Sergio Abranches

Last week, China’s National Development and Reform Commission reportedly directed seven regions to set overall emissions control targets and submit proposals for how caps should be allocated. The directive, which encompasses the cities of Beijing, Chongqing, Shanghai, Shenzhen and Tianjin and the provinces of Guangdong and Hubei, aims to establish cap-and-trade pilot projects for the country’s carbon market, meant to be in place by 2015.

The Chinese government had signaled at the COP17 climate negotiations in South Africa last December that it could adopt a more ambitious emissions reduction policy by 2015 and 2020. As part of the Copenhagen Accord, it had already committed to reducing carbon emissions intensity by 40-45 percent between 2005 and 2020.

That (albeit non-binding) commitment is reflected in the nation’s 2011-2015 five-year plan, which sets a 16-17 percent reduction target for carbon intensity.

China has never committed globally to actions that were not already a part of its ongoing domestic policies. The carbon intensity targets pledged under the Copenhagen Accord were decided internally way before Prime Minister Wen Jiabao closed a deal with the United States and other countries in Copenhagen in 2009. Now, China is poised to implement a new stage of its emissions reduction policies with fixed emissions caps.

Chinese leaders are apparently more willing to sign multilateral agreements, provided they are not a constraint on domestic policies. The way to do that is to use the Chinese planning structure to their advantage. By formulating the future stages of their policies ahead of the international agenda of negotiations, especially in the environmental realm, Chinese leaders can shift from a veto position towards a cooperative one, while maintaining complete sovereignty over domestic decision-making.

China has plenty of reasons of its own to reduce pollution, resource use and greenhouse gas emissions. It needs no outside push. The impact of land, air and water pollution on public health and well-being justifies the adoption of a more ambitious environment and climate policy. The major problem is, and will continue to be, how to balance the goals of cutting pollution and boosting efficiency with economic growth.

Carbon intensity targets pose no constraints at all on growth. Emissions can still increase while intensity decreases. China is implementing the world’s most ambitious renewable energy program, with very aggressive targets. Although solar and wind power generation are growing at staggering rates, the use of fossil fuels, particularly coal, have also increased.

This means that while China’s green energy sector is becoming very significant, its grey energy sector remains an enormous one and keeps growing, though at falling rates. The difference is that in the new Chinese policy guidelines, the gray energy sector comes with a negative sign for growth, and the green energy sector comes with a positive one. Each new plan aims at further reducing the gray sector, and increasing the green one.

The caveat is, again, the scale here. Even with downward movement at each new five-year plan, the Chinese gray economy will remain huge for decades to come. Carbon emissions associated with fossil fuel use will be on the rise well into the 2020s if not the 2030s.

Emissions caps are no guarantee that emissions will decrease faster. The experience with cap and trade systems shows they require additional measures for emissions to fall significantly. The good news is that China is also investing more in efficiency and quality improvement. Increasing the efficiency of clean energy along with energy-saving technologies can shift the economy toward more efficient patterns of energy and resource use, accelerating emissions reductions.

The best of all news is that China is abandoning the policy of growth without environmental constraints that led to the vast pollution and resource scarcity problems the country now faces. Chinese plans still aim at rates of growth far above the world average, but at the same time  they are adopting progressively greater constraints on the use of resources and fossil fuels.

(Post previously posted at National Geographic’s The Great Energy Challenge Blog)

Two new standards were published this week for businesses to measure, manage, and report their greenhouse gas emissions. The guidelines, jointly developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), were launched under the Greenhouse Gas Protocol, an “international accounting tool for government and business leaders to understand, quantify, and manage greenhouse gas emissions”.

There is no way a company can be sustainable if it doesn’t make sure its supply chain is sustainable. Likewise, there is no sustainable products, only sustainable product life cycles, from “cradle to cradle”. WRI interim president Manish Bapna said that with these new standards “ companies will be able to measure and manage the full scope of emissions in their value chain and products”. He added that they “will help move businesses and reporting programs to one harmonized global reporting framework”. WBCSD president Bjorn Stigson said the new standards “provide companies with a comprehensive view of the emissions produced when making a product and across the value chain. They will help companies make better business decisions”.

