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Climate Change : International Policy

The Science
International Policy
Implications for energy
Opportunities in Renewable Energy
Carbon Finance and CDM.

Introduction
Climate change is both a risk and an opportunity for the financial services sector. Policies to regulate greenhouse gas emissions caused by human activities are being developed and implemented in major markets around the world. These new polices bring with them costs as well as opportunities, prudent investors will factor climate risk into investment decisions. Companies are exposed to different aspects of climate risk depending on the sector and the geographic location of their operations. Momentum has been gathering for the enactment of policies to regulate GHGs. In order to successfully implement them, they need to be economically efficient and minimise impacts on competitiveness.

Key International Legislation and Initiatives

United Nations Framework Convention on Climate Change (UNFCCC) was signed in 1992, establishing a shared global objective of preventing "dangerous" human interference with the climate system. 189 countries around the world have joined this treaty and it upholds the principal that industrialised nations have a greater responsibility for fighting climate change since they are the source of past and future greenhouse gas emissions.

Kyoto Protocol is an addition to the UNFCCC, adopted in Kyoto, Japan in 1997. The objective was to set legally binding targets on six greenhouse-gas emissions for the world’s leading economies. It only managed to be enforced on 16 Feb 2005 after a lengthy ratification timeframe, but with the exceptions of US and Australia. Under this treaty, it required 55 countries accounting for at least 55% of the 1990 level emissions from industrialized countries to ratify it. The treaty offers signatories the flexibility on how to meet their emission reduction targets, for example, they can earn credits by sponsoring foreign projects (CDM or JI projects, see later section) that result in greenhouse gas cuts in other regions and then sell the credits generated under an Emission Trading Scheme (EUETS), one of the several mechanisms set up to encourage companies to actively comply to the limits. The effectiveness of this treaty depends largely on it’s feasibility to implement and providing encouragement to invest in a low carbon future.

The Asia Pacific Partnership (“AP6”) on Clean Development and Climate was announced in July 2005 as an alternative to the UN Talks. Its partners are Australia, China, India, Japan, Republic of Korea, and the United States. This partnership will focus on expanding investment and trade in clean energy technologies, goods and services in the key market sectors as they represent about half of the world’s economy, population and energy use.

Website references

• UNFCCC: http://unfccc.int/essential_background/convention/items/2627.php
• Kyoto Protocol: http://unfccc.int/kyoto_protocol/items/2830.php
• Asia Pacific Partnership: http://www.asiapacificpartnership.org/