An eyewitness report from the last hours of the Copenhagen negotiation, by Mark Lynas of the Guardian, if taken at face value, suggests that China is not interested in enagaging with climate change until their economic dominance over the rest of the world has been secured. It certainly supports the views of conservative critics of Kyoto in the US. Any readers of this blog with direct experience of negotiating with the Chinese government, let us know whether Lynas’s report rings true.
Using a neat little visualisation tool provided by the World Bank, I generated a time series progression which charts the rise in the levels of carbon emissions since 1960. If gives an incredibly clear view of the way in which US emissions have been on a qualitatively different trajectory to the rest of the developed countries.
More worryingly for the future it gives a shockingly clear indication of the speed with which China has “caught up” in emissions terms, and what this might mean if the same speed and trajectory is maintained.
As a counterpoint, it is interesting to note that OECD countries like Germany are maintaining high levels of GDP and increasing the proportion contributed by trade (still beyond China’s current 70-80%) uncoupled from carbon emissions. And India, relying on smaller proportions of trade for its GDP, can still maintain an absolute GDP to match China, and at an emissions output of less than 1.5bn tonnes.
Crude lessons in fundamentalism
Back in January 2009 I had a wager with my colleague, Ben Tye, who heads PIPC’s Oil and Gas Practice, that oil would be heading back up towards $100/barrel by year end.
Specifically I bet that it would hit $74.23 on 31 Dec 09. Ben bet on $45.
As of lunchtime today Brent Crude is $77.69 and Ben owes me $32.69. I may accept a bottle of something, in lieu of hard currency, when I next meet him.*
What Ben was reflecting last January was the accepted wisdom of many in the market. Colleagues working in sustainability confirm that, in the first quarter of 2009 a number of promising renewable energy and alternative materials projects were shelved as finance directors concluded that the costs of fuel and plastics were unlikely to reach the heights of 2008 (with crude at $120/barrel).
What we are seeing a year later is that accepted wisdom on the future value of things is a mix of fundamentals and sentiment. Seeing through the sentiment is what creates business opportunities.
So today, just as there are some signs that the market is discounting carbon prices (European Union Allowances are trading at €12.35/tonne today, €1.25 below the 2009 average), yet the fundamentals for low-carbon projects and businesses are still there – a European Union committed to carbon cap and trade, a growing population, a shrinking hard commodity base, political and consumer pressure for resource efficiency and “natural capitalism” aspirations within the business community.
What Copenhagen didn’t deliver are global emission caps, and, as a result, we are no closer to a global carbon price. This drives negative sentiment to discount those fundamentals.
However, we will be seeing, by the end of January 2010, the appendices to the Copenhagen Accord being filled by country-by-country carbon reduction commitments and mitigation actions. I confidently predict that this will be a more interesting development than a $30+ hike in oil prices over 12 months, so watch this space.
Meanwhile have a happy, and sustainable New Year. And drink responsibly tonight!
* Crude oil isn’t my beverage of choice. But by happy chance $32 seems to be the approximate current market price for a bottle of the surprisingly enjoyable Woodford Reserve which Rob Kaplan, a friend from Haas School of Business and now a CR leader at Brown Forman, recently introduced me to. Ben take note!