These standards provide a good opportunity for companies to seriously look at their carbon footprint. Reducing emissions and the company’s carbon footprint is a clean way to enhance productivity, reduce costs, and manage risks. This process creates value for shareholders, not expenses for companies. As Heather Clancy, contributing editor to Smart Planet, puts it: “the time for corporate procrastination when it comes to assessing the environmental impact of business partners across the supply chain is past”.

The Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard is here.

Greenhouse Gas Protocol Product Life Cycle Accounting and Reporting Standard is here.

 Sergio Abranches

The International Monetary Fund, the World Bank and other international groups are expected to present a paper on climate finance at the G20 meeting this Friday in Washington. It recommends a sharp reduction of subsidies for fossil fuels, putting a price tag of $25 per ton on carbon emissions, and collecting a surcharge on bunker fuels to raise money for climate finance.

A draft of the paper leaked this week says the starting point should be a review of fossil fuel subsidies, amounting to $40 billion to $60 billion a year, reports Associated Press’ Arthur Max. Many of those subsidies, however, go to poorer people in less developed countries to help them, for example, to buy cooking gas. Still, subsidy reallocation in advanced and emerging economies could contribute $10 billion a year to a climate fund.

Charging $25 per ton of carbon emissions from the so-called bunker fuels (aviation and shipping) could raise $40 billion a year by 2020. Part of that would have to be earmarked to compensate poor countries for higher import costs, but about $25 billion could go toward climate change, the paper says. It also would lead to a reduction of 5 to 10 percent of the greenhouse gases emitted by aircraft and the merchant marine, the study estimates.

A charge on all carbon emissions, would lead to a 10 percent reduction of global emissions, and raise at least $230 billion. Most of that revenue should be used to reduce other taxes or compensate poor families, but allocating just 10 percent to the climate fund would meet nearly one-fourth of the goal set in Copenhagen to reach $100 billion a year by 2020.

It is a sensible proposal, attuned to the action needed to face the pressing financial problems that will be at the core of the agenda for this weekend Finance Summit. The simultaneous gathering of Finance Ministers, Central Bankers and finance experts, the Board of the World Bank and IMF governors happens amidst another round of  global financial turmoil. Climate finance is the least of their worries now, but the fact remains that G20 governments will need to have something new to say about the climate fund in a couple of months, at the Climate Summit, COP 17, in Durban, South Africa.

Last year, investment in renewable energy, energy efficiency, electric cars and other forms of green technology totaled $500 billion, including more than $200 billion in developing countries. Private capital can benefit from public finance through concessional loans or grants, that help to reduce risks and compensate higher initial costs for adoption of new technologies (AP).

Redirecting public subsidies is fully compatible with the debt and fiscal deficit reduction targets most economies will have to meet, in order to appropriately address the debt crisis that has triggered this new round of financial instability. The new green tech sectors are more dynamic and likely to generate more and better jobs than traditional industries. The Brookings Institution has recently released a study on the green economy in the U. U. showing that: it employs more workers than the fossil fuel industry; the newer “cleantech” segments produced explosive job gains and the clean economy outperformed the nation during the recession; it offers more opportunities and better pay for low- and middle-skilled workers than the national economy as a whole.

The social and climate welfare gains of subsidies directed to these industries are higher than the gains from subsidizing fossil fuels.

Sergio Abranches

The Carbon Disclosure Project (CDP) its annual survey of the Global 500 largest companies by market capitalization included in the FTSE Global Equity Index Series provides some interesting indications on how the larger public corporations are dealing with climate change.

The study on behalf of 551 investors with US$71 trillion of assets, has asked the Global 500 to measure and report what climate change means for their business. This year, 81% (404) of the Global 500 responded to the CDP questionnaire.

These responses provide some insight into “how companies are preparing for a resource constrained world and show a shift in company strategy to prepare better for a low carbon economy and act on the business opportunities”, says de  CDP report.

The most interesting indication from the survey is that those companies with more advanced strategies and better carbon performance, those in the Carbon Performance Leadership Index (CPLI) – tend to perform better, not only in terms of greenhouse gas emissions management, but also in terms of financial performance.

