Copenhagen Recap

By: Lawrence Pacheco

Several questions remain about what really happened at the UN climate change conference in Copenhagen last December and how the international climate negotiations and U.S. Senate debate on climate legislation will impact business. There is widespread belief that the conference was a fiasco and the Copenhagen Accord fell short of expectations, but President Obama called it a “breakthrough.”

While vague, the Copenhagen Accord, which will serve as the basis of a post-2012 international climate change treaty, addresses three key issues. First, the accord includes emissions reduction commitments by all the major emitters. Second, it includes $30 billion in “fast start” financing for developing countries by 2012 to reduce emissions, address deforestation and respond to climate change impacts; and a $100 billion pledge from richer nations to help finance similar efforts by 2020. And third, it includes transparency provisions to ensure all countries keep their promises. What is missing from the accord is any detail on how all of this will be implemented, as well as enforcement measures to ensure that big emitting countries like China and India are living up to what they said they would do to address carbon pollution.

It was clear at the conference that all eyes are on the U.S. and what it will do on climate policy. Whether the U.S. places a price on carbon and sets regulatory certainty for businesses, and becomes a part of a global response to climate change hinges on action in the U.S. Senate. Momentum exists for legislative action, but substantial barriers remain — and the task becomes more difficult in an election year. No one can guarantee when, or if, a bill might be passed, and the results in the Massachusetts Senate special election may be a game changer. If the U.S. Congress does not act, the Environmental Protection Agency (EPA) is poised to regulate.

Late last year, the EPA released its long-awaited “endangerment finding,” which allows it to regulate greenhouse gas pollution because it is a danger to human health and welfare. It is unclear if this finding will prod Congress to pass comprehensive climate and energy legislation, but it should. Why? Because the total expected reductions and costs associated with regulating GHG emissions under the Clean Air Act are highly uncertain. Furthermore, the Clean Air Act does not explicitly authorize trading or auctioning of allowances to support emissions reductions, which would jeopardize the revenue a cap-and-trade system could generate for investments in new clean energy technologies. The prospect of EPA regulation should give business leaders and Congress reason to act quickly.

What is clear is regulatory uncertainty will have far-reaching impacts on businesses and competitiveness, trade, energy security and investments in a clean energy technology sector.


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