Wednesday, November 16, 2011

The Strategic Role of IT at the Financial Times


The Financial Times Limited (FT) is a business news and information organisation. Its objective is to provide news, comment, data and analysis to the global business community (Financial Times, 2011b). Although the FT is incorporated as a newspaper publisher (Companies House, 2011) and its object includes the printing, publishing and circulation of newspapers (Memorandum of Association of The Financial Times Limited, 1st December 1981, clause 3(B)), its products are not newspapers. Rather, the newspaper is a vehicle used to deliver its products, which are business news and information. Hence I will be analysing the extent to which IT plays a strategic role in the FT’s delivery of business information to its global audience as opposed to the strategic role of IT in its publication of newspapers. The impact of IT on advertising will also be included in the analysis, as subscribers and advertisers are the FT’s sources of revenue.

Hindle (2010, l.6229) described strategy as ‘matching external demands with internal capabilities.’ Recent or ongoing IT projects which impact external stakeholders indicate the FT’s strategic focus, a deductive process discussed by Robson (1997, p.5). Since launching a paid meter access model for FT.com in 2007, the FT has been developing additional digital circulation channels including a mobile website, smartphone apps and tablet apps (Financial Times, 2011, e). The realisation of the financial and technical resources required to support multiple mobile devices has led to a tactical change and a HTML5 web app is being developed for all platforms (Financial Times, 2011, d). Editorially, the newsroom has been integrated to ensure all journalists work in print and online (Barber, 2011). Thus it can be inferred that the FT views the digital distribution of its content as a strategic growth area. The competitive context of this strategy can be examined using Porter’s five forces framework, cited in Avison and Fitzgerald (2006, p.57), and five corresponding questions proposed by Applegate et al. (2007, p.41).

Laudon and Laudon (2011, p.38) claimed that newspaper readership is declining as online news consumption expands and Standage (2011, a) asserted that newspaper ‘readers have shifted their attention to other media, quickly followed by advertisers.’ In 2008, the Internet surpassed newspapers as Americans’ source of news (Standage 2011, b) and a severe drop in advertising revenue since 2006 has sharply reduced profits at U.S. newspapers (Pressure on the Presses n.d.). Business news providers need to develop their digital distribution channels to remain competitive and sustain revenue from subscribers and advertisers. It is necessary for business survival due to industry-level changes (Laudon and Laudon, 2011, p.46). The FT’s industry rivals include the Wall Street Journal (WSJ), Reuters and Bloomberg. Figure 1 presents the latest audience statistics[1] for the firms, indicating competitors have significantly larger online readership than the FT. Hence digital distribution does not differentiate the FT from its rivals and therefore does not change the basis of competition.
Figure 1
Average Daily Global Audience
On the other hand, the FT’s reputation for authority, integrity and accuracy (Financial Times, 2011, b) could be a source of competitive advantage. Online and mobile access to premium content which users are willing to pay for increases entry barriers for news distributed through social media and aggregators such as Twitter and the Huffington Post. Barber (2011) described the FT’s response to new entrants as commitment to journalistic quality, development of online subscription business by charging for content and restriction of aggregators’ access to proprietary information. IT is used to erect a ‘paywall’ which compels business users, who value accurate information and authoritative analysis, to subscribe to the FT digitally and this strategy contributed to a nine percent growth in audience from May 2010 to May 2011 (Financial Times, 2011, a).

Digital channels enable users to engage with one another. Christie, quoted in Behling (2011), states “there is an appetite for FT readers to talk to other FT readers,” and this is being harnessed to build a user community. The loyalty engendered by an online community could create a barrier for competitors, as claimed by Applegate et al. (2007, p.45). The FT has embedded user interaction in its website by integrating reader comments at the end of each article. The ability of the audience to exchange opinions directly on the website increases the immediacy of their communication and thus the vibrancy of the community. On-site interactions are complemented by the use of third-party sites to build its community. The Social Media Hub, comprising Facebook, LinkedIn, Twitter, YouTube and Flickr channels, expands membership of the FT community beyond active subscribers and drives traffic to FT.com. Reuters makes similar use of external social media and on-site user comments to engage its audience, seventy-nine percent of whom do not visit rival financial websites (Reuters, 2011a). However interacting on third-party sites with varied content from several sources potentially makes users more likely to divert their attention away from the FT.