The companies in the 2011 Carbon Disclosure Leadership Index (CDLI) and Carbon Performance Leadership Index (CPLI) provided approximately double the average total return of the Global 500 between January 2005 and May 2011. Companies in the CPLI had a total average return in this period of 82.44%. Those in the CDPLI yielded a total average return of 85.72%. Their rates of return compare to 42.71% for all Global 500. This suggests “a strong correlation between higher financial performance and good climate change disclosure and performance”, concludes the report.

Other interesting findings are:

74% (294) of the Global 500 respondents disclose absolute or intensity emission reduction targets, an increase from 65% (250) in 2010.

68% (269) of companies are integrating climate change initiatives into their overall business strategy, up from 48% (187) in 2010.

The majority  of 2011 respondents (93%, 368) report board or senior executive oversight for their company’s climate change program, up from 85% (328) in 2010. This shows a marked rise in companies linking their climate change strategy with their overall business strategy.

45% (178) of respondents have made emissions reductions in some or all of their business from specific measures. This compares with 19% (75) of respondents that had reduced emissions in 2010. The leaders are clearly moving ahead in this regard with all of the CPLI (2010: 52%, 25) and 73% (38) of the CDLI (2010: 47%, 24) showing emissions reductions.

59% of emissions reduction activities reported by the Global 500 respondents have a payback period of three years or less and 41% of initiatives have paybacks of over three years.

A total of 1,780 emissions reduction activities are reported by 97% (384) of responding companies in 2011. Energy efficiency (building fabric, building services and processes), low carbon energy installations, and behavioral change are the most commonly identified activity types.

65% (259) of respondents provide monetary incentives to staff for managing climate change issues, versus 49% (188) in 2010.

The Energy sector is showing the lowest proportion of companies with targets (55%, 22) and is underrepresented in both the CPLI and CDLI. In view of the high emissions from the Energy sector, this points to the need for improvement. The Consumer Staples sector has the highest proportion of companies with emissions reduction targets (94%, 32).

Utilities emerged as the sector with the best average climate change performance (band B). The sector with the lowest average performance score was Information Technology (band C). The only sector with no companies in the CPLI was Telecommunications.

Companies in Australia, Germany, Italy, Switzerland and the UK are demonstrating strong performance leadership. Canada, Japan and the USA lag behind on performance^.

Sergio Abranches

Moving from a high-carbon to a low-carbon economy entails replacing the global energy and industrial high-carbon infrastructure over the next decades. UN’s recent Economic and Social Survey 2011 – The Great Green Technological Transformation estimates replacement costs at $15-$20 trillion, or between one quarter and one third of global income.This is a herculean task. One that has been interpreted more as an insuperable obstacle than as a great opportunity. The cost and magnitude of the shift seems, at first glance, to be a formidable barrier. It takes diverting a large chunk of global savings and investment towards this task. If we do it as fast as science has been asking us to to, we’ll leave unexploited a wealth of high-carbon, relatively low cost resources. But look again. Using these resources represents an unaffordable climatic and environmental cost. The huge mobilization of monetary values to invest in new activities, new materials, new energy sources, new technologies could feed a long boom cycle of economic activity over several decades. Income and profit gains will more than compensate for the cost of replacement. We could start a long cycle of global growth that would add up to one of history’s longer-lasting periods of increasing prosperity.

Because climate change is a global phenomenon, the shift towards a low-carbon economy has to be a global one. It creates distributive risks and advantages. Leaders of several developing and underdeveloped nations argue that it represents a burden they cannot afford. They also say that since they’re not responsible for the GHG emissions that caused the problem, they have no obligation to act. This reasoning corresponds to the “insurmountable obstacle syndrome”. Seeing change as a hindrance impossible to overcome is self-defeating, especially when there is no viable alternative. Besides there is no opting out for anyone.

Obstacles should be viewed as motivations, not deterrents. Rich countries have the opportunity to create an investment dynamic that will by itself be a source of strong job and income creation. Developing and underdeveloped countries have what I call, after Alexander Gerschenkron, the advantages of backwardness. As the UN survey puts it, “developing countries may be able to leapfrog directly to renewable energy sources”. Instead of trying to catch up developed countries through the high-carbon path, they can shortcut to the low-carbon advanced economy.

Read full article here.

