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Climate Policy - Energy in the Post-Cancun World

In terms of the effects of climate change legislation, energy production is one of the more sensitive sectors in the economy.  Contrasted with areas like buildings or light industries, where cheap or even negative-cost savings are immediately available as “low hanging" abatement options, even the latest generation of fossil fuel plant is pushing hard against physical limitations in thermal efficiency.  And with energy and electricity generation responsible for more than half of current net anthropogenic GHG emissions, it seems certain that energy producers will face a steep abatement curve under expected treaties and legislation.

The relevant question, then, is how robust will the post-Kyoto emissions reduction regime turn out to be?   While there is serious doubt as to whether the cuts and targets agreed upon at Cancun will support the goal of limiting anthropogenic temperature rise to 2 degrees or less,  an analysis   reveals much steeper cuts below a 2020 baseline than Kyoto is expected to achieve relative to its baseline:

  1990 Emissons 2007 Emissions in Kyoto Signatories(BAU) Kyoto Reductions from BAU BAU Projections 2020 Emissions Reductions vs BAU (high/low)
Copenhagen Target Countries  16,190  7,107  902  20,229  6,826/5,969
 Copenhagen NAMA Countries
 8,726  0  0  21,676  11,620/2,000
Other Countries
11,161  0 0 12,530 40/40
Worldwide Totals 36,077 7,107 902 54,434 18,485/8,008

Reductions in Countries with Cancun Targets and Nationally Appropriate Mitigation Actions (NAMAs) - Copenhagen vs. Kyoto

While future climate policies will dictate that the the energy and power industries will need to adjust to tighter and tighter li mitations, so far there has been little clarity in determining a strategy to make these adjustments while maintaining an adequate future supply of energy with a generation fleet which is fit for purpose.  New build, including nuclear; new technologies, including Carbon Capture and Storage (CCS); and market mechanisms, such as renewables obligations and feed-in tariffs, can play a role, but the planner or investor needs to understand the "how"s, the "why"s, and most importantly, the "when"s, in order to maximize returns and minimize risks.

Energy Edge, with its  broad network of energy sector experience and view and understanding of changes likely to occur in the carbon markets, can help you navigate the uncertainties ahead.  If you have questions, why not contact  Energy Edge partner Karl Schultz  today?

For more on the implications of the Cancun Agreement, please read our Policy Briefing here

For more on how your business might need to plan for climate change, read here



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