Some say it was a breakthrough, others a flop. But did business get anything useful out of the Bali roadmap for 2008 and beyond? Zara Maung, editor of climatechangecorp.com reports back from Indonesia.

The logistical challenge of tackling climate change was displayed perfectly at the UN climate conference in Bali, Indonesia, by the constant stream of taxis queuing up to ferry conference attendees from one five star hotel in Nusa Dua to another. A modest free bike hire service did exist for the event but unfortunately bike lanes didn’t.

The Bali bicycle analogy also sums up the businesses’ approach at the post-Kyoto political negotiations: “We can run the low carbon economy” was the message to governments, “but you need to build the infrastructure to make it work”.

The balance sheet

Although businesses were not included in the negotiations at Bali, business and investors organisations such as the World Business Council for Sustainable Development (WBCSD) and International Emissions Trading Association (IETA) had a strong presence at the conference side events. The general attitude from companies towards the political process at Bali was a mixture of idealist hope for a global plan on combating climate change, along with increasing frustration that the politicisation of climate change was in fact holding back meaningful progress.

The main factors deterring businesses from investing in low carbon solutions are price, price and more price. The price of developing new technologies is too high, the price of carbon is too unstable, the prices consumers are willing to pay for low carbon goods is not high enough – all were recurring comments from businesses throughout the conference.

So what did they get in return for their pleas for better market conditions? Well, Yvo de Boer, general secretary of the United Nations Framework Convention on Climate Change (UNFCCC), came to the press on week one of the conference with a very clear view of what needed to be done to drive private low carbon investment. Quoting figures from the UNFCCC report on investment and financial flows, which was published shortly before the talks, he noted how much global investment and financial flows relied on private sector involvement - 86 per cent of it to be precise.

He acknowledged that businesses would need policy certainty and incentives to invest in new technologies, and that international and public capital would need to be channelled towards climate friendly and climate proof investments. “The problem is that governments don’t want to pay for all of this,” he said.

The frustration of knowing what needed to be done set against all the political stalling that occurred (alongside serious sleep deprivation) would have driven any sane person to tears by the end of the talks. Many of the developing countries, who could only afford to send two or three delegates, compared to the large team from the US, simply had to drop out of the talks at times due to sheer exhaustion, which might in part explain the raw deal they ended up with on adaptation funding. The meagre fund is to contain money collected from a 2 per cent adaptation levy on Kyoto Clean Development Mechanism projects, the emissions abatement projects in the developing world that fuel the carbon markets with tradable credits.

Being an outsider, following the last few days of negotiations was a little like waiting at the hospital bed of a comatose patient. There was nothing much going on but you still hung on day and night waiting for some signs of life. Luckily Al Gore’s refreshing speech provided welcome respite and the waiting paid off. At the end of the talks we were proudly presented with a somewhat patchy but promising Post-2012 road map. The road map was so called because of its express purpose to lead countries towards a post-2012 agreement in Copenhagen at the end of 2009.

Policy certainty

After 13 consecutive years of UNFCCC conferences and 10 years of Kyoto, it’s becoming increasingly clear that the best these global powwows on climate change can offer us is a small indication of what might happen policy wise on the national scale. Even the Kyoto Protocol, as low as its 5 per cent emissions reductions targets for 2012 were, could not prevent Japan, Canada and a host of European countries from emitting over their limits.

According to media reports at the end of 2007, Japan, Italy and Spain face payments of as much as $33 billion in carbon credits combined for failing to reduce greenhouse-gas emissions as promised under the Kyoto treaty. Other variations at the national level include the bi-lateral deals on technology transfer being brokered between the US and Asia.

Nevertheless, some measures agreed under the Bali road map have good prospects. Promises by developing countries to measure and cut their emissions suggested that we can expect a stronger focus on renewables and energy efficiency policies in the big emitter nations such as China and India.

The much anticipated REDD policy, a handy acronym for “Reducing emissions from deforestation in developing countries” also came into swing. Deemed of high importance because deforestation is estimated to account for 20 per cent of global emissions, countries agreed to work on methods to preserve tropical forests, the type of forest best suited to absorbing carbon.

