Yet some financiers are pushing ahead despite the problems. Take South Africa's Nedbank, the country's fourth largest bank. On Dec. 15, Nedbank Capital, its investment bank subsidiary, announced its first forestry-based carbon project in Kenya. The deal -- a link-up with San Francisco-based Wildlife Works -- will create 2.5 million carbon credits by 2026, which Nedbank will sell in the global voluntary market (mostly to Western and South African companies). Nedbank's head of carbon, Kevin Whitfield, reckons 20% to 30% of the project's credits have been sold so far. The Kenyan tree-preservation scheme falls under the UN-backed Reduced Emissions from Deforestation and Degradation, or REDD, program that aims to create financial incentives to protect forests, particularly in the developing world.

Some in the financial markets, though, remain skeptical, saying there's a lack of transparency and REDD could hurt other carbon credits. "The inclusion of forestry projects in emission trading systems runs the risk of devaluing other emissions credits," says Louis Redshaw, head of environmental markets at investment bank Barclays Capital.

Despite the skeptics, Nedbank's Whitfield says the bank has another five REDD projects slated across Africa. They include deals in Uganda, Ivory Coast, Cameroon, Congo, and Gabon, which will total roughly 1 million hectares of forest. He declined to give detail on the specific timeframe for the projects' completion.

"We also shared the skepticism [over forestry projects], says Whitfield, whose team spent over nine months interviewing the community in Kenya in preparation for the deal. "We chased down cattlemen in the middle of the night as part of our due diligence," he says. "There's an appetite for African credits."

If Nedbank is so keen, what has kept others from investing in Africa's nascent carbon markets? A major issue is risk. That includes everything from political unrest to fears carbon projects won't be completed. To overcome the problem, Whitfield reckons knowledge of the local markets is paramount. "We've got people on the ground, so we're better placed than most. We're biased towards Africa, we wouldn't look to invest in North Dakota because we don't know that market," he adds.

Now, Africa could gain billions of dollars of investment as policymakers begin to question whether Western cash should fund carbon projects in emerging economy giants. Adding to Africa's potential windfall: green-energy funds promised at the Copenhagen climate change conference are starting to flow. For sure, the continent will likely remain a bit player in the carbon markets in the short-term. But a combination of growing interest from financial institutions and the availability of Western-backed climate change funds could increase Africa's profile in the fight against global warming.

As the Prunerov power plant near the Czech-German border produces 40 times more carbon dioxide each year than all of Micronesia combined, the Pacific islanders may have a point. And under international treaties, European countries must consider the global impact of their infrastructure when carrying out plant environmental impact assessments. In an interview with Reuters, Andrew Yatilman, director of Micronesia's Office of Environment and Emergency Management, says the country will wait to hear whether Czech officials green-light the power plant's refit before taking further legal action.

In part, Micronesia's saber-rattling stems from the muted outcome at the Copenhagen climate change conference in December, 2009. While no one came away from the summit happy, island nations were particularly angry that they're goals, such as keeping temperatures from rising more than 2 degrees Celsius (3.6 degrees Fahrenheit) above pre-industrial levels, were largely ignored. The legal confrontation in the Czech Republic could well turn out to be a PR stunt to keep their cause alive.

That doesn't mean more legal challenges to polluting infrastructure in the West (and possibly in large emerging giants) may now be in the works. One thing's for sure. Utilities looking to make billions of dollars in investment will be keeping a close eye on Micronesia's legal battle in central Europe.

In part, the brinkmanship is a negotiating tactic used by all involved to get a deal done. With the likes of U.S. President Barack Obama and his Chinese counterpart Hu Jintao speaking at the summit over the next two days, there's a lot of political capital at stake. And negotiators reckon the combined political weight of all the global leaders attending could push through a deal, no matter how watered-down.

"The next 24 hours are absolutely critical and need to be used productively," Yvo de Boer, the UN's chief negotiator said late on Dec. 16. "Everyone wants to see ambitious reduction cuts by developed countries."

The push for the West to take on significant CO2 cuts is just one of the sticking points. Many developed countries, particularly the U.S., don't want to sign up to binding reductions without large emerging economies (read: China and India) doing something similar.

Another problem is carbon finance. Developing countries want billions of dollars from the West for everything from renewables to deforestation projects. There has been movement on the issue, including a pledge from the U.S to participate in a $100 billion funding project by 2020 if a climate change agreement is found, but many in the developing world want more.