Sérgio Abranches

Investments in clean energy were the  least harmed by the subprime and global financial crises. In Asia and Europe they’ve only decelerated in 2009, to resume a faster passe in 2010. In the Americas they’ve declined, but less than investment in other sectors of the economy. In the U.S. they’ve become a focal point of the recovery program.Last year, funding for clean energy rebounded. Investment in clean energy projects and R&D has grown strongly in all regions of the the World in 2010, shows Pew Center’s recently issued research report: Who’s Winning the Clean Energy Race?

Global investment in clean energy technologies has increased 30% from over 2009 to reach US$ 243 billion in 2010. G20 countries have allocated about 20% of total funding to R&D projects.

Wind and solar power accounted for 72% of the total invested. The volume of funding assigned to wind power increased 34% to US$ 95 billion (48% of total non-R&D investment). Around one third of it has arrived in the fourth quarter. The largest growth of investment was directed to new solar power installations, that increased 53% to US$ 79 billion (40%).

Europe continued to lead clean energy investment, accounting for 39% of global inversions, totaling US$ 94.4 billion. Around 44% of this effort was made in Germany, reaching US$41.4 billion. Italy has also been very active investing US$ 13.9 billion, 15% of the world’s total.

There was a significant increase in investment in small projects, mainly residential solar roofs (PV) especially in Germany, Italy and France.

In Asia investment increased 33% to US$ 82.8 billion, 35% of global investment in clean energy. China led the region, with an increase of  39% from 2009 to US$ 54.4 billion in 2010, 22% of total global inversion and 66% of Asia’s total.

In the Americas, investment reached US$ 65.8 billion, 27% of total new money put in clean energy. The U.S. showed the fastest rate of growth: 51%, but to reach only $34 billion, 14% of global investment and 52% of the America’s.

In Brazil, there was a small decrease of investment, – 1.3% to $ 7.6 billion, 11,5% of the regional total e about 3% of global inversions.

Brazil is only now starting to invest in wind power, but still as a small side program, rather than as a main part of its core energy policy. Major investments were allocated to very controversial hydropower plants in the Amazon, biofuels, and fossil fuel fired thermal plants. The country has a very strong biofuel sector, but R&D efforts towards developing second generation biofuels are lagging.

In the rest of the world investment in biofuels was the lowest since 2005. The PEW Center report says that this low rate of investment in biofuels reflects “the fact that first-generation biofuels production capabilities exceed demand in a number of key markets, and second generation biofuels are not sufficiently advanced for large-scale commercial deployment.”

The fact that several countries have focused on clean energy as one of the priority investment targets for their economic recovery plans was a key factor behind this investment rebound. According to Pew Center, “governments allocated more than $194 billion for clean energy efforts in stimulus plans, but only 10 percent of that amount reached the sector in 2009. In 2010, stimulus funding for clean energy efforts more than tripled to $74.5 billion, led by sharply increased funding for projects in five G-20 countries: the United States, China, Germany, Japan and South Korea.” The report also says that although “2010 was the peak year for clean energy stimulus funding, more than one third ($69 billion) of the $194 billion pledged to date is expected to be spent in 2011.”

A report by CAP analysts said that the American Recovery and Reinvestment Act (ARRA) has provided the impulse for clean energy technology to become one of the fastest-growing sectors of the economy. The sector is projected to grow to $2.3 trillion by 2020 globally.

A scenario of sustained high oil prices can no longer be discarded. If the uprisings in North Africa and the Middle East continue to spread to other countries over the next months, it is quite likely that oil prices will keep high, and may even reach new record heights. Not an unlikely development, particularly if protesters in Libya succeed in overthrowing Gaddafi. But instability will hardly stop with the overthrow of dictatorial rulers. Governance-building is a long process, with likely surges of instability. Attending the demands for jobs and income will not be easy. The global economy has not fully recovered yet, and the region’s troubled local economies need sweeping reforms before they can yield satisfactory results. Frustration of demands can refuel discontent and lead to new waves of instability.

