“Never have the stakes been so high because this is about the future of the planet, the future of life” notes French President Francois Hollande with respect to the 21st Session of the Conference of the Parties (COP 21). Representatives from more than 190 nations are currently gathered in Paris to discuss a possible new global agreement on climate change, aimed at reducing greenhouse gas emissions. Global emissions have steadily increased over the past 15 years, but according to a study, published in the journal Nature Climate Change and presented at COP 21, global emissions from fossil-based fuels and industry are likely to have fallen 0.6 percent in 2015, even as the world’s economy has grown. The representatives attending the conference hope to capitalize on this opportunity and continue the work to reduce emissions.

The U.S. Energy Market is Following the COP 21 Talks Closely

The stakes have also never been higher for the U.S. energy market. The outcome of the climate talks may guide which types of energy projects are able to raise capital in a more carbon conscious economy.  Even before the talks began, energy market participants were provided signals on the future U.S. energy policy. In a pre-conference bi-lateral agreement with China, President Obama promised the world that the U.S. would cut its own emissions by at least 26 percent by 2025.  To achieve this pledge, the U.S. Environmental Protection Agency (U.S. EPA) recently promulgated the Clean Power Plan, a rule that incentivizes states to retire traditional coal-fired sources and high carbon polluting sources, and to replace them with natural-gas plants and renewables. The Clean Power Plan aims to reduce emissions from power plants by an estimated 32 percent below 2005 levels by 2030.

If the COP 21 talks are successful and a global agreement with definable goals is created, there will be much work to be done and substantial investment to be made. In fact, the International Energy Agency (IEA) estimated in a “World Energy Outlook, Special Briefing for COP 21” that $13.5 trillion worth of investment between now and 2030 would be needed to meet the likely goals agreed upon at the conference. Hundreds of billions of dollars have been committed from business and governments alike to finance clean energy innovations and carbon mitigation, and significant clean energy lending targets have been established by the largest U.S. multinational banks. This influx of capital represents a significant opportunity for the development of low- and zero- emitting energy sources in the U.S. and globally.

 President Obama’s Vision of the Future U.S. Energy Policy has its Critics

President Obama’s plan to reduce emissions is not without its hurdles.  The politics behind the COP 21 negotiations will focus on whether national pledges to reduce carbon emissions will be binding and what countries will sign up for an enforceable commitment. While France has pushed for a climate treaty, President Obama and other U.S. representatives have sought to maneuver the talks away from the creation of a treaty that will be subject to the consent of the Republican-controlled Senate, where approval would be difficult.  In a symbolic move in anticipation of the COP 21, two Senate resolutions were passed in late November that would effectively quash the efficacy of the Clean Power Plan. The resolutions would prevent the U.S. EPA from placing emissions limits on existing power plants and would also block the carbon rule for newly built power plants.

Additionally, the Clean Power Plan is under fire as West Virginia and 23 other states filed a federal lawsuit that claims that the U.S. EPA created an unprecedented regulatory scheme without legal backing. State of West Virginia, et al. v. U.S. Environmental Protection Agency, et al., 15-1363 (Consolidated) (D.C. Cir 2015). Opponents of the rule have asked the U.S. Court of Appeals for the District of Columbia to delay implementation of the Plan until the case has been resolved, which would effectively prevent states from developing compliance plans that meet the emission target goals. Moreover, those betting on solar to help meet the Plan goals are doing so as the main incentive for the renewable resource, the Investment Tax Credit, is set to step down from 30 percent to 10 percent for commercial systems in 2017.

The U.S. is at a crossroads – which direction will the country’s energy future go? Will the results of the COP 21 shed light as to how the U.S. will proceed or will the uncertainty surrounding the Clean Power Plan and several energy policies continue to distort the signals?  Only time will tell.