Finally, governments still haven't agreed who will control the money being doled out, let alone who should monitor whether countries are meeting their CO2 reduction commitments. Among delegates in Copenhagen, it's referred to as 'transparency.' For you and me, that means policymakers haven't figured out who controls the purse strings of potentially billions of dollars of climate change funds. Until that questioned is answered, negotiations will remain in the deep freeze.

With protestors staking out the climate talks and politicians continuing to point fingers at each other, one issue isn't getting much play in Copenhagen—yet it could make or break a deal to tackle global warming. Simply put, trade is becoming a central sticking point at the Copenhagen talks.

That may not sound immediately relevant as negotiators look to bring carbon emissions under control. But trade (and trade barriers) are a key hurdle policymakers must cross if they want to hammer out a deal before the summit closes in 48 hours.

The implications for business are significant. Western countries and emerging countries still haven't agreed on who should make binding commitments to cut carbon emissions, and how much aid the developing world should get to offset the impact of global warming. Equally important, governments haven't decided how the mechanisms should work, and whether domestic governments will have the power to control the carbon funds allocated to them.

The connection with trade? An emerging economy could dole out carbon mitigation funds provided to it by foreign governments in a way that favored local companies over international rivals. Such favoritism could lead to trade disputes.

"Companies want to make sure there are no tariff or trade barriers incorporated into a [climate change] deal," says Peter Lacy, sustainability group lead for Europe, Africa, and Latin America at consultancy Accenture (ACN). "If that happens, the money at stake moves from the billions into the trillions."

Indeed, environmental targets are quickly becoming a tense trade issue between the U.S. and China. Both are pushing 'built-on-our-turf' clauses into their carbon reduction plans, which prioritize domestic firms (or, at least, foreign-own plants on national soil) over international rivals. The idea is to create green jobs...and no one wants to lose out on the multi-billion dollar global plans to tackle climate change.

Democratic Senator John Kerry, speaking at the summit on Dec. 16, said the carbon reduction legislation working its way through Congress would create U.S. jobs. But he warned U.S. politicians "fear that U.S. will take steps [to cut emissions] that be eclipsed by emissions from less developed countries."

Still, Rhone Resch, chief executive of the Solar Energy Industries Association, a U.S. trade group, reckons green jobs are moving fluidly between countries. He points to the U.S. solar industry, which has lost jobs in older manufacturing plants (mostly to cheaper Chinese competitors), but has added just as many in new technologies. In Toledo, Ohio, he says, there are now 6,000 people employed in the solar industry vs. 3,000 in the state's coal sector.

"What we need from the [climate change] treaty is a stable global price signal for carbon," he says. "That would help us fund new technologies."

Greater certainty on how much it would cost companies to pollute certainly would help execs make long-term investment decisions. But the business community also needs to know whether a deal from Copenhagen could lead to trade disputes. Over the next 48 hours, that question must be answered.

Snow was thick on the ground in Copenhagen on Dec. 16, but that didn't put off thousands of protestors who tried to force their way in the climate change negotiations. With colorful posters and anti-global warming chants, they had started off early from the Danish capital's city center. But near the Bella Center, where delegates from 192 countries have gathered to hammer out a climate change deal, police in riot gear blocked their path.

At least 200 activists were arrested, while many others were turned away. "They're trying to stop our legitimate protest," says Linda, a 23-year-old student who had left her house just after dawn to join the march. "World leaders must hear our voice."

Despite the protestors' failure to breach the Bella Center's security, many inside the Copenhagen summit share their fears over the stumbling climate change talks. The main issues—binding carbon reduction targets for developed countries, possible CO2 cuts in emerging economies like China and India, and development aid for the poorest countries—remain unsolved. And as global leaders start to arrive in Copenhagen, it's unclear whether policymakers can agree before the summit closes on Dec. 18.

That's the buzz making the rounds inside the Bella Center, and it mirrors fears dating back months that global leaders would fail to reach a compromise. With negotiations expected to head well into the night until the summit closes, delegates are holing out hope that a non-binding framework will make it through before Dec. 18. Others suggest negotiations will be suspended, only to be picked up in the new year. The West blames emerging economies, and vice versa. Non-governmental organizations and other civil society groups say it's both sides' fault.

That frustration explains why so many took the streets in Copenhagen on Dec. 16: Everyone wants a deal, but nobody knows how it will be achieved. As temperatures head below zero in the Danish capital, the heat remains squarely on politicians to push through a climate change compromise.