The nature of the relationship between the FT and its sources of news and data could be transformed by social media. Fortune Global 100 companies’ use of Twitter, Facebook and YouTube stands at sixty-five percent, fifty-four percent and fifty percent respectively (Burson-Marsteller, 2010, p.3). Laudon and Laudon (2011, p.38) mentioned that businesses are increasingly using social networks to engage with their customers. The direct communication between companies and stakeholders potentially bypasses news organisations, shifting the balance of power to corporations. However corporations’ use of social media could be a source of raw information on which news organisations build their analysis and commentaries. As Standage (2011, b) reported, ‘non-journalists are acting as sources for a growing number of news organisations...’ The FT ‘follows’ organisations including the European Commission, NASDAQ and Research In Motion (Twitter, 2011) which gives it instant access to official news updates.

The interactive features of the Internet add value to the FT’s news, comment, data and analysis while enabling the creation of new products or services. The IT infrastructure deployed to give users digital access to content also transform the FT into a research tool. The indexing and storing of data enable users to search information archives and retrieve relevant results, extending the financial value of its markets data and news analysis beyond the shelf life of newsprints. Furthermore, twenty-five percent of FT readers take six or more international flights a year and sixty-seven percent conduct business internationally (Financial Times, 2011a). Globally mobile customers are able to derive maximum value from their subscriptions by having digital access to FT content from foreign countries.  

Data on customer preferences and behaviour is a valued resource which could be sold to market research firms, as discussed by Applegate et al. (2007, p.48), or used for targeted advertising. The FT creates a profile of each customer by analysing his/her registration data, preference data, behaviour on FT.com, behaviour on other FT group websites, behaviour across the web and broader profiling. The profile is used to attract advertisers to target their campaigns at specific audiences, a strategy claimed to be almost four times more effective than un-targeted advertising (Financial Times, 2011c). Additionally, the audience demographics inform the development of specialist products such as FT Alphaville and MBA Newslines.

The use of non-proprietary Internet technologies lowers customers’ switching costs, a postulation made by Applegate et al. (2007, p.47). Although it aids market penetration, the ability to use the same technology to access content from the FT’s competitors reduces the potential to lock in customers, unlike proprietary technologies such as Bloomberg Terminal. Conversely, subscribers can construct a customised investment portfolio on FT.com, using markets data to track performance, follow related news, create interactive charts, build equity screens and configure market alerts. This raises the switching costs for customers who have invested time and effort in creating their portfolio. However, the feature is not compelling enough to lock in customers as websites such as Reuters, Yahoo Finance and MSN Money offer comparable, free services.

The FT’s competitive advantage lies in the quality of its business news and information rather than its use of IT for content delivery. Digital distribution is not a differentiator yet it increases the FT’s capacity to meet the current and future needs of its customers. The industry-level changes require the development of online and mobile channels to reach customers and attract advertisers. Nevertheless the statistics in Figure 1 reveal that the FT newspaper has 1.4 times the circulation and 2.8 times the readership of FT.com while subscription-based WSJ newspaper has 1.3 times the readership of free Bloomberg.com. Even as digital distribution gains momentum, the larger subscription and advertising revenues of newspapers underline their continued importance. Thus newspapers are unlikely to be completely replaced after the penetration of smartphones and tablets, as well as users’ reading habits, reaches critical mass. As Barber (2011) stated, the FT’s “task is to ensure the newspaper evolves in step with the mobile and digital products.”


REFERENCE LIST
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Sunday, January 23, 2011

Proposed EU Regulatory Changes to Derivatives Trading: What Could This Mean for Sungard's Stream Ubix?



