FT Energy Source is posting a daily question for our panel of expert commentators. Below are replies from Robert Stavins of Harvard University, Vivienne Cox of Climate Change Capital, Kyoto carbon markets architect Graciela Chichilnisky, Jeremy Leggett of Solarcentury and David Jones of Euro RSCG group and Havas Worldwide.
Debate over whether to forge a new agreement or use the Kyoto protocol is dividing developed and developing countries at Copenhagen. Are developing countries justified in insisting that the Kyoto protocol be the basis for a new agreement?
Robert Stavins: The Kyoto Protocol, in particular its dichotomous distinction between the small set of Annex I countries with quantitative emission-reduction commitments and the majority of countries in the world with no responsibilities, is the “QWERTY keyboard” of international climate policy — the major stumbling block preventing progress in negotiations here in Copenhagen.
How would financing for the developed world to mitigate and deal with climate change – should it ever be agreed upon – actually work? Whatever the final agreement, it is likely there will be tens of billions of dollars worth of funding deployed over the next few years.
And the ‘transfer’ part of financing agreements is a lot more complex than it might seem. There is the vexed issue of who should manage the doling out of funds. Speculation that the World Bank or the IMF, institutions some developing countries are wary of, might be involved fueled much of the outrage over the ‘Danish draft’. There is also domestic politics among the donor countries to take into account, concerning who is deserving (the US believes China is not – but fortunately China agrees).
Then there is the matter of how the money is spent: to make the big industrial and agricultural changes needed to reduce GHG emissions, or to live with the effects of climate change, stability and scale of funding is important.
To begin addressing some of these issues, Norway and Mexico have combined their respective proposals to come up with a framework on how funds might be gathered and distributed.
On FT Energy Source:
- Behind the scenes on Copenhagen financing talks
- China sees good-cop/bad-cop tactics
- Was the first week a waste of time?
- Energy M&A to pick up
- Exxon’s bet on Copenhagen
- Exxon’s quiet CCS play
- A good use of Exxon’s money
- Queueing in the snow in Copenhagen diary
- The walkout and more in Copenhagen catch-up
- EIA forecasts and more Exxon in Spot news
- Iraq war was not for oil
- A sceptic-friendly carbon levy
- IEA calls for efficiency measures
- Exxon, meet reality
- Most controversial oil speeches ever
- Q&A with ‘Haynesville’ director
- ‘Smart’ appliances need variable electricity
- Energy department plays venture capitalist
The big rush forecast for M&A deals in the energy sector has not happened this year. Indeed, ExxonMobil, the world’s biggest publicly listed oil and gas company, was sitting on so much cash, analysts kept their eye on it all year waiting for a move.
One finally came in October, when Exxon agreed to acquire a large stake in Ghana’s Jubilee oil field from its private equity owners, paying about $4bn to get into one of the world’s most potentially lucrative oil discoveries in recent years. But even that deal has not come to pass – it is tied up in all sorts of wrangling from others who want in on the play.
Monday’s announcement that Exxon is buying XTO Energy for $41bn, on the other hand, is the sort of deal analysts have been waiting for and sets the stage for more deals in the year ahead. Behind the scene negotiations have picked up in the fourth quarter, with a number of deals in the works.
ExxonMobil’s acquisition of gas producer XTO has set the energy M&A world alight. As we noted earlier today, it also signals confidence that a lower-CO2 future is inevitable, particularly if natural gas CCS is deployed.
Exxon, you may or may not be surprised to hear, is by far the biggest owner of patents for carbon capture and storage. In fact it holds more than twice as many patents as its nearest rival, Shell, according to a report by independent UK think tank Chatham House.
Remember a few months ago when China was the ‘good guy’ of climate change commitments (and the US, despite Obama’s efforts, was the ‘bad guy‘?
Both these were in fact examples of politicking ahead of Copenhagen – the first to flatter China into doing more, the second largely coming from the EU to pressure the US administration and Congress (!). The US itself has been involved in that former effort.
But as far as the developed world powers are concerned, it’s no more Mr Nice Guy for China. As Fiona Harvey writes, since the meeting began, developed world officials – not least US envoy Todd Stern, who earlier this year praised China’s efforts – are now coming down harder on the emerging superpower.
ExxonMobil’s announcement that it was buying XTO Energy for $41bn ($31bn stock and $10bn in debt) is a good answer to the critics who have been looking for the world’s biggest publicly listed oil company to do something besides pay dividends and buy back shares with its huge stockpile of cash.
While the Rockefeller family’s push of last year for Exxon to stake out a future beyond oil sounded good, Exxon insisted those sectors were not right for the company. Exxon has been built on fossil fuels. And it knows the business well.
In moving decisively into unconventional natural gas with the XTO purchase, Exxon is investing further in the fossil fuel business it already has perfected. Yet natural gas is not only less carbon intensive than oil, but new technology has made it abundant.
Again, the two big topics are the differences over the Kyoto Protocol (and by extension, how big and how binding different countries’ commitments will be) and the transfer of money from wealthy to poor nations to help with the cost of adapting to and mitigating climate change.
African leaders are taking a strong stand on Kyoto, walking out of one of the meetings yesterday and suspending talks for several hours. Developing countries support Kyoto because is legally binding. But developed countries want a new agreement that includes the US – which will never ratify a Kyoto-based agreement – and big emerging polluters such as China, which were not covered in the protocol.
As Andrew Ward explains in the FT’s daily podcast, this kind of brinkmanship, so close to the arrival of heads of state to nut out an agreement, raises questions about how reconcilable the two views are. But developing countries are also impatient – with one representative telling the Washington Post “We wasted a whole Sunday exchanging the same rhetoric. I’ve heard it all.”
Financing is the bedrock of the talks at Copenhagen this week. Developed countries must agree sufficient financing to poor countries to enable them to reduce their emissions and deal with the effects of climate change, or the developing nations have threatened to walk away – as demonstrated on Monday.
Ed Miliband, energy and climate change secretary of the UK, has been made one of the co-chairs of a group set up at the Copenhagen climate talks to draw up a new text on financing.
Groups have been set up on all the key subjects, and each is co-chaired by representatives from developed and developing countries. Miliband’s counterpart on the financing group will be the Ghanaian environment minister, Hani Sherry Ayittey.