Until now, there’s been more drama and bickering than substantive progress. The African nations and others temporarily blocked the talks, claiming that the Kyoto Protocol process was being neglected. There also have been rumors of a secret text that will be sprung on the countries (firmly denied by the president of the COP15 meeting Connie Hedegaard). And the United States, the European Union, and China have all taken turns sniping at each other, each saying that their own promised carbon emission reduction policies are good, but that the others need to step up and do more.

Swedish environment minister and EU spokesman Andreas Carlgren said at an afternoon press conference, for example, that “we expect both the U.S. and China to raise their targets for emissions reductions. Otherwise, we won’t reach the two degree target”--keeping the planet from warming more than two degrees Centigrade. U.S. negotiator Todd Stern shot back at his own subsequent press conference, saying that by almost every measure, the U.S. emissions reduction targets are “equal or higher than many of our developed country partners.”

In short, it’s been the usual negotiating rhetoric. “Bickering is completely normal at this stage,” says COP15 president Hedegaard. Adds Rasmussen: “Countries blaming each other and pushing each other is not so bad.”

But now the stakes suddenly get higher. Time is running out, with only three days left, and the heads of state don’t want to go home empty-handed. “Now people must compromise,” says Hedegaard. The negotiators are expected to produce an updated version of two key texts by early afternoon on Wednesday, ready for the higher-level discussions that will begin when the heads of state arrive. One text updates the Kyoto Protocol; the other lays out a different approach, dubbed the LCA track (for Long-term Co-operative Action.)

Can it all come together? It will be tough, with negotiators working much of the night. Some stayed until 4 AM on Tuesday morning. But Danish Prime Minister Rasmussen remains confident. “We can do this by Friday,” he says.

A Dec. 15 report from consultants Point Carbon puts the debate into some context. According to the research, three out of 10 registered projects under the Clean Development Mechanism (which allows Western companies to offset their CO2 output through funding eco-friendly programs in emerging economies) never generate carbon credits.

What exactly does that mean? Well, roughly one-third of projects that are registered with the U.N. for approval (such as the recent Chinese projects that were eventually rejected) never get the green-light. That's a little surprising, says Point Carbon's manager of CDM analysis Arne Aik, because investors figure almost all projects will eventually be rubber-stamped.

Another surprise is which projects don't make the grade. Point Carbon's Aik says where a CDM scheme is based isn't the major factor on getting approval. Renewables projects in China vs. Indonesia, for instance, have the same likelihood (71%) of getting the green-light. The one exception is Brazil, which has an approval rating of 55%. For CDM energy efficiency projects, the same theory applies: most emerging countries' programs have a 70% 'survival rate.'

So which projects have the worst approval stats? The Point Carbon report says registered landfill and other waste projects (those, for example, that siphon off methane gas) have a 55% chance of not creating carbon credits. Why? Because most don't have sufficient monitoring in place to assuage U.N. fears that the projects don't curb greenhouse gases.

Some background: For years, environmental groups and other supporters of action on climate have been pushing the idea of cap and trade. Governments would set limits on greenhouse gas emissions (the cap). Companies then would have to have a permit, or allowance, for each ton of their emissions. The overall number of permits would be limited, with the cap declining over time, so that emissions would be reduced.

A company could reduce its own emissions, cutting back the number of permits it needs. Or it could buy permits from those who have made emissions reductions (the trading part)—or who have been granted more permits to start with.

Now, a small version of this cap and trade is playing out at the climate talks. More than 45,000 people have applied to attend the conference, three times more than the official capacity of the venue. As a result, starting on Tuesday, Dec. 15, the United Nations is imposing caps on the number of people allowed in, granting a limited number of permits to each NGO delegation. Some delegations are getting permits for less than half of their members—and they’re not happy about it. Some are making trades with others to get more of their people in.

When the heads of state arrive later in the week, the caps will be lowered, restricting entrance to only a small percentage of those registered to attend. Not surprisingly, groups that have travelled from around the world to attend the talks are upset about being shut out—especially when the decisions made by UN staff about how many people allowed in from each delegation seem arbitrary. If this is how a cap and trade emissions reduction system might work, then it’s easier to understand how people can be upset by it, says the head of one NGO delegation.

