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February 01, 2010

How Does the Copenhagen Accord Affect Business?

Catherine New
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The ho-hum results from December’s international climate summit in Denmark drew out uncertainty about the future of global environmental laws — and that could cripple economic progress toward lower carbon emissions, says Professor Shang-Jin Wei. The 2009 Copenhagen Accord recognized the need for cooperative action on climate change but no legally binding targets were set. In a recent interview with Public Offering, Wei, newly appointed director of the Jerome A. Chazen Institute of International Business, shared his thoughts on how innovation and the environment are tied to the global economy.

“The uncertainty over whether Copenhagen and related negotiations will turn into binding policies deters businesses and governments from moving forward,” he said. “If environmental policy is not law, then firms and governments don’t want to produce something that is 20 percent more expensive than existing, less environmentally safe products. However, once it looks more certain that a law is going to exist, firms will respond or, more likely, take advantage of whatever new laws will be put in place.”

Wei suggested that innovation of environmentally friendly products can benefit firms in both rich and poor countries.

“Invention and production don’t necessarily have to go together and outsourcing is a demonstration of that,” he said. “It is quite possible that both high-income and low-income countries can benefit. Firms in high-income countries can get royalties and other profits from inventing products and innovating ideas; low-income countries benefit by producing or assembling some of those products or parts.”

However, key questions remain: who will finance long-term carbon-reduction measures and what will those measures look like? Sharing the environmental and fiscal burden is likely to come through financial or technology transfer, or some combination thereof, from industrialized nations to emerging markets. Potential for new markets to leapfrog into next generation low-emission technologies is also a promising alternative. As the issue of legally binding targets gets closer to reality, Wei shed light on the view from across the Pacific.

“The governments of developing economies worry that industrialized countries have already reaped the benefits of emitting pollution into the atmosphere,” he said. “High-income countries have already had the main course. Now as emerging markets come to the table, they feel they only get the dessert but are being asked to pay for the entire bill.”

“Of course, inaction by all sides is not really an option,” he adds. “Science suggests we’re not running out of time right now but we’re on course to, and something has to be done.”

Photo credit: COP 15