Providing disputes over indigenous peoples’ rights are peaceably settled, it seems the post 2012 future for forests may be based on selling avoided deforestation credits, with governments being issued the credits by a UN authoritative body for preserving their trees. Some impoverished forested states, such as Indonesia’s West Papua and Aceh are taking the hint and trying to get in on the act early. They plan to seize on the new confidence in forestry credits to sell them on the voluntary markets as soon as possible.

Developing countries lost out at the talks. Promises by developed countries to transfer technology to developing nations (which have lingered unfulfilled since the start of Kyoto) continue to be vague. China did however manage to bully the European Union and US on the last day of the talks into agreeing to measure and report on their contributions to technology transfer.

Downright negative, was the agreement to set up an inadequate adaptation fund for developing countries. The fund as it stands will be too small and unpredictable to prevent more climatic disasters, with the amount raised from the CDM levy estimated at somewhere between $80 million to 300 million by 2012. This is hardly even a drop in the ocean for places like Bangladesh, which already needs emergency flood prevention and management measures costing billions of dollars.

Calls from the finance world and development NGOs, before the talks, to simplify the Clean Development Mechanism’s over-bureaucratic registration process seemed to go unheeded. The problem of finding buyers for existing CDM carbon credits was tackled via the launch of a (somewhat bizarre) website called www.cdmbazaar.com, the CDM’s own matchmaking website, where buyers and sellers of carbon credits are able to make contact.

Technology hurdles

Vague promises from rich countries to transfer clean tech to poor ones tend to fall down on two counts. Firstly, private companies, not countries, own much of the technology in the first place. Secondly, developed countries are not putting enough money into clean tech investment in their own countries, let alone being in a position to transfer the technology. Sun Guoshun, a Chinese delegate at the Bali conference explained that China desperately needed clean coal technology from America. Cedric Philibert from the International Energy Agency pointed out, however, that these technologies, including Integrated Gasification Combined Cycle (IGCC) technology and carbon capture and storage were yet to reach the commercial stage.

The Bali talks brought countries one step closer to accepting carbon capture and storage in geological formations for use in CDM projects. More is to be decided on this front at the 2008 conference in Poznan, Poland. The notion that fossil fuels could continue to be used “in a clean way” was a strong concept at Bali but the challenge remains to prove that the technology works and that the high costs of CO2 storage can be drastically reduced.

The riddle of bringing clean technologies to the commercial stage is one that governments and companies alike are failing to solve. Clean tech solutions already exist in many cases but commercial take up is low. Examples include the pioneering low-cost, low-carbon French invention, the MDI air car, which runs on compressed air. The car has been ready for years but big manufacturers have not yet taken the bait (save India’s Tata Motors, which has promised to produce 8000 air cars this year). Not surprisingly, the rapidly developing markets in India and China are finding opportunities in the area of clean tech. Ten years on, they may turn the issue of technology transfer on its head completely.

Nasty leakage

It would be impossible to sum up the global political process on climate change without mentioning “leakage” - it doesn’t sound very pleasant and indeed to most Kyoto signatories it is not. From the time developed countries started to address their responsibilities to tackle climate change at Kyoto in 1997, factories that have been leaving developed countries in droves, looking for cheaper manufacturing processes in developing countries.

Leakage refers to the emissions that leak out of one country into another when a factory relocates. A paper released by Chinese academics in 2007 related 25 per cent of China’s greenhouse gas emissions directly to US and European supply chains. China, for example, provides the leading global supply of steel, which requires a dirty, high-carbon manufacturing process part of which was transferred from Europe in the 1990s.

Unfortunately the term used by developed countries for leakage until now has been “emissions reductions” - emissions reductions that have counted towards Kyoto targets.

“Kyoto signatories have to be responsible for the emissions of factories that have moved to other countries since the Kyoto agreement”, argued Kevin Conrad, one of the more outspoken delegates for Papua New Guinea at Bali (who famously told the US to “get out of the way”).

The leakage debate is picking up steam as developing countries are being pressured into making their own emissions reductions, and is sure to be tackled in more depth in coming talks, though the outcome is entirely uncertain. Companies hoping to ‘offshore’ their emissions in response to the introduction of cap and trade schemes may want to take note however.

Already a form of environmental protectionism is being hinted at in the EU, with suggestions of a carbon tariff on dirty imports. These measures are popular with the diminishing German steel industry, whose production processes are three times less carbon intensive than China’s.