And for much of the day, the talks themselves were frozen. African countries led a walkout from the talks, blocking the negotiations. The ostensible reason: They feared that the developed world was on track to kill the Kyoto Protocol, rather than working to extend the 1997 treaty. There is a grain of truth in the accusation. Since the U.S. never ratified the Kyoto Protocol (which didn’t include commitments from developing nations), the whole point of the Copenhagen talks is to come up with a new treaty. Negotiators dub the new effort the LCA track (for Long-term Co-operative Action).

The industrial countries insist they aren’t trying to ditch Kyoto. “We are prepared to discuss all issues, including all issues under the Kyoto Protocol,” says Andreas Carlgren, Sweden’s environment minister and the European Union’s environment spokesman.

But the underlying animosity runs deep. Just listen to Pablo Solón, Bolivia’s ambassador to the United Nations. The developed world has created the climate problem, stuffing the atmosphere with carbon dioxide and other greenhouse gases, he says. Now, the developing countries need to be able to emit their share. “We, the developing countries, need space in the atmosphere for our development,” he says. “The developed countries have occupied this space that we need to eradicate poverty.”

And if the industrial world doesn’t let the poor countries grow their economies with fossil fuel, well then, they need to pay up. “We’re already spending money on adapting to climate change that we should be using for education,” says Solón. The offer that’s come up for a transfer of funds from the developed world to developing countries—billions of dollars per year—is “nothing” compared to earnings on Wall Street, he says.

The walk-out was enormously frustrating to the negotiators from the industrial countries. Leinen calls it a “theater game.” Adds Carlgren: “I’m eager to reach an agreement. But the best way to able to cut a deal is to discuss all measures on which we disagree.” Blocking the discussions “is the worst way” to proceed.

By the end of the day, however, the “theater game” was over. The negotiators found a way to bring the developing countries back to the table, agreeing to talk on both the Kyoto and the LCA tracks.

Certainly, no previous negotiations have been like this one. It seemed like the crowds at the last big talks—in Bali in 2007—were huge. But there were only about 10,000 people there. More than 42,000 people have registered to attend the Copenhagen talks—so many that badges will be rationed by Tuesday this week, leaving many unable to actually enter the Bella conference center where the negotiations are taking place. And never before have so many leaders of the world’s nations planned to attend—120 are expected to be in Copenhagen by the last days of the Dec. 7-18 meeting. “That’s putting enormous pressure on the negotiators to wrap up before the heads of state get here,” says Elliot Diringer, vice president for international strategies at the Pew Center on Global Climate Change.

De Boer feels that pressure. “It’s easy to be awed by the number of world leaders,” he said. “But I argue we should not be distracted by the lights.” The meeting needs to bring more than a political commitment to tackling climate change, he added. It most also develop an architecture for moving forward with a legally binding treaty. “It is really important that this conference delivers,” de Boer said.

Will it happen? Wished good luck as he left the reception, de Boer said: “Thanks, I’ll need it.”

On Saturday, Dec. 12, Locke toured the technology expo, dubbed Bright Green, that accompanies the meeting. He asked EOS Climate, a South San Francisco company that destroys potent global warming gases (CFCs) from old refrigerators to earn emission reduction credits, how many jobs they have created in the U.S. (Answer: lots.) He marveled at pictures of receding glaciers in the Himalayas. He gave an impromptu speech at the GE Ecomagination booth, hefted a prototype lithium ion car battery with Johnson Controls execs, and praised the overseas Commerce Department staff for helping U.S. companies boost exports. “Fifty eight percent of U.S. companies that export, export to only one country,” Locke told them. “Our top priority is to get them to export to two countries. That could double their volume.”

After the tour, Locke sat down for a quick interview with Business Week:

Q: What are you learning here in Copenhagen?

Locke: I’ve been struck by the great enthusiasm by the business leaders—top CEOs in Europe--for aggressive actions against climate change. My meetings with U.S. companies have also been very impressive. A whole cross section of industry supports strong U.S. legislation.

Q: But don’t we keep hearing from opponents, like the National Association of Manufacturers, the U.S. Chamber of Commerce, and the GOP leadership, that climate legislation or regulations would be economy-killers that are bad for business?

Locke: I think there has been a shift even at the Chamber of Commerce. When you have the heads of major oil companies saying they support a new energy policy, that is a shift. More and more, I’m hearing from CEOs of small and medium sized companies who want action. They want the US to do something . From a business perspective, they want certainty. They want an energy policy and cannot make investments until they know what the rules are.

