28 November 2005Gerard Wynn
An international meeting this week on climate change should start setting rules governing cuts to greenhouse gas emissions once the Kyoto Protocol ends in 2012.
Investors that help finance cuts in emission can earn so-called "carbon credits", which they then sell using schemes such as the European Union's Emissions Trading Scheme ETS.
However, they said they needed to know that the Protocol, and the carbon market, had a future after 2012 because without limits on carbon dioxide (CO2) limits there would be no reason to trade.
The U.N.'s Kyoto Protocol ties some 40 rich nations to reducing between 2008 and 2012 their output of gases such as CO2, which scientists link to changes in climate including increased extreme weather events and global warming.
About 190 countries will discuss how to extend and expand the U.N.-led accord at a meeting in Montreal, Canada, from November 28 to December 9.
"We need a greater time horizon beyond 2012 -- the sooner we have a time horizon compatible with what people need to make investments the better," said Graham Meeks, director of policy research at Climate Change Capital, a $100-million-plus fund investing in clean technologies.
"What the carbon market needs to see from Montreal is concrete progress towards determining how things will look post-2012. We can't expect binding targets (yet)...We need a realistic level of ambition."
Industry is a major contributor to CO2 emissions, but in large part supports emission cuts provided it gets the time and money to make the adjustments. The present 2012 end-date has investors looking for more clarity from the meeting.
The Kyoto Protocol sets nationals ceilings on emissions, and in that way lays the groundwork for a carbon market whereby dirty companies buy the right to emit CO2 from cleaner ones.
"(Only) knowing a carbon price makes investments which fund emission reduction post-2012 worth a candle," a source close to the Montreal negotiations said.
LONGER TERM
The ETS limits how much carbon some 5,000 European companies can emit, and market-makers describe it as a huge success but also see the need for a longer-term protocol.
"There have to be binding targets post-2012, it would be stupid to do all this (the ETS)...and then have nothing," said Steven Drummond, Managing Director at CO2e, a broker in greenhouse gas emissions.
The wider investment community -- beyond environmental specialists -- is also looking for long term commitment.
Pension and mutual funds are concerned about the negative impact on global wealth of increased extreme weather events, and the possible link with carbon emissions.
"At the moment no company can justify the huge amount of dollar investment needed (to reduce emissions)...the risk-return ratio is not right," said the head of socially responsible investment at a multi-billion dollar mutual fund.
"You're going to see a big push on the part of the business community to work with governments to change the policy context."