This environment of uncertainty and stress can have an enduring effect on oil prices, leading to a relatively long cycle with frequent upswings, before prices start to settle down. This scenario could further deteriorate if this wave of revolt reaches Saudi Arabia. It looks rock solid today, but its gerontocracy has little future left. Change might be inevitable. Instability in Saudi Arabia would very likely determine a higher floor to oil prices. The effect of Libya’s instability on oil prices has do to with oil quality, rather than with the quantity at risk. In Saudi Arabia it is the other way around, it is about quantity. Sustained high oil prices would jeopardize the still shaky economic recovery in Europe and the US. It would also feed inflation. Food inflation that has resulted from extreme weather events all over the world over the last 14 months would be refueled. There is a clear and present danger of a setback to economic recovery.

Continuar lendo: NatGeo Blogs: The Great Energy Challenge

Sergio Abranches

Brazil has been championing biofuels and “flex fuel” engines for some time and for good reasons. Flex fuel engines run on any possible combination of ethanol and gasoline. Since all gasoline in Brazil has 25% of ethanol, flex fuel engines can run on any mix of  ethanol and gasoline, beginning at 25% to 75%, up to 100% ethanol.

Differently from other countries, sugarcane ethanol production in Brazil is very competitive due to the high productivity of sugarcane. The policy of conversion from gasoline to flex fuel engines is an indisputable case of success.

In 2010, 3.3 million light motor vehicles (cars, SUVs and light trucks) were produced in Brazil of which 71,7% carried a flex fuel engine. Only 18.4% had gasoline engines, and slightly less than 10% were diesel vehicles. Every gas station in Brazil has an ethanol pump. Production of flex fuel engines has started in 2003. Five years later, in 2008, 3.2 million motor vehicles were produced, 69.8% of which carrying a flex fuel engine, 19.7% a gasoline engine, and 10.5%, diesel engines. In 2009, 88.2% of licensed cars had a flex fuel engine. In 2010, this percentage was 86.5%, slightly lower due to greater imports, but still impressive. In 2009 it is estimated that 35% of the total fleet of  light vehicles had flex fuel engines. At this pace, flex fuel vehicles will be 78% of the total fleet of light vehicles in 2020.

A broad majority of consumers would prefer a flex fuel car to a gasoline one. Even if, at the pump, they’ll fill their tanks with gasoline. They like to have the option. Consumer behavior continues to be dictated by relative prices though, rather than by relative environmental gains. That is to say: if the price of ethanol is less than 30% lower than the price of gasoline, flex fuel car owners will leave the gas station with a tank full of gasoline. The reason is simple: the engines are less efficient running on ethanol when cold, and only catch up to the level of efficiency one gets from gasoline when fully warmed. Cars running on ethanol will consume more fuel. The difference varies around an average 30%. This makes the flex fuel vehicle a mixed blessing. If sugar prices are seasonally high, or Brazilian sugar and ethanol exports are growing faster than production, prices at the pump for ethanol would be very near gasoline prices or higher. Consumers would move towards gasoline, thus eliminating the emissions advantage of flex fuel engines.

Last week, for instance, ethanol prices were advantageous to consumers in only 6 out of the 27 states, and the Federal District. São Paulo, the larger Brazilian production and consumption center, was among the 7. But the price of a liter of ethanol at the pump in São Paulo was only 31.9% lower than a liter of gasoline. When prices get that close, consumers tend to prefer gasoline to ethanol.

Some environmentalists and environment-minded consumers are very critical of ethanol. They give several reasons to support their view: the spread of sugar cane monoculture carries the risk of destroying biodiversity and dislocating other food crops; every year some sugar cane producers are found guilty of using forced labor; manual harvesting is very bad for workers’ health (unbearably harsh conditions, excessively hard labor) and the environment (burning sugarcane straw before cutting); crops demand excessive use of water, chemical fertilizers, and pesticides. Some are also critical of flex fuel engines, saying that when running on gasoline they are less efficient than gasoline engines. In other words, in all occasions that consumers are led to fill their tanks with gasoline instead of ethanol, their flex fuel vehicle efficiency would be lower than that of a similar vehicle using a gasoline engine. This would mean more consumption and higher emissions.

Government officials and the ethanol lobby are using the flex fuel success case as an argument for vetoing policies to promote hybrid and electric vehicles. Brazil is the only large automotive market where hybrid and electric vehicles (EV) have not yet been introduced. Imports tariffs are prohibitive, and the tax structure eliminates domestic production competitiveness. Hybrids and EVs are heavily taxed while flex fuel engines are subsidized. It is more than a case of lack of incentive. It is an instance of tax, tariff and regulatory barriers to entry.

