With just 6 weeks before the start of the twenty-first session of the Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change (UNFCCC) in Paris on 30 November 2015, anticipation is growing around the potential for an agreement to reduce greenhouse gas (GHG) emissions and to prevent average global temperatures rising above 2 degrees Celsius; an opportunity for a historic achievement. In readiness for the Paris negotiations on 14th October, the EU Parliament announced its approach.
The UNFCCC and the Kyoto Protocol
Established in 1992 the UNFCCC provided a platform for the Parties to consider how they could limit average global temperature increases. This was followed by the Kyoto Protocol, being a separate international agreement adopted 18 years ago which attempted to bind developed countries to emission reduction targets. The Protocol was not universal in application and was not ratified by the USA. The Protocol’s first commitment period started in 2008 and ended in 2012. The second commitment period began on 1 January 2013 and will end in 2020.
The road to Paris
For a number of years there has been limited progress towards reaching a global (or at least near global) agreement on GHG reduction. In advance of Paris positive announcements have been made on proactively tackling climate change, achieving GHG reductions and concluding an ambitious agreement. This included a joint announcement by the USA and China on 12 November 2014. For months, plans have been submitted and draft texts discussed. The latest draft text of the agreement under discussion was circulated on 5 October 2015. It is a much reduced and potentially more navigable negotiating text than earlier formats, which were much longer and produced in a more difficult format.
Central to the basis of a potential agreement is the concept of nationally determined reduction commitments which the parties are to identify in advance of COP 21. This has been likened to a “bottom up” approach from the nations. There have been a great many commitments tabled to date which is encouraging, albeit many commentators make a point that when the current commitments are added together the total will not achieve the level of reduction necessary to keep temperature rise below a 2 degree increase.
This month EU environment ministers formally agreed to cut GHG emissions by at least 40% by 2030 when compared with 1990 levels. On 14 October 2015 the European Parliament adopted a resolution (2015/2112(INI)) (the “Resolution”) noting they are “extremely concerned that the world is far from being on track to limit global warming to below 2 °C above pre-industrial levels” and calling on “governments to take, without delay, binding and concrete measures against climate change and towards an ambitious and legally binding global agreement in Paris 2015 in order to meet this target”; aiming at phasing out global carbon emissions by 2050 or shortly thereafter “so as to keep the world on a cost-effective emission trajectory compatible with the below 2 °C target”.
Requirements and Opportunities
As identified by the European Parliament, increased deployment of clean energy technologies is dependent on a strong innovation capacity and stimulating innovation in both technologies and business models. The Resolution stresses that technology will require clear policy signals, including reducing market and regulatory barriers and well-targeted expenditure. In a subsequent article we will comment on these aspects, including financing, in more depth.
At a time when within the UK and internationally there is uncertainty for investors in low carbon technologies and politically conflicting messages, as noted by Al Gore and CBI Director General John Cridland at a recent climate leadership event run by the CBI and Green Alliance, the call for support at EU level is helpful signalling. The recognition of carbon as a significant risk and an integral part of financial investment planning has been acknowledged by the Bank of England and other organisations for some time. The negotiations in Paris will be followed very closely. It is an opportunity for political leaders to provide a vibrant sign of exactly how much and in what ways they expect the world’s governments and economies to tackle the risk.
Over the next few weeks we will comment in separate articles on the major constituent parts intended to be included in the negotiations of the Paris agreement. If agreement is reached in Paris, we intend to follow this with a series of articles on the likely strategic, commercial and financial impacts of the agreement.