Watching recent news reports of weatherrelated chaos from around the world, you could be forgiven for thinking that we have left it too late to tackle climate change. In recent weeks we have seen pictures of floods in China, India and Asia causing massive damage and loss of life.
Closer to home we have seen office workers trapped in their Sheffield offices being winched to safety by RAF Sea King helicopters. We have had the hottest April on record and a day in June saw the most rain fall in a single day since records began. We have come extremely close to leaving it too late. The Kyoto Protocol, signed in 1997, committed the industrialised world to a paltry 3 per cent cut in global emissions – hardly dramatic stuff. Since 1997 there has simply not been the coherent global action needed. The US must take the lion’s share of the responsibility for this.
Scientists tell us a herculean 60 per cent cut in greenhouse gas emissions is needed by 2050-60 to stabilise the global climate system. Even then dangerous levels of change will still occur. A significant proportion needs to be achieved in the next 10 years to head off catastrophic change.
While the US rejected the Kyoto Protocol, the EU nations went on to embrace it and the market mechanisms at its core. These include international emissions trading and projectbased mechanisms, such as the clean development mechanism (CDM).
Europe, with its EU Emissions Trading Scheme, is now at the centre of a global carbon market worth €23bn (£15.5bn) that largely did not exist before 2005. According to research and analysis organisation New Carbon Finance, funds under management or invested in the carbon finance area grew from around $7bn (£3.42bn) in early 2006 to approximately $12bn (£5.87bn) 12 months later. All this from a 3 per cent cut.
The EU has committed to cuts of 20 per cent by 2020, rising to 30 per cent if there is a global agreement. The US Council on Foreign Policy estimates that the eventual size of the trading market will be $2.5tr (£1.22tr)-$3tr (£1.47tr).
This will grow to become one of (if not the) major commodity markets of the 21st century. Carbon value derived from this market will be at the heart of everything we do as lawyers.
The current market size demonstrates that carbon markets work. There is now a price on carbon emissions. CDM is predicted to deliver two billion to 2.5 billion tonnes of CO2 reductions.
To criticise the Kyoto Protocol as being irrelevant because the cuts required are modest, as its critics often do, misses the point. The Kyoto legacy is the creation of the international framework and infrastructure that will allow any future agreement to be implemented immediately, and not, like Kyoto, after 10 years.
Without the involvement of the US and major emerging markets such as Brazil, China and India, 60 per cent will be impossible, but attitudes in the US are shifting fast. Carbon trading schemes are being designed at state level that are likely to be overtaken by a federal scheme within four years. Whether this will be integrated fully into the international carbon market remains to be seen. With the recent announcements by the US at the G8 summit, where the US agreed to work within the UN climate change process, this might be possible.
The carbon market is here to stay and will grow at a phenomenal rate. It has created a new finance sector, carbon finance, and with it a new area of law in which UK law firms have a major role. In 2006 more than 43 per cent of carbon finance was based out of London. However, the US will play a substantial part in the market it helped to create back in 1997, and cities such as New York will give London a run for its money as the leading international finance centre for the global carbon market.
Within this new carbon-constrained world, lawyers have a unique opportunity to build a viable business, while playing their part in tackling the single greatest issue facing mankind in the 21st century.