Hybrid vehicles, especially using biofuels, and electric vehicles would be a natural choice to Brazil. The country has a double advantage in this regard: the competitiveness of its sugarcane ethanol technology, and a cleaner electric power matrix. Electricity production in Brazil still comes mostly from hydro-plants. Some reservoirs do have high levels of greenhouse gases (GHG) emissions because of the amount of flooded organic matter, and growth of CO₂ emitting algae. Studies show that in a few cases they emit more than comparable coal fired thermal-plants. But it is fair to say that on average Brazilian hydro-power plants emit significantly less GHG/kW.

The country’s largest remaining hydraulic potential, however, is in the Amazon region, where rivers have far more organic sediments, thus leading to higher methane emissions from reservoirs. The environmental impact of projected plants is incomparably higher. They lack any economic advantage: their cost is extremely high; actual energy yields are low relative to size due to water flow seasonality; rates of return on investment are very low; operation and maintenance costs are very high. Immense and costly transmission lines would have to be built to transport electricity to the larger consumption markets, crossing hundreds of kilometers of pristine forest.  Transmission losses and costs are estimated to be very high.

Brazil has the answer to the exhaustion of clean and economical hydro-power sources: an immense and yet untapped onshore and offshore wind-power potential, a huge and unexplored solar-power potential, not to mention biomass. With such a clean electricity potential, why not enter the EV race?

For the same reason Brazil does not explore its wind and solar power potential. Wind-power participation in the country’s electricity matrix is very modest. Solar is not used at all. Neither photovoltaic or concentrated solar power plants have ever been built in the country. There is a powerful policy blockage from a coalition of public sector technocrats, contractors, and segments of the manufacturing industry that prevents any change in energy policies. They block incentives to new sources of clean electricity because wind and solar power belong to a different professional and economic paradigm than the one they control. The paradigm that supports large hydro, nuclear and thermal power plants has quite different engineering, economic, and environmental foundations. Another coalition obstructs the adoption of hybrid and electric vehicles. It is also trying to prevent a paradigm shift in vehicle design, construction, and use of energy.

It is, however, striking that the whole political elite would fall hostage to these veto coalitions. Their leverage regarding electoral finance is huge. But there are new emerging interests already visible in the Brazilian society to which the whole political elite seem to remain aloof. It is really surprising that no counter-coalitions are formed to promote the adoption of these alternative energy and mobility solutions. It is surprising because Brazil would be far more competitive in wind and solar power, as well as in hybrid and electric vehicles production and use, than most of its world competitors. These emerging sectors are far better candidates to qualify the country as a winner in 21^st century’s global economy.

Sergio Abranches

Climate-related risks and greening the supply-chain are common features of most presentations about sustainability and corporate social responsibility. Sometimes they are presented as “trends” or future threats. But they are not something that will happen in the future. They are already part of the daily affairs of most companies. And they are inseparable from each other.

Climate-related risks are a matter of present concern to every major insurance company (here, here and here) and to an increasing number of institutional investors. Green procurement is a key competitive factor today (here). Not a trend for tomorrow. Companies are looking deep into their supply chains not because of their view of the future, but because of present dangers to their business. They know they have to reduce their carbon footprint. WallMart Nike and Timberland banned beef and leather produced in the Amazon because of present consumers reaction to evidence that their procurement behavior was contributing to deforestation. Every company will have to account for GHG emissions caused by their demand for products and services as well as for the impact of what they sell on consumers’ carbon footprint. The time of the company that is clean and green indoors, but pays no attention to what it buys and to what happens to the goods it sells is over.

Going green is not easy. This is now a stock phrase. But, no matter whether easy or hard, going green has become a necessary and urgent step to every industry. To some industries, how to go green has a straightforward answer. It may be hard, but the knowledge base already exists. It will require leadership from the top; getting the right response from the corporate citizenry; better integration between procurement and finance; finding qualified people to lead changes; develop capabilities along the supply-chain.

