| How should the international community manage the | | | | strategy, including targets for renewables and energy |
| risks of global climate change? Diplomats from 187 | | | | efficiency, and agriculture and forestry programs. |
| nations faced this question in December at the United | | | | The adoption of a national strategy highlights China's |
| Nations' climate conference in Bali, Indonesia. | | | | increasing engagement around climate change. At the |
| Their answer was a two-year plan for negotiating a | | | | same time, China's policy makers do not view |
| new global climate policy that would start in 2013 - | | | | near-term emissions caps as feasible, given their |
| the year the Kyoto Protocol ends. | | | | country's increasing appetite for energy to fuel its |
| The "Bali Road Map" is intended to lead to an | | | | growing economy. |
| agreement on a global climate strategy. Key elements | | | | A successfully negotiated global agreement must find |
| include a long-term goal for global greenhouse gas | | | | a way to embrace these different approaches and |
| (GHG) emissions, commitments to reduce emissions | | | | starting points, while also narrowing differences over |
| by both developed and developing countries, | | | | time. This will not be an easy task. One approach |
| programs to help countries cope with the effects of | | | | that can help to integrate different national policies is |
| climate change, and incentives to accelerate the use | | | | international GHG emissions trading. |
| of climate-friendly technologies. | | | | Many forms of GHG markets are emerging across |
| Any agreements that emerge will affect all parts of | | | | the globe. All are guided by the overarching principle |
| society, but they will have an immediate impact on | | | | of trading a "ton for a ton" - one ton of emissions |
| the energy industry. Most of the world's energy still | | | | reductions by one party is traded and used to offset |
| comes from carbon-based fuels. Policies designed to | | | | one ton of emissions by another. |
| reduce emissions will fundamentally alter how the | | | | The basis of trading is that the cost of reducing |
| global economy is fueled in the future. | | | | emissions varies greatly across industries and regions. |
| Global carbon dioxide (CO2) emission trends | | | | By finding and exploiting differences in costs, |
| demonstrate the challenge ahead. Emissions have | | | | international GHG markets can integrate different |
| increased by almost 50 percent over the past 25 | | | | climate policies and lower overall costs. |
| years, and Cambridge Energy Research Associates | | | | The existing Kyoto Protocol set up a number of |
| (CERA) projects that current energy investment | | | | markets to encourage investors to fund projects to |
| patterns will lead to another 50 percent increase over | | | | reduce emissions. The most active such market is |
| the next quarter century. | | | | the Clean Development Mechanism, which applies to |
| This trend is a stark contrast to the | | | | projects in developing countries. A whole new |
| recommendations of the Nobel Prize-winning | | | | industry has emerged to develop and trade emissions |
| Intergovernmental Panel on Climate Change that | | | | credits under the Mechanism. |
| global emissions should be reduced by at least half by | | | | About 2.4 billion tons of reductions are currently |
| 2050 to avoid significant impacts from climate change. | | | | under development, roughly equal to the annual |
| A variety of clean energy technologies provide a | | | | emissions of the U.S. power sector. And the market |
| pathway to a low carbon energy future. But the | | | | is growing quickly, with 40 percent of these |
| challenges associated with moving these technologies | | | | reductions proposed in 2007. China is the largest |
| into the mainstream are great. The ultimate emissions | | | | source, accounting for over 50 percent of these |
| goals set for mid-century and beyond will be crucial | | | | reductions, followed by India with 15 percent and |
| for charting the world's overall course on climate | | | | Brazil with seven percent. |
| policy. | | | | The outlook for this, and other, international GHG |
| But the near-term commitments coming out of the | | | | markets is uncertain after the Kyoto treaty expires |
| Bali process will affect today's investment decisions | | | | in 2012. The future value of international credits |
| and the immediate path forward. CERA anticipates | | | | hangs on the Bali process. |
| that future policies will be more evolutionary than | | | | Will negotiators expand these markets? How will |
| revolutionary, building on experiments unfolding | | | | future commitments affect China's role as a primary |
| already across the globe. The wide range of | | | | source for credits? And will future U.S. policy be |
| approaches underway today offers a view of the | | | | compatible with existing international markets? Given |
| future. | | | | the stakes, the international GHG markets will be |
| The European Union's CO2 cap-and-trade program is | | | | watching the Bali process closely. |
| the cornerstone of its climate policy. The E.U. policy | | | | Carbon markets and emissions limits can direct |
| places a ceiling - and cost - on CO2 emissions from | | | | investment toward currently available technologies, |
| the power and industrial sectors. The European | | | | but they cannot ensure that new technologies will be |
| Commission is now proposing to tighten the CO2 cap | | | | adopted. Many of the technologies required for a low |
| while also setting new targets for renewables and | | | | carbon energy future are not commercially viable |
| energy efficiency. | | | | today. |
| Overall, the E.U. has committed to reducing its | | | | Sustained government support - ranging from the |
| emissions 20 percent below 1990 levels by 2020, with | | | | funding of research and demonstration projects to |
| the target for reductions upped to 30 percent if | | | | tax incentives and subsidies - will enable the long-term |
| other developed countries support similar goals. | | | | development of clean energy technology and provide |
| One approach that can help to integrate different | | | | important confidence for private investments. |
| national policies is international GHG emissions trading. | | | | Government support also extends to addressing |
| In the United States, a variety of policies are under | | | | political, regulatory and legal hurdles that can slow the |
| development at the state, regional and federal levels. | | | | adoption of technologies. |
| A bill sponsored by Senators Joe Lieberman and John | | | | The energy industry has many of the tools |
| Warner would create a cap-and-trade program for | | | | necessary for building a more sustainable global |
| the majority of U.S. emissions, including the power | | | | climate. The engagement and effectiveness of these |
| and transportation sectors. This measure, set for a | | | | tools will be shaped by how a global climate |
| vote in the Senate this year, proposes reducing | | | | consensus guides national policies, international |
| emissions 20 percent below 2005 levels - which would | | | | emissions trading and programs to advance low |
| bring them roughly to 1990 levels - by 2020. | | | | carbon technologies. |
| China has established its first national climate | | | | |