Mark Dominik is vice-president and senior analyst at Deutsche Bank Group.
He was speaking to Susanna Ala-Kurikka.
To read a shortened version of this interview, please click here.
What has the impact of the Copenhagen climate talks been on the carbon market?
A lot of the analysis coming out of Copenhagen has been negative, focusing on the fact that no legally binding agreement was signed, no global emission reduction target was agreed, and significant uncertainty has been created around carbon markets. Following Copenhagen, carbon prices in CER [Certified Emissions Reduction] markets fell by about 20%.
While none of this is good for climate change, we believe that an overly negative view of Copenhagen discounts the real progress that was made last year. In particular, the coalition of those prepared to take mitigation actions expanded to include key developing countries, the Copenhagen Accord expanded coverage to all sectors including those that were left out of Kyoto, and the Accord was drafted at the highest political levels by heads of state and government.
Going forward, there is significant potential for new modes of negotiations and ways of providing leadership against three key strategic prongs.
Firstly, there is the need to build upon the lessons of Copenhagen to make more progress through the UN negotiations, especially around key areas like reforming the Clean Development Mechanism.
Secondly, decisive progress can be made in smaller coalitions of like-minded countries around issues like REDD [Reduced Emissions from Deforestation and Forest Degradation initiative] and industry agreements in both traded and non-traded sectors.
Thirdly, much more initiative and leadership must be provided by the private sector – particularly around iconic and mega-projects like the Desertec Industrial Initiative, which aims to produce 15% of Europe's power from clean sources in the Sahara – with governments responding by putting in place the appropriate enabling policy framework.
Do you think the EU's plans to create an OECD-wide carbon market are still feasible, or do we need to look into other mechanisms to cut emissions?
Pricing the carbon externality, and establishing linked carbon markets around the globe, remain vital objectives in the fight against climate change. But in the near-term, it will also be necessary to put other policies in place. These include grants and subsidies for low-carbon research, development and demonstration, and feed-in tariffs and loan-guarantees for low-carbon technology diffusion.
One policy that has been particularly successful to date is Germany's feed-in tariff. According to analysis from the German Environment Ministry, the feed-in tariff has more than paid for itself, and has generated numerous co-benefits, including: reducing energy imports, directly creating over 180,000 jobs, giving rise to a €28 billion renewable energy industry, generating export markets of €15 billion a year, and avoiding 53 MT of CO2 emissions in 2008 alone.
One of the cornerstones of any climate agreement will be substantial climate funding provided by developed countries, but government budgets are tight because of the financial crisis. What instruments will be needed to ramp up funding? What role do you see for the private sector? Even before the financial crisis, the UN found that the private sector will finance 86% of the transition to a low-carbon economy. Given the difficult fiscal situation of governments around the world, private sector financing is more important now than ever.
Because of government budget constraints, public money must be used in such a way that it unlocks much greater flows of private capital. This will require innovative public-private partnerships, where public money is used to reduce risk and spur private investment.
In the developing world, there will also be important roles for development finance institutions like Germany's KfW, OPIC [Overseas Private Investment Corporation] in the US, and the IFC [International Finance Corporation] in mitigating risk and spurring private investment.