The key theme of the on-going overhaul of financial markets, and derivatives trading in particular, on both sides of the Atlantic is transparency. In response to the opacity of the derivatives products at the centre of the financial crisis, regulators are working on a raft of new rules that will give them better oversight of the markets. Consequently, institutions in the financial ecosystem are gearing up for the changes which lie ahead and this is creating massive opportunities for IT system providers such as Sungard. Exchanges, multilateral trading facilities (MTF), clearing houses as well as banks, brokers and traders have to adapt their IT systems to comply with the new regulatory environment.

At A Glance: EU Plans For Trading Overhaul, published in City A.M. on 09 December 2010, summarises the regulatory changes to derivatives trading proposed by the EU. Each category of regulation – market structure, pre- and post-trade transparency, data consolidation, commodity derivatives markets, transaction reporting and supervisory issues – opens up new market opportunities for Stream Ubix, Sungard's real-time and flexible back-office system for listed derivatives providing global clearing for multi-entity companies. I will attempt to highlight some of these below:

Market Structure

  • The movement of derivatives trading from over-the-counter (OTC) to clearing houses, exchanges and MTF would potentially increase the type and volume of transactions on the platform.
  • The increased powers of supervisors to intervene and demand detailed information from holders of contracts makes the delivery of up-to-date information in real-time even more imperative.
  • Increasing the regulatory requirements for MTF to bring them in line with exchanges could open up their trades to Stream Ubix, assuming this is not the case already.

Pre- and Post-Trade Transparency

  • Barring the remainder or stub of an order sent to dark pools from remaining in the dark could make the data accessible.
  • The requirement for real-time reporting of post-trade share prices, reducing the deadline from three minutes to one minute, could drive more business to the platform with Stream Clearvision providing straight-through-processing.
  • Extension of post-trade reporting rules to cover more asset classes would also benefit Stream Ubix, with Fame Futures providing the data feed.

Data Consolidation

  • Amending MiFID to require executed transactions to be reported through an approved venue might also have implications for the structure and format of the reports; Stream Ubix's flexible report customisation through Report Writer would minimise the cost and effort required to make the changes.

Commodity Derivatives Markets

  • The obligation for traders to report positions by categories would make full use of Stream Ubix's intraday open positions feature.
  • The requirement for central clearing of off-exchange, physically settled contracts which are similar to exchange traded contracts and standardised would allow them to be managed on the platform.

Transaction Reporting

  • Widening transaction reporting to supervisors to all financial instruments traded on platforms would also potentially increase the type and volume of transactions processed on Stream Ubix.

Supervisory Issues

  • The mandatory recording of client orders for a minimum of three years would benefit from from the platform's Oracle-based, modular structure, with transaction data exported to external database management systems.

The final regulatory changes remain unclear and certainly, there are several competing financial software providers such as Portware, GoldenSource or GlobeOp which are positioning themselves to take full advantage of the changes. Nevertheless, SunGard are in a great position to leverage the strengths of Stream Ubix and the entire Stream platform, providing visionary leadership and technological innovation in the front-, middle- and back-office processing sector.

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Saturday, July 04, 2009

Wish List for the Phone of the Future


The pace of technological innovation in mobile phones over the past decade has been astonishing. Even the most imaginative futurologist in 1999 would have been amazed at the diverse range of powerful communication, productivity and multimedia features now crammed into the small devices in our pockets.


Gazing towards the next 10 years, it would be great to see these features emerge in mobile phones:

  • Battery that is constantly recharged kinetically (when moving around)

  • Artificial Intelligence that simulates a human personal assistant (e.g. when an anniversary comes up, searches for a selection of gifts based on the event and the celebrant; tell it you want to go on a holiday and it books the flight and hotel based on your tastes and budget and also plans your itinerary for sightseeing, nights out, etc.)

  • Bluetooth virtual reality glasses to watch HD movies and play games

  • Client device functionality with application processing and data storage done on remote servers (cloud computing)

  • Universal remote control functionality, using DLNA

  • Social network application that detects people with matching criteria in the same vicinity, using bluetooth or wi-fi (e.g. strangers with similar interests on a bus are alerted about each other and can choose to strike a face-to-face conversation)

  • P2P file distribution using bluetooth or wi-fi (e.g. multimedia files transferred from several phones near-by without requiring phone network or mobile internet)

  • Realtime translator (microphone picks up the foreign language audio and the translated speech is relayed through the speaker)

  • Full range stereo speakers for high fidelity sound (e.g. using carbon nanotubes)


Of course, the wish list can stretch as far as the imagination will go but these would be an exciting starting point for the next wave of mobile phone innovation!


