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Insights 15 Jan 2009

2008: A Year of Extremes (Nikkei Ecology)

By John Elkington

Weather, exchange rates, commodity prices and the potential for new economic paradigms.

2008 turned out to be a year of extremes: in weather, in currency exchange rates, in oil and commodity prices, in food prices and in political leadership. The question now is whether 2009 will join 1929, 1939 and 1989 in the list of years when a totally new economic and political order began to surface. We think the answer is yes, but a key indicator will be the outcome of the climate summit due to be held late in the year in Copenhagen. To date, the evidence is very far from hopeful.
Early December, for example, marked the end of the 14th United Nations Conference of the Parties in Poznań, also known as COP14, a key stepping stone towards next year’s Copenhagen conference, or COP15. This sequence of events is designed to frame the new global agreement that it is hoped will replace the Kyoto agreement in 2012. Whatever the outcome, there are likely to be a range of increasingly profound impacts on businesses around the world, both in terms of risks and opportunities.

Putting the best face on a disappointing outcome, the organisers of COP14 claimed a success, a “glass now two-thirds full”, expressing confidence that they were paving the way to an international framework limiting temperature changes to a rise of 2 degrees. Once again, our colleague Geoff Lye attended the Poznań talks as an observer, but was not reassured. American negotiators were certainly buoyed by Barack Obama’s victory and more cooperative than before, but still proved to be non-committal, keeping all options open for the incoming administration. Leading scientists also pessimistically talked in private about a possible 3 degree temperature increase by 2100, implying a potentially extremely uncomfortable future.

“Meanwhile, greenhouse emissions – far from declining – have been increasing at a faster rate each year. This despite the talk in political circles still being of achieving peak emissions by 2015, just six years away. Perhaps a global depression is going to be our best hope of making real progress with climate stabilisation?”: Yet environmentalists should not rejoice about the deepening downturn. Volatile oil prices will make dirty-but-secure energy supplies increasingly attractive. Economic difficulties will also provide an alibi for those who want to cut or postpone environmental and sustainability-related targets. By no means finally, a global credit market that has lost much of its credibility is hardly likely to be favourable to new renewable energy and other desirable investments either.

Interestingly, however, the science for “climate-change attribution” is maturing rapidly. This means that polluting companies are increasingly exposed to litigation based on their contribution to weather-related disasters. Here, once again, the Detroit Big 3 companies are at a significant disadvantage compared to Japanese automakers, not least because they have lobbied so energetically in recent decades to stall or reverse climate-related legislation.

Still, as 2009 ended, two news items signalled grounds for hope that progress will be made in 2009. The first was that the world’s largest reinsurance company had seen pay-outs for natural and man-made disasters doubling in 2008, suggesting that the financial pressures on a range of businesses seeking insurance cover will intensify. And, secondly, there was the news of President-elect Obama’s appointment of John Holdren – one of the world’s leading climate change experts – as director of the White House Office of Science and Technology Policy. This signal that science will once again be taken seriously by the President is critical. There may be little chance of filling that Poznań glass in time for Copenhagen, but with one of the most devastating periods of American ideology-driven inaction likely soon to be behind us, there is a growing possibility that the once-vital taps of American political leadership and innovation will now be turned back on.

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