Authors
Mark Lewis, Lydia Rainforth & James Stettler
The stakes at the Paris Conference of the Parties (COP-21) to the UNFCCC are high: the ultimate objective is to arrive at a credible path towards limiting greenhouse-gas emissions that will enable the world to restrict the increase in the average global temperature to no more than 2°C above pre-industrial levels – a goal the UNFCCC member states signed up to at COP-16 in Mexico in 2010.
From the plans so far submitted, it is clear that COP-21 will not itself be able to deliver a 2°C path. As a result, a successful outcome would in our view be one that: (i) gives credible backing to the deliverability of the national emissions plans; and (ii) gives hope for a subsequent tightening of these plans such that the prospect of a 2°C deal at a later date remains alive beyond Paris via a credible periodic review process.
The IEA estimates that under an energy-and-climate policy framework consistent with a 2°C trajectory, investment in low-carbon energy sources and energy efficiency out to 2040 would be $14trn higher than under its base-case scenario; by contrast, required investments in fossil-fuel energy sources would be $6.4trn lower, as would the prices for, and volumes of, fossil fuels sold. On our calculations, the IEA data imply that the fossil-fuel industry would stand to lose $34trn in revenues over 2014-2040 under a 2°C policy scenario, with the oil industry accounting for $22.4trn of this, gas for $5.5trn, and coal for $5.8trn.
From an investor standpoint, we think a strong outcome at COP-21 would boost the long-term fundamentals of the capital-goods and low-carbon power-generation sectors while weakening the long-term fundamentals of fossil-fuel industries. At the same time, such an outcome would in our view also boost both financial regulators’ interest in climate risk and growing investor initiatives around portfolio de-carbonisation.