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Monday, May 25, 2009

Less Speculation, More Production


Vivian: And you don't make anything…

Edward: No.

Vivian: … and you don't build anything.

Edward: No.


For all the wealth Edward created as a private equity investor in the movie Pretty Woman, Vivian was puzzled by the notion of any economic activity that didn’t involve producing goods or services. Given the unrestrained speculation that precipitated the current economic crash, it is clear that production, not speculation, needs to lie at the heart of sustainable economic growth.


Every asset class – equities, bonds, commodities, currencies, real estate – has a true economic value that is based on its productive use. However, asset bubbles arise when speculative value outstrips economic value, that is, speculation becomes unhinged from production. As is the case in the current credit crisis, derivatives can fuel the unhinging. While derivatives are used to hedge the risk of losses on investments, it is their use as purely speculative instruments that pushes asset prices to unsustainable levels; levels which are not justifiable by their economic value. Broadly speaking, long-term investment decisions are based on the value that can be derived from the productive use of an asset and as such, investors are only prepared to pay what it is worth. On the other hand, short-term investments tend to be driven by speculation and consequently, such investors are prepared to pay the market price of an asset, regardless of its economic value.


One of the basic rules of trading is to be emotionally detached from investment decisions. However, the nature of speculative investment makes it highly susceptible to the human emotions of greed and fear, which lie at the heart of boom and bust cycles. Perhaps a key role of financial market regulation is to encourage long-term investments over short-term trades, keeping a leash on the market's tendency to get overblown by greed and imploded by fear.


A lot has been said about the sub-prime crisis, with US banks more than willing to give mortgages to people who could not afford them for the simple reason that they could parcel the mortgages up into complex credit derivatives and sell them to international investors. These investors did not buy the derivatives because they understood the structures or could identify their economic value, but because they were willing to gamble on making attractive short-term returns. In retrospect, investment strategies that focused on facilitating productivity and growth in the real economy could have avoided the financial famine we are currently contending with. Sure, the returns would be lower and the economy would be less flushed with cash but the growth would be sustainable and economic slowdowns would be less severe.


Financial services is one of the core engines of the real economy and its fulfilment of this strategic role will always be jeopardised by unchecked speculation. Every investment has a risk factor and as such, there is always a degree of speculation involved. However, sound investment decisions involve a clear understanding of the economic value of a product or service. Economic growth based on speculating on price movements can only have one outcome. Even Vivian would understand that.


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Sunday, November 18, 2007

Quickfire: Robbing the Rich, Paying the Poor


It seems credit cards are always in the news for the wrong reasons - so-called rate tarts card hopping to take advantage of 0% balance transfers, insolvent consumers juggling debts from one card to another or irresponsible financial institutions dishing out cards like confetti. However, handled correctly, credit cards can be a tool to turn the table and cream money from financial institutions...twice!

Credit cards typically have an interest-free period of over forty days so as long as the balance is cleared every month, they do not cost anything to use. On the other hand, paying household bills and daily expenses from a bank account continuously decreases the balance and hence the interest earned each month. So, rather than flashing the credit card at every opportunity being financially reckless, it actually makes sense to shift as much expenses as possible to the card and leave the bank balance untouched. That way, maximum interest can be earned on the bank account and zero interest paid on the credit card as long as the balance is cleared at the end of the month.

Given that financial institutions constantly devise new ways of extracting pennies from their customers to boost their multi-billion pound profits, it is about time the spending public went on the offensive and start helping themselves to their institutions' largesse!

