In December 2009, Copenhagen will be the host city to one of the most important conferences in the history of the world. Representatives from 200 countries will gather to attend the United Nations Climate Convention meeting and deliberate on how humankind will be able to avert the global warming crisis. They will discuss a new climate change framework that will succeed the Kyoto Protocol.
The existing framework known as the Kyoto Protocol was hammered out in Kyoto, Japan in 1997 after a long and heated process. Subsequently, it has been ratified by 184 countries including South Africa. The main feature of the protocol is that it sets binding targets for 37 industrialised countries for reducing greenhouse gas (GHG) emissions to an average of 5% below 1990 levels by 2012. Developing countries, including China, India, Mexico, Brazil and South Africa, have no binding commitments; however, they did undertake to endeavour to limit emissions growth.
The issue of emissions reductions is fraught with political challenges, since it affects the trading competitiveness of countries and hence their economies. The main stumbling block is that developing countries such as India and China will try to negotiate for far less stringent targets for themselves than for their counterparts in the developed world. Their argument is that the developed world created the problem by pumping GHG emissions into the atmosphere over an extended period, whilst developing countries have only been doing so for a limited period. Furthermore people in developed countries enjoy high standards of living, while most people in developing countries live in poverty.
Therefore, developing countries should be entitled to build their economies so as to improve the living conditions of their people before they begin seriously cutting back on emissions. This argument, underpinned why the punitive measures in The Kyoto Protocol, will only apply to the 37 industrialised countries. The USA never opposed this view, and therefore did not ratify the Kyoto Protocol. To exacerbate the situation, China recently overtook the USA as the world’s worst polluter. Therefore, what is to come out of the Copenhagen meeting is far from certain. Indeed, the meeting may not even agree on a protocol, which would be very sad for the future of humankind.
Global warming is caused by GHG emissions. The most important GHGs are carbon dioxide (CO2), methane and nitrous oxide; however, they are all measured in terms of CO2 equivalents. The Report of the Intergovernmental Panel on Climate Change (IPCC) released in 2007 suggests that, if the world wishes to limit global warming to not more than 2.4°C, which is thought to be the highest ‘safe’ level, it would have to stabilise CO2 concentrations in the atmosphere at between 445 and 490 parts per million. This would require the world to reach its peak CO2 emissions by around 2015, and then reduce them steadily.
Since 1900, the average surface temperature of the earth has increased by approximately .8°C. Whilst that might sound insignificant, as we have seen, it has had a severe impact upon weather patterns around the world. A change of 2°C, although considered ‘safe’, will have very serious consequences for many countries and many people. In the opinion of many scientists, if humankind is not able to reduce carbon emissions to acceptable levels in the next decade, then the consequences will be extremely grave, and humankind might well pass the point of no return. That is why the Copenhagen meeting is so very important.
It is highly likely that South Africa, which is the world’s 12th worst polluter, will be required to make binding commitments in terms of the new protocol. These commitments are likely to be in the form of targets for limiting increases in GHG emissions and, in time, reducing emissions overall quite significantly.
There will be serious implications for businesses in South Africa, as they will be expected to contribute to the targets. How this will be done will depend upon how government decides to implement the system. Several countries are using a so-called ‘cap and trade’ mechanism whereby organisations are allocated emissions targets or quotas. If they are unable to meet their target, they can either purchase carbon credits at the going market price (currently around Euro 14 per tonne), or pay penalties. Target allocation generally varies according to the type of industry. In his last budget speech, the then Minister of Finance, Trevor Manuel, indicated that government would be taking steps to encourage energy efficiency and reduce harmful emissions. We do not know what these stats will be, but there is a likelihood that they will be linked to the expected emissions protocol.
Whilst such provisions are unlikely to come into effect before 2012, organisations should begin planning at an early stage, so that they can meet targets more comfortably. In addition, under the cap and trade system, companies that are able to meet their targets will be able to sell credits and generate revenues.
These developments will affect how businesses run their operations, as they will need to look at improving efficiencies and measuring their GHG emissions. However, when change occurs it will also create opportunities for those companies and for consultants in a host of new areas. Organisations will need to measure emissions, plan and implement reductions, and obtain assurances in respect of around emissions. If a cap and trade system is introduced, it would also necessitate the development of a carbon emissions market.
Those that still think climate change is a ‘flavour of the month’ will need to re-look at the facts and adapt to the change. This is going to be a massive initiative. Indeed, some traders in London believe that the carbon market may one day become the largest commodity traded in the world. The irony is that they are trading something that effectively does not exist.
As we ease into our annual holiday in December, please keep your eyes open for the Copenhagen Climate Change Conference reports. It will have a big effect on our lives – whatever the outcome!
And many members of our profession will doubtfully be able to make a significant contribution to our South African progress in this respect.
Graham Terry CA(SA) is Head of the Executive President’s Office, SAICA.