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December 12, 2011
What Happened at COP17?
    by Robert Kropp

Negotiators leave Durban without a plan to stop climate change but with an agreement to pursue a binding pact, and investors look for signs that support increased investment in climate change mitigation and adaptation.

Twenty years after most world governments agreed to the Kyoto Protocol (the United States being a notorious exception), the COP17 climate change conference in Durban, South Africa, concluded with yet another failure of negotiators to come up with a binding treaty that would limit temperature increases to no more than 2C.

According to the Climate Action Tracker, a science-based assessment of emission commitments and actions of countries, "Global-mean warming would reach about 3.5C by 2100 with the reduction proposals currently on the table."

Potential global-scale tipping points associated with warming beyond 3C, the assessment continues, include:
the possible dieback of the Amazon rainforest
corals reefs dissolving and being irreversibly replaced by algae and sea grass
irreversible long-term loss of the Greenland ice sheets
risk of release of methane hydrates in ocean floor sediments, and
permafrost thawing due to fast rising arctic temperatures.

A sobering indicator of the challenge ahead can be found in a recently published report from the Global Carbon Project (GCP), which found that global emissions increased by 5.9% in 2010. Atmospheric concentration of CO2 is now 39% higher than it was at the start of the Industrial Revolution, and is the highest during at least the last 800,000 years.

And according to a recent analysis by the International Energy Agency (IEA), a business-as-usual scenario could lead to global temperature increases of 6C, which when it last occurred 250 million years ago led to the extinction of 95% of the planet's species.

"Delaying action is a false economy," the IEA warns. "For every $1 of investment avoided in the power sector before 2020 an additional $4.3 would need to be spent after 2020 to compensate for the increased emissions."

Expectations for a binding agreement were low for a number of reasons, perhaps in particular due to the insistence of US negotiators that fast-growing economies such as those of China and India agree to caps on their emissions identical to those of developed economies. Despite surpassing the US as the world's largest emitter of greenhouse gases (GHGs) three years ago, China is still considered a developing nation and has been exempted from such limits under previous agreements.

However, the conference concluded with several positive developments, although enacting them still leaves the world at risk of unacceptably large increases in global temperatures. The Ad Hoc Working Group on the Durban Platform for Enhanced Action was formed to develop a binding agreement that will "come into effect and be implemented from 2020."

Developed nations also agreed to mobilize $100 billion per year by 2020 for climate adaptation and mitigation through the Green Climate Fund, which "will promote the paradigm shift towards low-emission and climate-resilient development pathways by providing support to developing countries to limit or reduce their greenhouse gas emissions and to adapt to the impacts of climate change."

Of particular note to sustainable investors is the Fund's emphasis on attracting large amounts of private capital. As Paul Clements-Hunt, Head of the United Nations Environment Program Finance Initiative (UNEP FI), told last year, "85% of financing for climate change mitigation will come from private investment."

Investors have not been standing idly by while waiting for world leaders to accept their responsibility for coming up with a binding climate agreement. As Bloomberg New Energy Finance reported last week, cumulative investment in clean energy technologies have now surpassed $1 trillion since 2004.

"Annual clean energy investment has risen nearly five-fold, from $52 billion in 2004 to $243 billion last year, a compound annual growth rate of 29%," Bloomberg New Energy Finance said.

But investors have also long insisted that domestic and international climate change policies are critical to ramping up the level of private investment needed to avert the disastrous effects of unchecked climate change. In a statement released in October, a coalition of 285 global institutional investors representing more than $20 trillion in assets under management called on policymakers to take meaningful steps in addressing climate change.

Current levels of investment in low-carbon technologies fall far short of what is needed," the investors stated. "Private investment will only flow at the scale and pace necessary if it is supported by clear, credible and long-term policy frameworks that incentivize investments in low-carbon technologies rather than continuing to favor carbon-intensive energy sources."

In addition to reaching agreement on the Green Fund, negotiators in Durban also agreed to further talks on Reduced Emissions from Deforestation and Degradation (REDD), which would allow investors to purchase offset credits to finance reforestation projects in developing countries. However, few details emerged from the conference, and the emergence of a REDD market is not expected to occur earlier than 2020.

Deforestation is estimated to cause 20% of the world's GHG emissions.


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