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Friday, November 02, 2007

Quickfire: MicroPlace


A couple of weeks ago, I had one of my brainwaves (which have been becoming infrequent these days, I might add). I thought about the viability of a P2P finance e-commerce venture; the logic was to create an eBay-like website where ordinary individuals could lend money to each other, with lenders bidding to offer the most favourable interest rates. See, payments could be made and received through services such as PayPal and Google Checkout, and, and, and people could borrow any amount for any length of time, and, and, and they would no longer have to be held to ransome by their banks, and, and, and there would be world peace...

Just as my eyes were lighting up with glee at my newfound goldmine, it crossed my mind that eBay and Google would not be so keen to lend their payment infrastructure to the venture when they could set it up themselves and keep all the profits.

Well, I was right! I just read a BBC News report about MicroPlace, an eBay company that facilitates microfinance investments from everyday investors to the world's working poor. The e-commerce website acts as a broker-dealer linking investors to microfinance organisations across the world, with investments made through PayPal or a regular bank account. eBay are not keeping the profits though; they will be using it to fund their socially beneficial activities. Who says business is all about shareholder value, eh?

I guess my brainwave was not just vapour afterall. Wonder if Google would be willing to play ball...

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Thursday, October 25, 2007

From Underdogs to Nintendogs


In the high stakes battle for market dominance in the rapidly growing $37.5 billion video games industry, few gave Nintendo a fighting chance against Sony and Microsoft. Back in 2005 when Sony and Microsoft were unveiling the jaw-dropping technical specifications of the PlayStation 3 and the Xbox 360 respectively, Nintendo’s underpowered Wii left analysts and gamers alike scratching their heads. Fast forward to 2007 and according to the latest data from VG Chartz, a video game market research company, the Wii has cornered 42.4% of the global next-generation console market, ahead of the Xbox 360’s 40.5% and the PlayStation 3’s 17.1%. Their lead in the next-generation portable game market is even more dramatic, with the Nintendo DS enjoying 67.8% market share while the Sony PlayStation Portable trails at 32.2%.



The turnaround in Nintendo’s fortunes has not been missed by investors and at the close of market on 25 October 2007, Nintendo had a market capitalisation of Y9,407bn ($82.46bn), making it the third-most valuable company in Japan and dwarfing Sony’s Y5,200bn ($45.35bn) despite being a much smaller company.

The meteoric rise of the company is a lesson in visionary leadership and market innovation. After being consigned to irrelevance in the previous two rounds of the console wars, Satoru Iwata, Nintendo CEO, spearheaded a new strategy of expanding the gaming population. The premise was simple: enable everyone to enjoy games regardless of age, gender or gaming experience. They identified three paradigms that needed to be challenged which laid the foundation for their current success:

  1. Video games are entertainment mainly enjoyed by children and young male adults; females and senior citizens hardly play.
  2. Nintendo is for kids.
  3. Great majority of software is short-lived; long-lived software is hard to make.

Defining a new target market of females and senior citizens was a bold departure from convention, where the smart money had always been on the core market of 18-35 year old males. However, it enabled them to eschew the complex and expensive hardware required by traditional gamers, making the Wii a bargain at $250 compared with $350 for the Xbox 360 ($480 for the Elite version) and $350 for the PlayStation 3 ($500 for the premium version). Similarly, the DS Lite retails for $130 while the PlayStation Portable costs $170. The reduced complexity of Nintendo’s hardware also makes game development easier, quicker and cheaper, giving their software a price advantage over the competition.

While the technical specifications of the hardware are relatively low, they have innovative designs which maximise the user experience. Wii’s groundbreaking controllers, ranging from the Nunchuk to the Balance Board, offer gamers more involving ways of interacting with the virtual world. The dual screen design of the DS similarly makes gameplay more engaging and stimulating.

Rather than rely on lifelike graphics and animation to wow gamers, Nintendo has focused on developing simple yet novel games that have a high replay value and appeal to a wider audience. Games such as Brain Training and Nintendogs on the DS have proven a big hit with senior citizens and young girls respectively, and the Wii Sports titles are extremely addictive for gamers of all ages and genders. Not surprisingly, 51% of Wii gamers and 53% of DS gamers are females, compared with 11% of PlayStation 3 gamers, according to a Financial Times report.



