Kyoto Treaty: a new era

On December 11, the Conference of the Parties of the United Nations Framework Convention on Climate Change meeting in Kyoto agreed to what the chairman of the negotiating committee described as "perhaps the most complex and important treaty ever negotiated."

The treaty is important because it marks a new beginning in the world's approach to environmental protection and the tentative birth of the clean energy era. It's complex because every country involved realized the significance of this treaty to the world's people, as well as its profound economic impacts.

The importance of this treaty can hardly be overstated in its symbolic power and its influence as a market signal. It marks the virtually complete acceptance by the world of the need to dramatically reduce, over time, greenhouse gas emissions.

The actual ecological impact of the cuts, however, is virtually insignificant. The cuts are far too small; to have an impact, emissions need to be cut back by perhaps more than 50 percent over the next century. But the beginning is real, and the legal framework is now in place to ramp up action as much as possible.

The treaty sets a 5.2 percent reduction below 1990 levels in the total collective emissions of industrialized countries by 2008-2012. There is some variation among countries: Japan has agreed to reduce emissions by 6 percent, the US by 7 percent, and the European Union by 8 percent. Australia will increase its emissions by 8 percent (it's a long story). Emission trading was established as the most likely method of achieving the cuts, and details will be agreed to at the next meeting later this year. There is already considerable activity in the marketplace preparing for trades, and widespread trades can be expected as early as 1999.

Politically it marks defeat for those conservative forces, such as the Global Climate Coalition, that have attempted for some years to block progress on such a treaty.

In economic terms, the treaty internalizes the "cost" of carbon, thus increasing the cost of products and services with high carbon content - those that use oil and coal - while reducing the cost of products and services that absorb carbon, such as forestry. The treaty will also influence the market reputation of companies heavily involved in the carbon cycle.

The upshot is that the "fossil fuels for burning" industry has been diagnosed with a slow but terminal disease. Society will effectively phase out the burning of fossil fuels over perhaps 100 years. Far greater investment in the commercialization of new technologies and also energy research is a likely outcome.

As the US head negotiator said of the conference, "This was not just one more meeting; this was an historic opportunity that would not necessarily be repeated. The clarity of the science, the enormous press attention, the public's clear wish for action, the momentum building towards this meeting, all combined to create a key window of opportunity."
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