Rallying cry in Paris to avoid environmental catastrophe
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Among the thousands of delegates heading to Paris to finalise a new global climate change accord, there will be hundreds of business executives from almost every type of industry.
There is a simple reason. In theory, the outcome of the two-week UN talks in Paris that start on November 30 could affect the way companies fuel cars, heat buildings, power factories and make steel and cement.
That is because the main objective of the talks is an agreement among the world’s governments to collectively clamp down on carbon dioxide emissions from burning the fossil fuels used for these activities today.
For this to happen, however, there will need to be a big shift in the $90tn of investment expected over the next 15 years in infrastructure for the world’s energy systems, cities and agricultural sectors.
In other words, investors will need to be persuaded that governments are going to make it easier for them to make money from a new electric bus system or a wind farm rather than a highway or a coal power plant.
“The reason business executives will be in Paris is that the whole purpose of the agreement is to boost clean infrastructure investment,” says Jonathan Grant, a climate policy specialist at PwC, the consultancy. “A successful deal in Paris will shape business decisions over the next 15 years and touch on all sectors of the economy, not just the energy system.”
Such an outcome is by no means assured at the Paris meeting, known as COP 21.
Nearly 200 countries will be represented in Paris, which may yet turn out to be a repeat of the last time governments tried to strike a new global climate deal, in Copenhagen in 2009.
That effort failed but if COP 21 succeeds, few sectors will be more affected than the oil, gas and coal industries.
Burning these fuels to supply energy accounted for 47 per cent of the increase in annual greenhouse gas emissions, mostly carbon dioxide, between 2000 and 2010. That is why so many climate change policies focus on alternatives to fossil fuel energy, such as wind farms, biofuels and wood chip heaters.
It is also the reason a fossil fuel divestment movement has emerged over the past two years, and why the governor of the Bank of England, Mark Carney, has warned investors face “potentially huge” losses if governments take tougher climate action that “strands” fossil fuel assets.
Against this background, the lead-up to the Paris talks has been notable for the number of oil and gas companies that have publicly backed the need to tackle climate change. In May, the chief executives of six of Europe’s largest groups, including Royal Dutch Shell and BP, called for a global carbon pricing framework. They joined others including Saudi Aramco in October to back a successful deal in Paris. “That’s very, very new,” says Christiana Figueres, the UN’s top climate change official. “We didn’t have that in Copenhagen.”
“It is unprecedented,” says Helge Lund, chief executive of the UK’s BG Group and former chief executive of Norway’s Statoil, both of which took part in the two initiatives. The challenge posed by climate change means “there’s a very clear realisation in that group that we can’t communicate ourselves out of this”, he says. “I think we have to perform ourselves out of this.”
That means the industry has to take steps such as becoming more energy efficient and reducing the routine flaring of gas from its operations.
But oil and gas use is not about to go away, Mr Lund adds, arguing the best way to bring down global emissions would be to quickly replace coal with natural gas in the world’s power plants, because burning coal produces far more carbon dioxide than natural gas. On the eve of the Paris talks, the UK unveiled plans to phase out coal power by 2025. The move coincided with OECD countries reaching an agreement to scale back the billions of dollars in support for coal power plants delivered by their export credit agencies. But coal still accounts for 41 per cent of electricity generation globally today while renewables and gas each produce 22 per cent.
The coal sector’s answer to the challenge of climate change is making its power plants cleaner, with highly efficient power station technology and carbon capture and storage systems.
Carbon capture technology in particular has proved too expensive to become widespread so far, even though governments around the world have committed more than $24bn to funding it over the past 14 years.
Much of the growth in coal demand will come from India, the world’s third-largest emitter after China and the US.
Ahead of the COP 21 meeting, India has joined more than 160 other countries that have spelt out plans to reduce or curb their emissions as part of an eventual Paris agreement.
New Delhi’s plan includes measures to reduce its carbon intensity, or the amount of carbon pollution per unit of gross domestic product, and boost its use of solar power. But the proposal also envisages more of the coal-fired power plants that make up about 61 per cent of its installed generating capacity.
Spending $1bn on the most efficient types of coal plants in India could reduce more carbon pollution than spending the same amount on renewables in Europe, according to a report last week from the World Coal Association.
But renewable energy proponents say building dozens more coal plants, with an expected lifespan of decades, risks committing to in far too many carbon emissions in the future than is safe for the climate.
“It’s absolutely striking that India is the most vocal proponent of almost unlimited coal build,” says Michael Liebreich, founder of the Bloomberg New Energy Finance research group.
“What we see is India hewing to a path which is very old school,” he says, adding the Indian government’s rhetoric on the climate negotiations has been “probably the least helpful of the major participants in the run-up to Paris”.
There is no shortage of analysis on the global benefits of lowering emissions in the main industry sectors that power economies in developing and developed countries alike.
One influential study published ahead of the Paris meeting, The New Climate Economy report, estimates that the bulk of cuts in emissions cuts needed to curb global warming could be achieved directly by ensuring these activities produce a lot fewer greenhouse gases.
Michael Jacobs, the leading author of the report, says that the Paris accord will ideally create a virtuous circle, where businesses and investors come to expect governments to cut emissions, which leads to growth in the global market for low carbon goods and services, which in turn encourages more investment and lowers costs.
“As costs fall, that would enable countries to cut their emissions further than they currently believe they can,” he says. “The story of solar power over the last decade, in which policy has driven demand, which has driven costs down further, is a telling lesson in the way markets can be transformed.”
Whether the Paris accord will further accelerate global clean energy investment — now at more than $300bn a year — remains to be seen. The 160-plus pledges published so far are not going to be enough to reduce risky levels of global warming, the UN says. But many renewable energy companies are already pleased with what they say are the unprecedented insights they offer.
“They are mini business plans,” says Assaad Razzouk, chief executive of Sindicatum Sustainable Resources, a Singapore-based developer and operator of clean energy projects. “Weak and general at first, they will become stronger and more detailed over time,” he says, making it easier for companies like his to know where the big investment opportunities lie.
Mr Lund was inadvertently referred to as Ms Lund on second mention on original publication of this article