Upholding the Paris Climate Agreement

Considering the events around the US presidential elections that transpired last week, many investors, governments, and community members are wondering what the implications will be on the global fight to reduce the effects of climate change. During the campaign, President elect Donald Trump has openly supported fossil fuels and doubted climate change and has stated he will withdraw US support for the Paris Climate Agreement. The uncertainty as to whether this will actually be the case has left many on edge. However the good news is that a majority of governments and society share the same common value: to uphold the Paris Climate Agreement. And together, we ask ourselves: “Now what?”

In case of doubt, carry on

On 4 November 2016, the Paris Climate Agreement was ratified – ahead of schedule – and on 7 November, the world convened in Marrakesh to discuss its implementation. We now face the task of not losing momentum. In Paris, our leaders showed their commitment to mitigating climate change, and accomplished a unique feat by signing a climate agreement that, for the first time, is supported by all countries.

Stepping up the effort

While the Paris Climate Agreement is an achievement, keeping the global temperature rise from exceeding 2 degrees Celsius requires much more than a signed agreement and international consensus. Pledged emission cuts will reduce total worldwide emissions to 53 gigatonnes of CO2 per year through 2030. In order to keep climate change limited to 2 degrees Celsius, however, emissions need to decrease to at least 42 gigatonnes of CO2 by 2030.

In 2016, McKinsey published a report that defined the economic benefits of pursuing the emission reduction goals in the Netherlands and in other countries. The key to ensuring success and economic benefit is to follow a longer-term master plan that leads to an increase in employment and a reduction in costs while capturing the benefits of economic growth. It also leads to less investment in equipment that later needs to be replaced with low-carbon or carbon neutral technologies.

Private companies are being urged by investors to make strides in achieving the Paris Climate goals. Companies, such as Siemens and Toyota Motors have accelerated their decarbonisation efforts and are preparing operations for a low-carbon economy. Representatives from these companies are asking for long-term plans from our governments, with the intention of working with the public sector.

In addition to the necessity of countering climate change, companies and investors are now also beginning to see the opportunities in economic terms that CO2 emission reduction brings through a renewable energy transition.

The pressure is on

Overall, countries that are frontrunners in carrying out the Paris Climate Agreement within the government and supporting the private sector will likely have the largest benefits. Market-based policies can help us meet environmental goals while accelerating growth of existing technologies and catalysing new approaches. The most critical approach to limiting emissions is a realistic price on carbon. A price on carbon transfers the environmental damage back to companies or industries that are responsible for the emissions, either through a tax or a cap-and-trade system.

Recently, France announced a unilateral move that it will install floor pricing on CO2 emissions, approximately EUR 30 per ton. While this is only the first step, it does send an important signal to markets to recognise the direction and trend of other governments and to anticipate further steps.

While the climate talks continue in Marrakesh and we wait for support and plans from our political leaders, we can already contribute on a more local level.
Jacco Minnaar, Triodos Investment Management

The moving train

There is no question about when the energy transition will happen; it already is. But both governments and the private sector need to do more. Individual countries do not have to wait for other countries in order to pave the way for innovation and economic growth in renewables. And companies should not wait for governments to distill climate policies, but rather commit to their own bold climate commitments.

While the climate talks continue in Marrakesh and we wait for support and plans from our political leaders, we can contribute on a more local level. Investors and shareholders can continue to put pressure on companies or continue investment in impact.

Triodos Bank and Triodos Investment Management only finance renewable energy. We have been an investor in renewable energy since 1987 and last year, according to a survey conducted by Clean Energy Pipeline, we were the largest investor in terms of number of deals, financing 57 deals representing USD 323 million in Europe. And we are just one example of the investment that’s happening in the industry.

The recent presidential election in the United States complicates the world’s efforts on climate change in that it gives rise to uncertainty. However, it does not dispel the urgency and does not stop the private sector from its commitment to the target. Investment in renewable energy technology needs to continue and since the global energy transition has left the station, the train cannot be stopped.