Given the runaway success of the Wii, it is inevitable that Sony and Microsoft will be fighting back. Their first response has been to reduce Nintendo’s price advantage, with both companies releasing lower priced versions of their consoles albeit with less storage capacity. In addition, they are developing a wider range of controllers and other accessories as well as a broader range of games to expand their core market. All three companies are also investing in an online games network to offer their respective customers games download and multiplayer services.

With Sony and Microsoft playing catch up, the challenge is for Nintendo to maintain their innovation momentum in hardware and software design, continually redrawing the landscape of the video games industry. If that is achieved, they are bound to remain the top dog for years to come.

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Wednesday, October 24, 2007

Quickfire: The Non-Dom Dilemma


Alistair Darling's pre-budget report has stopped the music at non-domicile residents' tax party. Those residing - but not domiciled - in the UK for seven years or more are now faced with a flat rate of £30,000 per annum or alternatively, paying the additional tax that is due from their overseas income and capital gains. This could lead to three scenarios:
  1. They grit their teeth and show Alistair the money, in which case nothing changes.
  2. They decide the new tax regime makes their non-dom status pointless and so move to the UK permanently after considering other cost of living factors. In which case, demand for housing, transport, schools and other infrastructure increases, albeit minimally.
  3. They decide the new tax regime makes their non-dom status pointless and so move out of the UK completely after considering other cost of living factors. In which case, firms have to fill the gaps and job opportunities open up for domiciles, albeit minimally.
Given the combination of factors that make the UK an attractive destination, I suspect both non-doms and Mr. Darling will be baring their teeth but only one will be a smile...

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Saturday, April 28, 2007

Social Technologies – Opportunities and Threats


One of management’s greatest challenges is harnessing the full potential of their workforce to maximise productivity. Given the wealth of skills and knowledge that are possessed by employees, it is expedient to empower each individual and make their resources accessible to the whole organisation. Social technologies such as blogs and wikis provide tools which enable collaboration and information sharing among employees. However their deployment needs to be managed strategically in order to mitigate the associated risks.

The exponential growth in popularity of social networking sites such as MySpace and Blogger is producing a generation of young adults adept at sharing information in a format that is easy to access and understand. As they enter the workforce, businesses can harness their collaboration and communication skills by setting up a blogging system for individuals or teams. Blogs of activities, projects and problem resolutions create a knowledge resource that can be readily accessed in the absence of the employees concerned. Due to their less formal structure, blogs are simpler to set up and maintain than more rigid content management systems and thus employees would be keener to adopt them.

Similarly, the advent of Wikipedia has led to the growth of wikis as a popular tool for collaboration and knowledge sharing. Editable web pages can be updated by employees working jointly on a project or creating a knowledge base such as FAQs. A significant advantage of blogs and wikis is the reduction in the use of emails and file attachments, which can be unwieldy and create duplicate information.

However several IT and management policies need to be instituted before social technologies are deployed. A key challenge is the protection of the confidentiality of sensitive information. Clear policies need to be in place to guide the types of information that can be published on blogs and wikis while different levels of access need to be defined for viewing or editing such information. This also necessitates monitoring to ensure strict compliance with the policies.

There needs to be a robust quality control mechanism in order to maintain a high standard of accuracy and currency of information. While the collaborative use of blogs and wikis increase the likelihood of errors being detected and information kept up-to-date, team leaders or line managers need to take overall responsibility for the sites.

Employees might be less motivated to update the sites if it is perceived as an additional task. Conversely, they might be less efficient in their time management if they have to take time off their core tasks to update the sites. Thus the ideal implementation would be the integration of blogs and wikis into their workflow like other information systems.

The utility of social technologies is in their accessibility; hence careful thought should go into how information is stored as well as how it is retrieved. Blogs and wikis could be deployed in conjunction with enterprise search technologies which would index the information and speed up the retrieval of relevant results by searching for concepts rather than keywords.