Some industries still find greening their services a difficult and elusive task (here). On a recent roundtable at Cornell’s prestigious School of Hotel Administration, participants found that green standards for the industry are unclear and consumer’s views inconsistent. Hotels are reluctant to implement sustainable systems although they recognize the need to green their operations. It is a bit surprising to read that. From the standpoint of hotels’ supply-chains there are plenty of visible points where greening is possible and straightforward.

To anyone having a long view on what is happening now and of probable future trends, climate change-related risks are no longer a matter of doubt or probabilities. Probabilities are so high, that one can’t simply design a plausible “no climate change scenario”.  The long view tells us that the economy is already reshaping itself responding both to structural crises and risk-driven change. Greening the supply-chain is part of the present drivers of competition and innovative behavior. It is no longer a feature of future scenarios. Future scenarios are about things that go beyond a green supply-chain.

The ongoing process of corporate greening is at its beginning, but it is already visible. It is very likely one of the paramount factors that may lead to a new long-cycle of investment and economic growth, within less than a decade. Just think for a moment about the enormous dynamic push of leading companies at the top of the productive and commercial sectors greening their supply-chain. This movement forces all suppliers of major companies to also green their own supply-chains, if they want to stay in the economy’s major clusters. And their suppliers will have to follow suit for the same reason, and so on. The demand for green or low-carbon supplies where there are none, becomes an irresistible incentive to innovative startups. This movement goes from the global economic clusters, to the national ones, and to the sub-national ones.

There are already systemic movements visible in the global economy. They point to emerging processes and behaviors that will effectively reshape the corporate environment. Present production and consumption patterns that still appear to be dominant will inexorably be replaced. We are already riding the giant waves of a scientific, technological and behavioral revolution in every field of human activity. Overlooking these movements is accepting a present danger, not disregarding a possible future threat.

After approving the climate change law the Brazilian government now has yet to approve the rules that will allow its enactment.

Sergio Abranches

It is an extensive and complex law with many stakeholders. During the legislative process a few amendments have improved it to some extent. One of them, for instance, has included the emissions reduction targets as a “voluntary contribution” from Brazil to the global fight against climate change.  There were also a few important setbacks, however. President Lula has vetoed three articles. One on constitutional grounds, the other two conceding to pressure from his Minister of Energy.

Lula vetoed the provision that the country should gradually abandon fossil fuels. As there was no time frame, nor any description of actions that should be taken to that end, it amounted to no more than a future policy indication. But the Minister feared that by maintaining it, an enabling decree could make provisions that would do harm to the fossil energy industry. He only accepted that priority should be given to renewable energy sources.

The Minister of Energy has also persuaded President Lula to veto article 10, that restricted government incentives to small hydropower plants, wind, solar, biomass and other alternative sources. He argued that it would impede incentives to large hydropower plants.

The veto damaged the economics of the new law, by removing the structure of incentives to promote non-fossil energy.

There is some room, however, for improvement and correction through carefully drafting the enabling decree. The law can only be enacted after this enabling legislation is published. It can de done through a series of presidential decrees. Presidential decrees are not reviewed by Congress and can be enforced immediately.

The battle around the enabling decree is about to begin. An official source has told me today that they will not try to write all enabling rules at once. They’ll selectively pick the issues and areas they deem to be the most important and try to set the rules to allow their prompt enforcement. Some issues are almost certain to be in this first batch, because they are instrumental to the implementation of the emissions reduction targets that will be offered as the Brazilian contribution to the Copenhagen Accord.

This strategy of partial enablement aims at reducing the scope of conflict of interest and infighting to prevent a decision-making paralysis.

Another source told me they’ll also work on other parts of the enabling legislation with a longer-term perspective, leaving the groundwork done for the next Administration, to take office on January 1^st ,2011.

People at the Environment and Science and Technology ministries want to expedite the approval of the enabling decree, because ministers and higher officials who will run for elective office on October elections will have to leave the government within the next two months. They want the same people who negotiated the Law of Climate Change to lead the deal on the enabling legislation. It is very likely that Lula will replace his political ministers by technical and managerial people who lack the political savvy to tackle the complex and contentious issues the decree will have to address.

A source told me the ideal timing would be to have the enabling legislation approved by right after Carnival.