We are also seeing a shift in the U.S. Congress, that’s coming because of the voices of business leaders. They see how serious the threat of climate change is to the quality of life, and to their business, and now they see the business opportunities in addressing it.

Q: You seem to be unusual in the Administration in talking about the threats from global warming. Usually, the talk is just about the potential for green jobs and jumpstarting the economy. Are you going off-message?

Locke: “Business can’t survive if subjected to floods or droughts.”

In fact, so many people have registered for the conference (34,000, according to the UN) that some may be shut out next week. Some groups have been told that, starting Monday, December 14th, secondary passes may be issued—to as few as 30% of the current registrants. Only those with the new passes will be able to attend. And rumors are beginning to circulate that the numbers will be cut yet again later in the week, when U.S. President Barack Obama and other heads of state are scheduled to arrive. As a result, some observers from companies and non-profit groups are planning to leave earlier than they had scheduled.

More substantively, long-time observers of the climate change negotiating process say that the outcome of this conference is more uncertain than it ever was during past events. “I’ve been to ten or twelve of these,” says Harper. “I almost always know what would come out in the end. But this time, I have no idea what’s going to come out.” The real news probably won’t happen until close to the December 18th end of the conference.

Locke is leading a delegation of U.S. companies, including GE, in Copenhagen, hoping to ensure that American business snares a big share of those opportunities. But he worries that the U.S. in danger of falling behind. American researchers invented solar panels, but now the leading manufacturer of solar panels is China. “Three years from now, we will wake up and ask how Brazil or Singapore, or others became the Silicon Valley of green energy,” Locke frets.

The problem? U.S. companies are hampered by the lack of a clear energy and climate policy at home, Locke says. Countries like Germany and Spain have nurtured strong home-grown renewable industries through such policies as feed-in tariffs, in which utilities must pay a premium for electricity from renewable sources. Meanwhile, China has invested heavily in technologies like solar and wind. In the U.S., companies are still waiting for similar incentives, such as a national policy requiring a certain percentage of renewable power, or limits on carbon that raise the price of using fossil fuels and make renewables and energy efficiency steps more cost competitive. “I’ve heard from so many companies and investors that they are sitting on the sidelines until the rules are clear,” says Locke. “The longer we wait the further other countries will move ahead. That’s why it’s so important for Congress to pass energy legislation as quickly as possible.”

"The U.S. commitment to specific, mid-term emission cut targets and China's commitment to specific action on energy efficiency can unlock two of the last doors to a comprehensive agreement," said Yvo de Boer, secretary general of the United Nations Framework Convention on Climate Change.

But can a tiny nation really be a global cleantech leader? Absolutely. There are several reasons to believe that Israeli cleantech is here to stay.

First, human capital. "Israel has one of the world's highest concentrations of scientists and engineers. It is similar to Boston and San Francisco. Within a fifty mile drive, you've got a half dozen of the world's top research universities, " said Jonathan Shapira, a business lawyer at Goodwin Procter and the founder of the Boston-Israel Cleantech Alliance.

Second, natural resources and lack thereof. Israel has plenty of sun, which enables it to serve as a laboratory for solar innovation. It lacks water and oil, which provides a strong and persistent incentive for the country to be a world leader in desalination and wean itself off fossil fuels.

Third, a unique entrepreneurial culture. From a young age, Israelis are direct and outspoken. Later in life, their frankness allows for vibrant debate that helps startups rethink their assumptions and retool their plans. This is an essential and underappreciated trait for new firms as they undergo substantial change from idea to commercialization. During mandatory military service, Israelis develop valuable teamwork and problem-solving skills, particularly under duress. Most importantly, they learn to take risks and to proceed with confidence. “A technology venture is three guys starting a company and going to war against… GE, Siemens or Dow Chemical, the big players who are going to dominate cleantech in 20 years," said David Anthony of cleantech venture firm 21 Ventures. “The Israeli entrepreneur is used to this metaphorical David vs. Goliath.”

Fourth, geopolitics, at least as long as the United States government and market as a critical source of capital and demand for cleantech.

Put simply, America and American investors view Israel as a more reliable ally and an easier country in which to do business than China. "It is key that we not have 'made by OPEC' substituted with 'made in China.'. We need a strategy where [cleantech] is made in the USA and Israel," said Markey. Toward that end, Markey will next year take to Israel the members of the House Select Committee on Global Warming.

Guest blogger Yoni Cohen is focusing on green business as a joint-degree student at the Yale Law School and the Wharton School of the University of Pennsylvania.