future.

Results of COP17

Commitments from 2013 and beyond need to be formulated internationally henceforth. The COP17, which convened recently in Durban, South Africa, called on the international society to determine how to push forward measures further against global warming starting from 2013. As a result, a new framework called the "Durban Platform" was launched. This platform, which covers the United States, China, and all other major greenhouse gas-emitting countries, is slated to conclude negotiations as early as possible but no later than 2015, and will become effective and implemented from 2020. The platform requires participating countries to start in the first half of 2012, and set forth concrete systems for outlining the kinds of mechanisms to be used to facilitate their emissions commitments going forward. The inclusion of all of these major greenhouse gas-emitting countries is highly significant. Should methods similar to the Kyoto Protocol be employed in which only advanced countries, or so-called "Annex I" countries, are made to take on such commitments, numerous countries such as China will be excluded. Furthermore, 50 nations outside the Annex I category have already demonstrated higher levels of achieved income than even the Annex I country with the lowest GDP per capita.

Moreover, China formally declared that it would accept legally-binding reduction commitments from 2020 with the condition that all countries participate and that a distinction would be established between advanced and newly-developing countries based on consideration of each country's degree of development. Freeing up nations from Annex I and non-Annex I divisions in this regard and China announcing that it, too, would adopt reduction commitments in the future constitute significant progress.

Additionally, in the second commitment period under the Kyoto Protocol (2013 to 2017 or 2020), Japan will not be a participant while the EU will. While the Kyoto Protocol covers 26% of all emission amounts in the world (as of 2009), the second commitment period only accounts for approximately 15%, thereby exerting less global impact. It is likely that the EU will remain committed in order to sustain the EU-ETS even without an extended protocol. As such, this can be seen as a measure to avoid any gaps after the legally-binding emission reduction targets expire.

Furthermore, participating countries have agreed to set up a Green Climate Fund that will raise and disburse as much as $100 billion (approximately 7.75 trillion yen) annually to help developing countries cope with the effects of climate change?such as market mechanisms for mitigating and adopting to climate change and reducing deforestation, as well as technology transfer.

Prior to the COP17, some speculated that it would be difficult to extend the Kyoto Protocol and reach a new agreement. Yet, we can say that the COP17 has produced certain results.

Where do things go from here?

The price of CO2 goes up when stringent policies are introduced and remains stagnant when they are not. Attention is focused on whether any approach can create systems that enable large-scale reductions in CO2 over the long term. However, the problem at hand does not end there. It is commonly understood that resource prices are currently on the rise. While global warming is undoubtedly a vital issue, it is becoming more important to consider multiple issues such as resource conservation and energy-saving from a standpoint of sustainability. In light of such circumstances, it is necessary to set up emissions trading, environment taxes, and bilateral credit systems. We can expect that significant changes in environmental and resource policies will transform the industrial structure. Although it is often the case that the negative aspects are discussed in terms of the impact brought about once significant reduction targets are set up, we should also focus our attention on the more positive aspects (See Footnote 1).

While in reality, international consensus on global warming continues to take baby steps, expectations among the business community remain high. Since the 2008 financial crisis, 44% of firms have increased their environment-related investment to create a sustainable society, while another 44% continue to maintain fixed levels of such investment (See Footnote 2).

As methods of identifying the value of CO2 reductions, the implementation of projects for clean development mechanisms, environment taxes, and market mechanisms such as EU-ETS are underway. At present, the Japanese government is aiming to reduce greenhouse gas emissions below 25% of 1990 levels by 2020 and below 80% by 2050 under ambitious goals being agreed upon by major nations, which will be a difficult challenge. However, should an applicable solution be successfully found, because the issue is large, significant demand for new technology, products, and services will be created, thereby translating into larger business opportunities for enterprises. As such, this issue is attracting attention on a social level.

For heavy industries, transport industries, and the numerous other sectors that utilize resources in large quantities, the current rise in the resource prices including petroleum means that a competitive advantage works via improved resource-use efficiency. This also means that energy will shift to alternative fuels such as gas. Companies should expect this shift in the market and gain a competitive advantage. One way is to improve the value chain efficiency which shows how much value corporate activities contribute to the end product. This will enable a firm to achieve more cost savings than its competitors. Another way to save costs is to reduce environmental burdens and risks. Such costs include quantities of raw materials used, amounts of energy consumed, and waste disposal costs. In order to reduce environmental risks, it is necessary to anticipate possible environmental issues and come up with countermeasures before such problems actually take place, and implement those before new policies or regulations are enforced. Nuclear issues are no exception.

Moreover, facilitating differentiation in product quality is another way to gain a competitive advantage. By promptly responding to new environmental policies, innovation is promoted and earnings are increased. This will result in enhanced trust and brand image as they contribute to society. Furthermore, this will lower the job turnover rate as company morale is boosted, competition among new hires is increased, and capable personnel are gathered. This will lead to higher customer satisfaction levels. As such, it is desirable to design institutional systems in view of possible new opportunities for a company.

December 20, 2011
  1. Managi, S. 2011. Technology, Natural Resources and Economic Growth: Improving the Environment for a Greener Future. Edward Elgar Publishing Ltd.
  2. "Why firms go green," The Economist, November 12, 2011.

December 20, 2011