Market News

 April 08, 2009
Take green path, US business warned!

 Businesses must not sink money into high-carbon infrastructure unless they are willing to lose their investments within a few years, the US lead negotiator on climate change has warned.

In the Obama administration's starkest rebuke yet to industry over global warming, Todd Stern, special envoy for climate change at the state department, said "high-carbon goods and services will become untenable" as the world negotiated a new agreement to cut carbon emissions.

Investors should take note, he warned, that high emissions must be curbed, which would hurt businesses that failed to embark now on a low-carbon path.

"How good will the business judgment of companies that make high-carbon choices now look in five, 10, 20 years, when it becomes clear that heavily polluting infrastructure has become deadly and must be phased out before the end of its useful life?"

Companies investing in such goods and services - such as coal-fired power plants and gas-guzzling cars - could start to incur heavy economic penalties in the near future for their greenhouse gas output.

These could include the need to buy carbon permits under a US cap-and-trade system, for which the administration of President Barack Obama is currently attempting to gather support in Congress.

If this stalls, other systems for pricing companies' carbon output could be brought into play, including regulations on efficiency for cars, buildings and electrical equipment; agreements by which the big emitters in certain sectors are bound to tighten emissions limits; or tax rises.

Cap-and-trade is the White House's favoured route, and Mr Stern noted that an international market in carbon would "doubtless" have to be part of a new global climate settlement.

But he said it was too early to say which other instruments and incentives could be used.

"There will need to be a lot of creative thinking, a lot of interaction with the private sector," he said.

Mr Stern is attending talks in Bonn on a new international climate change treaty to replace the Kyoto protocol when its current provisions expire in 2012. The talks are the first at which the US has participated as an enthusiastic supporter of a successor.

Mr Stern, in an interview with the Financial Times, said a new treaty - which he insisted could be negotiated this year, at a United Nations climate change meeting in Copenhagen in December - must include developing countries.

Under the 1997 Kyoto protocol, emerging economies such as China and India were spared the obligation to reduce their greenhouse gas emissions. But their output has grown rapidly since, with China overtaking the US as the world's biggest emitter.

Mr Stern said that for a new treaty to be written, the main developing countries would need to take steps to curb the growth of their emissions, though this could fall short of absolute cuts.

"Exactly what form those [commitments] take is unclear, but there will need to be substantial action on the part of leading developing countries if we are going to have any chance of getting in the vicinity of what the science says we need to do," he said.

One of the possible breaking points for any agreement is over financing. Poor countries want the rich world to commit to providing aid for them to cut their emissions. But so far rich countries have failed to come up with any figures, or a mechanism for achieving the large finance flows necessary.

Mr Stern said: "We are in the middle of trying to work through how a financing package might be constructed . . . There might be some that comes from public monies, appropriated monies, but I do not think that will be the core of it. We will doubtless need to use carbon markets in one fashion or another."

Loan guarantees to private sector companies might be one alternative, he said.

* European Union emission permits fell the most in almost two weeks as the regions recession deepened more than previously thought in the fourth quarter.

EU carbon-dioxide allowances for December delivery dropped 30 cents, or 2.4 per cent, to close at €12.41 ($16.47) a metric tonne on London's European Climate Exchange.

That is the biggest decline since March 25. Permits for December 2012 fell 3.1 per cent to €14.52, narrowing the gap between the two contracts to the least since March 5.

By Fiona Harvey in London