COP21 – The effects of the Paris Agreement

The key points of the Paris Agreement are as follows:

• The agreement will attempt to cut greenhouse gas emissions to a level that will limit the global average temperature to a rise “well below” 2°C
• The new Paris Agreement effectively mirrors the UK’s own 2008 Climate Change Act, setting a long term target, with five-year review periods that ensure policies are kept steadily on track.
• The first assessment of progress will be in 2018.
• The immediate next step is the signature of the Paris Agreement, which will open on the 22 April 2016.
• Energy and climate policy is advised to be reviewed and strengthened this year following the release of the fifth carbon budget, which will be legislated by June 2016.
• Nothing has been suggested as to what and when exact plans/actions will be implemented.
• In 2016, the key focus will be on the UK government putting forward a very clear plan as to how it intends to meet the fourth and the fifth carbon budget in a way that is timely and cost effective.
• The focus of business and governments must now shift from advocacy and cheerleading to implementation, whether that involves true funding of new product innovation or rolling out localised plans for sustainable development.
• Emissions reduction will be achieved through a combination of policy and regulatory measures that will impact on business practices and investment into the future.

What the government is doing to secure investment in clean secure energy (DECC, March 2016):

• Reforming the Capacity Market, which sends a clear signal to investors that will encourage the secure and clean energy sources we need to come forward, such as gas and interconnectors, as part of the long-term plan to build a system of energy infrastructure fit for the 21st century.
• Allocated £295 million to invest in energy efficiency measures in schools, hospitals and other local public services.
• Introduced a new energy efficiency supplier obligation for 5 years from April 2017 set at £640 million a year – helping more than 1 million homes to cut carbon emissions and keep their bills low.
• Committed to more than double the support we give to households and businesses to decarbonise their heating supply in this Parliament (from £430 million to £1.15 billion).
• Allocated over £300 million to deliver up to 200 heat networks in communities, leveraging up to £2 billion in private investment.
• Announced a 50% increase in the UK climate finance commitment to a total of £5.8 billion over the next five years to help the poorest countries cut carbon emissions and adapt to climate change.

Potential impacts across the economic spectrum:

• GHG accounting and reporting will become mandatory for all major industries
• Pricing on carbon emissions will drive up the profitability and value of low-carbon, efficient assets and negatively impact high-carbon, less efficient assets.
• Grid electricity will decarbonise in many regions of the world, at different rates in different countries, helping electricity users to lower their emissions, albeit at a cost.
• The transport sector will come under increasing focus, driving efficiency improvements and the prospect of major technological shifts.
• The cost of carbon in value chains will become increasingly material, creating opportunities for low-carbon innovation across product and service chains in many sectors of the economy.
• The market for innovative, energy-efficient products and services will be stimulated.
• As carbon pricing and other forms of climate change regulation take hold, the financial sector increasingly will need to manage the carbon risk and opportunity associated with the companies and projects in which it invests and to which it lends.

Our comment

This is agreement is still in its infancy and the Government will finalise their response and implementation strategy once the agreement is signed at the end of April 2016. We will update the progress of implementation and how it affects our clients as more information is clarified, however, expect more “polluter pays” legislation with a focus on the cost of compliance implementation transferred to the private sector rather than through direct government investment.