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Wednesday, March 15, 2006

Money Talks, Carbon Walks


A commercial intercourse with Africa opens an inexhaustible source of wealth to the manufacturing interests of Great Britain, and to all which the slave-trade is an objection.
[I]t lays open an endless field of commerce to the British manufacturers and merchant adventurers. The manufacturing interest and the general interests are synonymous. The abolition of slavery would be in reality an [sic] universal good.

Olaudah Equiano, a freed slave campaigning for the abolition of the slave trade in the late 18th century, understood that the slave trade was as much an economic issue as it was a moral one. Hence the campaign for its abolition would need to stretch beyond moral reasoning and embrace economic interests. Over two centuries later, a combination of ethical obligations and financial incentives is once again spurring the global community into action.

The adverse changes in the environment triggered by the burning of fossil fuels have been a focus of continuing debate within scientific, political and business circles. There is a growing consensus that modern society’s insatiable appetite for energy is eroding the climate’s delicate balance, with wide-ranging effects from rising temperatures and sea levels to devastating tsunamis and hurricanes.

However, while the moral case for preserving the environment for future generations is compelling, the socioeconomic costs of reducing greenhouse gas emissions hinder the implementation of corrective measures. In E&E TV's OnPoint interview program aired on 13 December 2005, Margo Thorning, managing director of the International Council for Capital Formation, argues that European governments do not have the political will to impose energy taxes high enough, across all sectors of the economy, to force energy use down. “We found, using a broad macroeconomic analysis, that the gross domestic product of four major EU countries would be significantly reduced [if they imposed taxes high enough to hit their targets],” says Ms. Thorning. “So the economic consequences of actually trying to hit the targets are quite significant.”

The Kyoto Protocol establishes a mechanism for international trading in emissions as well as project-based mechanisms including the Clean Development Mechanism and Joint Implementation. These provide a strong incentive for economies to invest both domestically and internationally in clean energy. In addition to energy savings that would be achieved, some of the cost could be recouped by trading their emissions credits. The EU estimates that with its Emissions Trading Scheme, the cost of meeting its Kyoto targets should be between €2.9 billion and €3.7 billion annually, less than 0.1 per cent of GDP. The cost of meeting the targets without the scheme could spiral to €6.8 billion annually.

Economic activities are based on scarcity in relation to supply and demand, so placing a limit on carbon emissions provides the price mechanism on which a carbon market can be built. Using the cap-and-trade system, the EU ETS rewards energy-efficient companies while simultaneously sanctioning companies that breach their carbon emissions quota. This encourages companies to develop processes and technologies that reduce carbon emissions, to the mutual benefit of both the economy and the environment.

Rapidly developing economies such as China and India – major sources of emissions growth – are excluded from emissions targets under the Kyoto Protocol. The Development Research Centre of China’s State Council forecasts 8 per cent GDP growth annually from 2006 to 2010. The country’s energy requirement, dominated by coal and oil, is set to keep pace with its GDP growth. “If China alone just develops on business as usual, no special environmental policies or changes, all the coal plants that it will build in the next 20 years will make it impossible to reach any of the targets to prevent the worst damage from climate change,” says Vijay Vaitheeswaran, energy and environment correspondent for The Economist in the 18 October 2005 episode of OnPoint.

The CDM provides the financial incentives for technologically advanced countries to share their emission-saving technologies with less developed countries that do not have emissions targets. The savings resulting from the technology transfer can be credited towards their own emissions targets. Mr. Vaitheeswaran adds that rich countries like the US can bear the cost of developing new technologies such as IGCC, which is a way of producing cleaner energy from coal: “We can make [these technologies] commonplace and then the Chinese and the Indians will adopt [them].”

Certainly, the US federal government, who still shuns the Kyoto Protocol, is not convinced of the viability of emissions trading. However, their agreement to participate in further talks on international cooperation on climate change signifies willingness to confront the issue as long as the economy is not harmed. Meanwhile, less suspicious state governments are jumping on board, with nine Northeastern and Mid-Atlantic states participating in the Regional Greenhouse Gas Initiative.

While environmental activists continue to pressurize governments and businesses to fulfill their moral obligations, the sound of the cash register just might convert boardroom executives into eco-warriors. Like Olaudah Equiano figured, actually.

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