The great and the good of the world's diplomatic community will descend upon Copenhagen for the UN Climate Change Conference which was originally envisaged as being the culmination of two years of talks. But, as has been exhaustively trailed in the weeks leading up to Cop-15, hopes for a full and binding international treaty have waxed and waned on an almost daily basis. So what are the possible outcomes?
1. A full and binding international treaty
Still probably the least likely outcome despite the thousands of hours diplomats have spent in discussion since talks began in Bali in 2007. Such an agreement would enshrine emissions reductions targets for all countries in a global treaty and also lay out how the developed world will help to fund the developing world's transition to low carbon economies.
Such an agreement will require huge political will and could lead to a huge uplift in investor sentiment towards the alternative energy sector, even if the tangible financial effect would still be some years away due to the longer-term nature of energy capacity development. What it would do is plant the alternative energy and energy efficiency sectors firmly in investors' minds.
2. A two-stage agreement
Ahead of the conference this appears to be the most likely outcome. Indeed Danish prime minister Lars Lokke Rasmussen was pushing this outcome in recent weeks in an attempt to temper expectations. A two-stage agreement would see the participants effectively save face by announcing a political agreement to reduce emissions without committing to any clear reduction targets at this stage. The intention would be for the political agreement to be followed up with a full binding treaty within a set time frame, preferably 12 months.
Although this result would be a suitable compromise, there is a risk it could dampen sentiment or hamper investment and funding decisions until the details of any treaty are actually revealed. There is also a risk that we could see a repeat of the Doha Development Round of international trade talks, which have dragged on for eight years with no resolution as yet.
3. Collapse of talks
This is generally thought to be the least likely outcome to Cop-15 but it should not be discounted completely. Some discussions in the run up to Cop-15 have occasionally been rancorous. The main division is between the developed and developing world over funding to mitigate the huge cost for the developing world to move to low carbon economies without damaging economic growth.
A collapse of talks would deal a blow to longer-term hopes of concerted, co-ordinated investment in alternative energy. And although regional initiatives will continue that could foster protectionism.
The likely result
At this stage the second option looks the most likely. A two-stage deal allows global leaders to save face while not committing to specific targets in a treaty, although a full treaty would need to be concluded within the following 12 months.
Such an agreement, which could then be followed in 2010 by the passing of a bill in the US to enshrine its own federal cap-and-trade system into law, would give added confidence to the alternative energy sector and support investment decisions.
Indeed, there is a sense of genuine attitude change in the US, according to consultant AEA Technology, whose chief technical officer Robert Bell has worked closely with officials there. Mr Bell says: "It's clear that the Obama administration is committed to changing direction completely. It's partly a climate agenda but also energy security, and it's reflected in the way they are spending the stimulus money."
China also appears to have performed a dramatic volte-face and is preparing to invest heavily in alternative energy and energy efficiency. The country realises it faces severe environmental issues in its own backyard and also wants to secure its future energy supply.
So where should investors look to grab a slice of what could be the most important shift in behaviour and consumption the industrialised world has ever submitted to?
Easy wins abound, especially for developed nations where a significant amount of emissions could be saved in the short term by improving energy efficiency. Through more efficient consumption, helped by energy saving devices and smart meters as well as incentives for micro-generation, better waste management and more efficient delivery of power through smart grids, a significant chunk of our emissions can be removed quite rapidly.
This will be followed by the longer-term, more capital-intensive redrawing of the power-generation map. Strong emissions reduction targets coupled with incentives such as feed-in tariffs and renewable energy certificates should encourage widespread proliferation of wind and solar energy across the developed and developing world and, as these industries grow, so the economics will begin to stack up as components become commodity items.
One of the major factors in the development of the market, should there be a global agreement on emissions reductions, will be the "internalisation" of the cost of carbon into the global economy, according to Bruce Jenkyn-Jones, director of investments at environmental asset management house Impax. Once the cost of carbon is included as part of any investment decision-making process, then green investment will have fully arrived. But the cost of carbon probably has to rise significantly from its current E13-E15 (£11.80-£13.70) per tonne range to compel companies to invest in carbon abatement. At the moment it is just about affordable to buy the credits to displace your emissions, but a spike in the cost of credits could change this, as KBC Peel Hunt analyst Andrew Shepherd-Barron told us: "The carbon price is not high enough to drive change".
Of course the oil price still exerts a major influence over the cost of carbon. When oil soars, carbon tends to follow suit and a sustained period of oil above $100 a barrel would again benefit alternative energy investment. As Mr Jenkyn-Jones says: "The oil price spike of 2008 was a real wake-up call. It was a tipping point."
