The “elephant in the bedroom” is a phrase used to describe a problem that is looming large, but is too overwhelming to be engaged—and is therefore ignored. As the climate change debate goes into overdrive, one elephant in the global bedroom is China. The rate of growth in China’s energy demand is so intense that it threatens to wipe out much of what the rest of the world does. At the same time, however, there are those who predict that China, because its problems are likely to become so severe, will become an incubator for solutions that can be applied worldwide.
Such issues were part of the backdrop to the recent G8+5 meeting in Washington, D.C., which was focused on climate change. On 16 February, delegates agreed that developing countries, as well as rich countries, would have to meet targets for cutting greenhouse gas emissions. The G8+5 Climate Change Dialogue was set up in the wake of the failure of UN negotiations in December to agree a timetable for forcing new cuts in emissions when the current Kyoto targets expire in 2012. In addition to the G8 nations, the two-day meeting attracted legislators from China and from Brazil, India, Mexico and South Africa. One part of the agreement was that a global market should be formed to “cap and trade” carbon dioxide emissions.
Although the declaration carries no formal weight, it is part of the current sea change in political mood. It should be seen alongside the astounding success of former US vice-president Al Gore’s film An Inconvenient Truth, which just won an Oscar. Even more significantly, climate change has bubbled up onto the agenda of the World Economic Forum, which included 17 separate sessions on climate change at the 2007 meeting in January, in Davos, Switzerland. This was clearly the year when the world’s leading decision-makers began to wake up to the scale of both the risks and market opportunities.
China and India, for various reasons, have been blowing hot and cold as they talk about tackling climate change, but both want accelerated transfers of clean technology to their emerging economies. Zhang Xiaoqiang, vice chair of China's National Development and Reform Commission, emphasised this need when he told one Davos session that cement producers in his country are only about half as energy efficient as Western competitors—at a time when the country uses something like 40% of world cement production.
Also significant was the announcement at Davos of a number of climate-related initiatives, including the Climate Disclosure Standards Board, a new international partnership of seven organisations that aims to establish a generally accepted accounting framework for climate risk-related reporting by corporations. Founding members include the California Climate Action Registry, the Carbon Disclosure Project, Ceres, The Climate Group, International Emissions Trading Association, World Economic Forum Global Greenhouse Gas Register and World Resources Institute. Member organisations have agreed to align their core requests for information from companies to ensure that they report climate change-related information in a standardised way—which, it is hoped, will facilitate easier comparative analysis by investors, managers and the public.
Interestingly, the Forum summit was sandwiched between the publication of two major reports on the climate outlook. The second of these documents, launched by the Intergovernmental Panel on Climate Change just after the Forum closed its doors, concludes that we can be 90% confident that climate change is under way, that it is largely caused by human and industrial activities and that global temperatures are likely to rise even more steeply than predicted six years ago.
The first report, released late last year, was the hugely influential review by British economist Sir Nicholas Stern, head of the UK Government Economics Service. His report concluded that the costs of climate change, averaged over time, over the regions of the world and across a range of scenarios, are likely to be equivalent to a loss in average world consumption of 5 % to 20% per year. The study estimated that the cost of reducing emissions along a path of stabilisation at 550 parts per million of carbon-dioxide-equivalent (CO2e) will be around 1% of global gross domestic product (GDP) by 2050, which would imply around US$350 billion in annual costs by then. Given that global GDP is predicted to be around US$100 trillion by 2050, annual costs could be around US$1 trillion.
One of the sectors that has switched on to the new challenge in interesting ways is the supermarket industry, a trend that could have long-term implications for exporters in the emerging markets. Companies already taking action include Marks & Spencer in the UK, which has committed to making its operations in the UK and Ireland carbon neutral. One target: to double regional food sourcing within 12 months and develop existing local supply networks, alongside minimising the amount of air freight used. Competitor Tesco has committed to add a carbon label to all its goods—and has committed to halve its energy usage per square metre of store space by 2010. In the USA, Wal-Mart says it will run its US stores entirely on renewable energy.
In the longer term, there are major business opportunities arising from the need to reduce carbon emissions. For example, private sector carbon exchanges have already been established in Europe and the US—and now China is joining the game. Working with the United Nations, the Chinese government aims to develop Beijing as a global exchange in the trade of carbon credits. Given that market opportunities for low-carbon products are estimated to be worth at least US$500 billion a year by mid-century, business looks set to remain centre-stage. In one Davos session, Scott Friedheim, co-chief administrative officer of Lehman Brothers, predicted that, “There will be a move away from corporate social responsibility, towards long term sustainability.” With 2007 being the twentieth anniversary of the Brundtland Commission, which brought sustainable development into the mainstream of business, this prediction marks a new phase in global sustainability strategy.
Jodie Thorpe is manager of SustainAbility’s Emerging Economies Program.