Going it alone

Despite numerous complications in the move towards the elusive low carbon economy, forward thinking companies were keen to point out at Bali that they had made the most of the opportunities so far. Most moves were made in the carbon markets, which are set to take off globally.

The long term price of carbon was subject to much speculation at Bali. Whilst some banks have taken pains to predict an accurate price for carbon on the European Union’s Emissions Trading Scheme (EU ETS), other investors such as Fortis bank predict the price of carbon could be anywhere between zero and 100 Euros over the coming phases of the scheme.

Karen Degouve, from the European Carbon Fund, a CDM project investor, concurred with Fortis at an IETA event, saying, “Prices could go anywhere from zero to the roof.”

Companies seemed to agree that we would soon see a global roll-out of mandatory carbon markets. “We’re going to see multiple markets although a unique carbon price might not happen for another 10 years” said Degouve.

This could include Japan, Canada, Australia, US – all of which have started voluntary carbon markets.

Mile Bess, from Camco International, a big CDM project developer, predicted that within two to three years “the biggest game in town” would no longer be the EU ETS. Bess said the EU scheme was “a valuable model”, although he expected a mandatory US market to start to take over, acting as a driver for carbon markets globally.

“What we need to see is what happens post-tightening”, he said, referring to the reduction in emissions allowances given to EU nations under each four-year phase of the ETS. Phase I of the ETS collapsed after emissions allowances were too generous, and the price of carbon dropped to around 1 cent, so all eyes are now on phase II, which started in January 2008, and the time of writing stood at €22 per tonne of CO2.

Fabian Gaioli, from Morgan Stanley’s MGM International, another CDM project developer, warned that carbon credits under the CDM may become more expensive, as the highly profitable ‘low hanging fruit’ HFCs reduction projects start to dry up. HFCs are very potent greenhouse gases - around 1300 times more potent than CO2. Projects may move towards renewable energy and energy efficiency, he said, but will require more capital to set up and offer less returns.

Fate of the CDM

The Australian renewables company Pacific Hydro has been making the most out of the Kyoto Clean Development Mechanism (CDM), having directed much of its new investment, $ 0.5 billion so far, into developing countries, such as Chile, where the company’s wind and hydro projects have earned money from carbon credits. However, the future of the CDM is left hanging in the balance from 2012 onwards, when the first phase of Kyoto ends. According to JP Morgan’s Odin Knudsen, who spoke at an Asian Development Bank side event, companies were being dissuaded from getting involved in new CDM projects every year the uncertainty continued.

Pacific Hydro chief executive Andrew Richards expressed the same sentiments, complaining at a WBCSD event about the lack long term planning on the international level. “Nothing exists beyond 2012 except fairly long term targets” he explained, referring to the faraway target of a 50 per cent cut in the global emissions of 2000 by 2050, which was set by scientists at the Intergovernmental Panel on Climate Change (IPCC).

Business technology

Technology transfer was a hot debated topic amongst businesses at Bali. David Hone, climate change manager at the energy company Shell, told a WBCSD event all about the difficulties of getting clean coal technology to the market. He compared our relatively primitive coal technology to the fast moving electronics industry pointing out the fundamental difference between them. Without consumers willing to pay the extra for their energy, as they would for the latest electrical gadget, the development of new products could not be funded.

Richards meanwhile bashed the “politicisation of technology”, arguing that clean coal was “not a cure-all” solution.

Jonathon Lash, head of the World Resources Institute, attempted to convince us that the world would see an “explosion of low carbon technologies” over the next ten years, driven by a price on carbon, which he believed would be a steady $25 a ton in the US within five years. Once a green technology booms in one country, said Lash, it will spill over national boundaries regardless of politics, driven by consumer demand. He used the example of GE’s Ecoimagination energy-efficient products, which he said cost $100 million to market but in the long run added to GE’s value by 10 cents a share. Proving his point that technology has no boundaries, 65 per cent of ecoimagination sales were outside of the US.

Domestic solutions

Although they have their faults, the strength of international meetings such as Bali is that they allow fresh ideas and sometimes painful truths to be unearthed about how countries deal with climate change. Despite the political charades, it is the ripple effect of positive agreements on the international level within nations, businesses and consumers that matters. The global talks will continue but meanwhile the real action on climate change will happen at home.