Blog: The Paris Climate Change Agreement – a major threat and opportunity for business

When I worked as a division director in the United Nations Environment Program (UNEP), Kofi Annan visited our headquarter in Nairobi from time to time. In one of his last visits before he stepped down as Secretary General, Kofi regretted that the UN had not been able to produce a climate policy in line with the advice from their own scientists.  Since then the gap between what scientists recommend and current policy has continued to widen throughout the whole period of his successor Ban ki-Moon.  But this year we finally reached a global agreement that if fully implemented will save the world from the most dangerous Climate Changes. The Paris Climate Agreement entered into force on November 4 2016. It’s aim is to keep the global temperature rise this century well below 2°C above pre-industrial levels, and to pursue efforts to limit the increase even further to 1.5 °C.  The challenge, however of achieving these goals cannot be underestimated. The figure below show emissions from 1850 up to now, and the reductions pattern needed to give us a 50% chance of not exceeding 2°C. The curve to achieve 1.5 °C.  would be even steeper.

 

Stranded assets – the end of fossil fuel business

The most dramatic consequence of the agreement is its impact on fossil energy business. If we want to limit global warming to 2 °C with a fair probability, the proven coal and oil and gas reserves of fossil-fuel companies are five times higher than the carbon budget we have left to burn.

If the big oil and coal companies to avoid wrecking the climate cannot pump out their reserves, the value of their companies would plummet.  John Fullerton, a former managing director at JP Morgan calculated in 2012 that the market value of proven global fossil reserves was about $27 trillion. These assets are physically in the ground but financially already accounted for in the asset books. So if we pay attention to the scientists and keep a minimum of two-thirds underground, oil and coal companies need to write off more than $20 trillion in assets. If we burn it all, the planet will crater.  It looks like we can have a healthy balance sheet in big oil and coal, or a relatively healthy planet – but we cannot have both.

Even if a majority of big oil and coal companies do not agree in the scenario above and fight the conclusions, more and more investors require a stranded asset risk assessment from the fossil industry, and a growing number is divesting from their coal and oil portfolio.  The value of investment funds committed to selling off fossil fuel assets has at the end of 2016  jumped to $5.2tn, doubling in just over a year.

The figure below show how many years we have left with current (2016) Green House Gas emissions if global warming should be limited to 1,5°C, 2,0°C and 3°C given various chances to reach the goal. Start year 2017.  In only four years we will pass the point where there is a 50% chance to limit the warming to 1,5°C.

Source Klima&Energi.

The green shift – a tremendous business opportunity

To reach the climate goals set in the Paris Agreement, we need to reach a zero emission world by 2050. The good news is that the private sector now has the technology and cost efficiency needed to provide the low emission goods and services needed to achieve this.  In 2016 we have seen that electric cars has taken a growing marked share, and that cost of generating electricity from solar and wind now is on par or below that of coal, oil and natural gas. The bad news is that the speed of the shift from fossil to renewable energy is still way behind what is needed to reach global climate goals.  One of the reasons is that subsidizing of fossil energy is four times higher than for new renewable energy. Even if the green business sector is competitive, the marked alone will not solve the climate problem.  Only bold politicians that produce the climate policy needed will bring us where we need to go. Obviously renewable energy must be so much cheaper than fossil that the green shift accelerates with sufficient speed. Today it is literally free to pollute the atmosphere with Green House Gases. With use of the “polluter pays” principle and using incentives for the growth of green businesses we might still be able to reach the goals.  This will trigger millions of new green jobs.

IRENA, the International Renewable Energy Agency,  predicts there will be 24 million jobs in clean energy by 2030 from 8,1 million in 2015, driven in large measure by efforts to meet carbon reduction targets agreed in Paris.

Credit: IRENA

The next 5-10 years will show us if the world is strong enough to follow the path outlined in the Paris agreement or surrender for short sighted profit making that will jeopardize  the life of our grandchildren.

A Climate Challenge to the Cruise Industry

Implementation of the Paris agreement will also have an impact on the cruise industry. Cruise liners that so far has taken no measures to reduce their CO2 footprint emit almost twice as much CO2 per passenger as a long-haul flight. The cruise marked is expected to expand in the years to come, and business as usual with respect to CO2 emissions is not sustainable.

Expected shipping regulations to come to reduce emissions combined with increasing passenger awareness and wishes to travel environmentally friendly, represents a growing challenge.  If the world is going to fulfil the goals set in the Paris agreement, and global warming is to be limited to less than 2°C, front runners in the green shift within the cruise industry will be the future marked winners.

 

 

 

 

 


Share this article
Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedIn

Leave a Reply

Your email address will not be published. Required fields are marked *