Financial storm dims hope of tough U.N. climate pact

By Alister Doyle, Environment Correspondent

OSLO (Reuters) - Global financial mayhem is dimming prospects for a strong new U.N. pact to fight climate change, but it might aid cheap green schemes such as insulating buildings to save energy, analysts said.

The turmoil, straining government coffers with bank bailouts, may sap interest in more costly projects such as burying heat-trapping carbon dioxide from coal-fired power plants, refining biodiesel or some renewable energies.

"There will be a shift in investments" toward energy efficiency, said Nick Mabey, director of E3G think-tank in London. Saving energy, such as by insulating buildings, gives quick returns and can help create jobs.

A year ago, many governments were billing the fight against warming as humanity's top long-term challenge after the U.N. Climate Panel said human use of fossil fuels would bring more floods, heatwaves, droughts and rising seas.

Now, with the United States caught in a financial storm that may cost $700 billion of taxpayers' money to fix, a plan to agree a new U.N. treaty to fight global warming in Copenhagen in December 2009 is looking ever more ambitious.

German Foreign Minister Frank-Walter Steinmeier said on Tuesday the market difficulties would make it harder to agree a climate deal, while U.S. Democratic presidential candidate Barack Obama said last week he may be forced to scale back his planned investments in energy.

"It's starting to weigh on peoples' minds that the whole process could go completely wrong," said Mabey. In the worst case, the negotiations could collapse, like U.N. trade talks.

"The problem of climate change is going to stick with us. But the pace and the scale of ambition may be less in the near term," said Elliot Diringer, a director at the Pew Center on Global Climate Change in Washington.

SMARTER

"Hopefully the crisis will make us smarter in spending our money," said Bjorn Lomborg, Danish author of "The Skeptical Environmentalist," who says many governments like Britain focus too much on costly projects such as offshore windmills.

More mundane carbon-saving projects may benefit.

Consultants McKinsey & Co. reckon emissions-cutting measures such as better building insulation, fuel efficiency in vehicles, more efficient lighting and air conditioning end up paying for themselves via lower energy bills.

But policies such as burying carbon dioxide, refining biodiesel or avoiding deforestation are among the most costly ways of slowing emissions, it says.

In the United States, both Obama and Republican candidate McCain have promised to do more than President George W. Bush, who said the Kyoto Protocol, which binds 37 industrialized nations to cut emissions until 2012, would be too expensive.

The U.N. Climate Panel has estimated the costs of slowing climate change at only 0.12 percent of world gross domestic product to 2030, with vast benefits in avoiding human suffering.