Copenhagen Summit: What Business Expects

The global climate change meeting starts on Dec. 7, and prospects for a firm deal are slim. But companies aren't waiting to invest in going green

The small town of Thompson in northern Iowa is a world away from Copenhagen, where global leaders will meet on Dec. 7-18 to hammer out a deal to combat climate change. Yet Thompson, with a population of about 550, is doing its part. Just outside of town, the rotors of 10 wind turbines twist in the breeze on rolling farmland. Built last year by Spain's Iberdrola Renovables (IBR:SM), the second-largest wind energy producer in the U.S., the project now provides green energy for 6,000 homes in and around Thompson.

"The U.S. is our main investment priority," says Angeles Santamaría, markets and forecasts director for Iberdrola Renovables, which already employs 800 across America and plans to spend $6 billion in the U.S. by 2012. "The opportunities around the country are very attractive."

Iberdrola Renovables isn't the only company eyeing eco-friendly investment. From General Electric (GE) and Ford (F) to Chinese solar panel maker SunTech (STP) and French utility EDF (EDF:FP), firms worldwide are clamoring to join the green bandwagon. That comes despite concerns that the Copenhagen summit, which will bring politicians together to negotiate a successor to the Kyoto Protocol, may fail to hammer out a binding deal to tackle climate change.

For companies, the uncertainty isn't resulting in a postponement of investment. Billions of dollars already have been earmarked for green projects from California to Cambodia. And despite political setbacks, analysts expect more cash to be doled out over the next decade.

"Politicians need to catch up because the private sector is leaving them in the dust," says Joe Stanislav, an independent senior adviser at consultancy Deloitte. "Companies and consumers have embraced the green agenda, and it's driving a revolution."

Efficiency and Higher Margins

Amid the worst economic downturn since the 1930s, the push to go green isn't just about saving the planet. Companies, particularly those in energy-intensive industries like steel and cement, are looking to rein in costs, and eco-friendly investments could help them do that. Take Italian energy company Enel (ENEL:MI), which invested $3 billion earlier this decade in smart meters—technology that allows companies and consumers to more closely monitor electricity consumption.

By keeping closer tabs on energy use, Enel now saves $750 million each year through better management of its power plants. And the utility plans to invest billions more to upgrade its infrastructure to so-called smart grids—with more intelligent power routing—which analysts reckon could further reduce the company's energy consumption by nearly 20%.

"We wanted to improve efficiency, create higher margins, and help customers reduce their energy bills," says Livio Gallo, Enel's director of infrastructure and networks.

Eco-investments may help companies trim their costs, but they're also opening up opportunities for sectors not typically associated with green business.

It's true in the telecom industry, for instance, where analysts say adding wireless communication to the electrical grid could make it vastly smarter. According to a recent report by consultants Accenture (ACN), greater use of wireless technology in the power distribution system could reduce energy costs in Europe by up to $64 billion by 2020. Similar savings also could be squeezed from other regions worldwide.

A Billion Mobile Connections

Where would the cost reductions come from? Peter Lacy, Accenture's Sustainability Practice Lead for Europe, Africa, and Latin America, says telcos could provide around a billion mobile connections that would make up the backbone of smart grid and meter investment. That would allow energy infrastructure components, such as renewable energy plants and electricity hubs, to communicate wirelessly with one another, reducing maintenance costs and giving companies more information about consumer habits. Similar uses also could be found in manufacturing, particularly in the automotive industry, which would allow machines to alter working patterns without human intervention.

"The inclusion of wireless technology [in fighting climate change] could truly be a disruptive innovation," says Lacy.

Indeed, companies will push ahead no matter what happens at the Copenhagen summit. But a climate change deal would give firms more impetus. World leaders are pushing hard for an agreement. On Nov. 25, President Barack Obama announced the U.S. would agree to a 17% cut in CO2 output by 2020 vs. 2005 levels. That mirrors similar targets working their way through Congress. A day later, China—one of the world's leading CO2 emitters—offered to cut carbon levels per unit of GDP by up to 45% by 2020, compared to 2005 figures. And media reports on Dec. 2 suggested India would follow suit, though the country would only reduce its carbon intensity by 25% over the same period.

Still, analysts remain doubtful that a binding agreement will come out of Copenhagen. Kristian Tangen, a senior expert at consultancy Point Carbon, says the most likely outcome from the summit will be a basic "framework" agreement with no specific targets. That would be followed up next year with legally binding details, such as how much carbon reduction each country will shoulder.

That may disappoint some who expect big changes from Copenhagen. But for businesses, that the world's biggest polluters are talking about CO2 cuts even without precise targets should be enough to push investment forward. "Whether a specific deal is done is less important than the direction we're traveling in," says Accenture's Lacy. "And for companies, that means green investment will become increasingly important."

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