3 Ways Paris Climate Agreement Will Expand Global Investment in Clean Energy
By Christopher N. Fox
On Dec. 12, 2015, the world’s governments agreed to a universal, legally-binding agreement that sets out ambitious goals to tackle climate change, including:
- Holding the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit temperature increase to no more than 1.5°C
- Reducing net greenhouse gas emissions to zero in the second half of this century
While there are many challenges ahead to achieving these objectives, the Paris agreement provides a critical shot in the arm for clean energy investment globally. As UN Secretary-General Ban Ki-moon noted at the end of the climate talks, “Markets now have the clear signal they need to unleash the full force of human ingenuity and scale up investments that will generate low emissions and resilient growth.”
Three outcomes of the Paris climate talks are particularly significant to expanding global investment in clean energy:
First, 187 nations, representing 98 percent of the world’s greenhouse gas emissions, have now submitted national climate commitments. Actualizing these commitments and limiting warming to below 2 degrees Celsius will create a multi-trillion dollar clean energy investment opportunity; the International Energy Agency has estimated the figure at $16.5 trillion. Over the next several years, governments will take steps to translate their national climate commitments into specific policies that will catalyze the necessary investments. For example, the U.S. Environment Protection Agency’s (EPA) Clean Power Plan, vehicle efficiency standards, and tax credits for wind and solar that were extended last month are all key measures that will help accelerate the shift to clean energy.
It’s important to keep in mind that the national commitments submitted in Paris create a floor, not a ceiling: the agreement includes a one-way ratchet, with nations required to update and elevate their climate commitments every five years.
Second, the Paris agreement calls for “finance flows consistent with a pathway towards low greenhouse gas emissions and climate resilient development.” Specifically, governments have agreed to mobilize at least $100 billion in public and private finance for clean energy and climate resilience projects from 2020 to 2025 and agreed to go beyond this level after 2025. (See this helpful World Resources Institute summary for more details). Deployment of these funds help leverage more opportunities for private clean energy and climate financing.
Third, the Paris climate talks recognize that national government actions need to be buttressed by bold private sector action. In advance and during the climate talks, hundreds of global investors, businesses and capital market actors made new announcements on climate change and clean energy. Three examples:
Bill Gates and other business icons announced the Breakthrough Energy Coalition to accelerate and expand R&D investment aimed at scaling up clean energy.
The Financial Stability Board announced it was establishing an industry-led disclosure task force on climate-related financial risks under the chairmanship of Michael Bloomberg. The Task Force on Climate-related Financial Disclosures is charged with developing voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to lenders, insurers, investors and other stakeholders.
New York State Comptroller Tom DiNapoli announced an additional $1.5 billion commitment to sustainable investments and the launch of a new $2 billion low-carbon index fund in coordination with Goldman Sachs. (See summary of other COP21-Paris Finance Day announcements here).
Reaction to the Paris agreement has also been strongly positive. “The ambitious agreement contains many of the market signals that investors have been calling for and what investors need to accelerate the transition to a thriving, clean energy economy,” Anne Stausboll, CEO of CalPERS, the nation’s largest public pension fund, said.
Michael Liebreich of Bloomberg New Energy Finance put it even more bluntly: “Paris is the world’s economy serving divorce papers” to the fossil fuel industry. “Which sensible businessperson or investor can ignore the clear signal?” Good question!
My Ceres colleagues and I welcome your thoughts and questions on Ceres’ Clean Trillion campaign. Please feel free to connect with me at email@example.com or on twitter @ChristopherNFox and follow Clean Trillion on twitter @CleanTrillion.
This blog originally appeared on EcoWatch.