Paris Agreement: Essential summary and implications

Here is a distillation of the essential points of the agreement and what is likely to happen next.

Key Points of the Agreement (full text here):

  •  Agreement to keep global average temperatures  "well below" 2°C above  preindustrial levels and pursue efforts to limit the temperature increase  to 1.5°C
  •  Non-binding,  depending on countries’ own “nationally determined contributions” which were  submitted prior to the Paris summit and which result in a global annual  emissions total of 55GtCO2e – which is estimated will result in a  global temperature rise of 2.7°C.
  • So beyond the national plans, which themselves  require significant cuts beyond current programmes, additional reductions are still required to achieve 2°C (considered  to require a global annual emissions of 40GtCO2e).
  • Developed nations will set up a $100B p.a. fund providing "climate  finance" to help poorer countries to adapt to climate change and reduce  emissions.
  • “Encourages” the voluntary cancellation of units issued under the Kyoto Protocol, including certified  emission reductions that are valid for the second commitment period towards  eliminating the accumulated surplus of credits, which would delay action.

Why it is significant

The Paris COP (and its lead-up) saw significant support for action to  address GHG emissions from many sectors of society including business,  investors, the church (e.g. the Pope’s second encyclical) and of course all 200  governments at the negotiation. 

We believe that underlying the Paris summit is a maturing of global  thought to a position of acceptance and the development of a rational plan to  tackle the problem. We have seen a progression consistent with Elizabeth Kubler-Ross’s model of the stages of change[1]:  denial, anger, bargaining, depression and acceptance. 

The drive for a 1.5°C goal represents refreshed resolve to tackle the  issue. 

Support for the idea that the world is getting on with solving the  problem can be found, for example, in Goldman Sachs’ report, “The Low Carbon  Economy”, which begins with the paragraph:

We explore the low carbon economy, now a  growing, $600 bn+ pa revenue opportunity.

Between 2015 and 2020, solar PV and onshore  wind will add more to global energy supply than US shale oil production did between  2010 and 2015. By 2020, six in ten lightbulbs will be LEDs; and our analysts expect carmakers  to sell 25 million hybrid & electric vehicles by 2025, 10x more than today. We estimate that  these technologies will save >5 Gt of CO2 emissions per annum by 2025 and could help  global emissions to peak earlier than expected around 2020, with ripple effects  felt across our global coverage.

Significantly, this was published on 30 November 2015, before  the Paris summit. 

Most importantly the Paris Agreement provides a clear signal for  investors, companies, governments and civil society that the transition to a  low carbon economy is inevitable. For investors, this will have a marked impact  on the value of many assets (including fossil fuel assets and low carbon  technologies). For companies, it provides confidence to invest in emission  reduction projects that have been on hold through the economic downturn and  policy uncertainty of the past few years.

For the last decade many have been calling for carbon signals that are  “long, loud and legal”. The Paris Agreement meets these criteria.

Can it be done?

Technically we can get most of the way there right now – and  economically. There are outstanding opportunities within:

1. Energy Efficiency

Energy efficiency  is the elephant in the room. The Next  Manufacturing Revolution study, co-authored by the University of  Cambridge’s Institute for Manufacturing, Lavery/Pennell and 2degrees proved the massive  untapped potential of energy efficiency. For example, Toyota’s European  manufacturing operations have reduced energy use per vehicle by over 75% with  limited capital expense and they acknowledge that they have substantial further  savings to make. New approaches to energy efficiency are emerging to provide  the necessary skills and encouragement for companies to find their own savings,  such as Rype Guides.

 2. Supply chain efficiency

We are at the dawn  of a new collaborative age where companies are working with their suppliers  (and their suppliers’ suppliers) to reduce their GHG emissions (and thereby costs)  for the benefit of all. You can see examples at how to  collaborate for sustainable innovation.

 3. Circular economy

Remanufacturing  re-conditions long life components removed from used items (like steel frames),  combining them with new components to create as-new products that look and  perform just like new. The long life components have the greatest cost and  environmental footprint, so remanufacturing them creates GHG savings for the  whole product of over 80%[2].  The photocopier industry (including Kyocera, Ricoh, Xerox and Fuji) has  remanufactured their machines for years (you probably have one in your own  office). And new circular economy business like Rype Office (which remanufactures office  furniture) are beginning to disrupt their sectors with lower cost, lower GHG,  and generally more sustainable products.

4. Sharing economy

Sharing cars,  taxis, homes, equipment, office space and all manner of products is reducing  our GHG emissions (and costs), sometimes through avoiding the need to  manufacture as many assets, at other times reducing the fuel used, and  sometimes both (e.g. in the case of car pooling).

5. Deforestation/Reforestation

 The large number  of forest schemes that were developed in the early days of carbon trading is  testament to the low cost opportunities for avoiding deforestation, and separately,  reforestation that exist. 

6. Renewable energy

Unlike most of the  above opportunities which both reduce emissions and save money, the public’s  general perception is that renewables require subsidies which push up  electricity prices. There are a number of counterpoints worth noting:

  • Any price premium “can be recouped through  energy efficiency”, as Baroness Worthington eloquently noted in answer to this  concern on television news in the aftermath of the Paris Accord.
  • Several forms of renewable energy are already  cost-competitive with grid electricity including on-shore wind, solar in sunny  locations, and run-of-the-river hydro. And costs continue to rapidly decrease  thanks to the scale effect. 
  • The International  Energy Agency’s latest estimates indicate that fossil-fuel consumption  subsidies worldwide amounted to $548 billion in 2013, four times greater than  the subsidies to renewable energy.

7. Nuclear

 Has to be included  in the solution set, however must be carefully considered regarding:

  • The safety of nuclear, related to the  creation of highly toxic waste materials that  last for tens of thousands of years.
  • The cost. Building a nuclear electricity plant  is very expensive, Those considering nuclear should not rely on the cost  estimates from nuclear power plant providers but instead look at the actual  construction costs of the most recent plants, and then add a premium for post  Fukushima safety precautions. The levelised cost of the electricity produced is  breathtakingly high.

Acting on these opportunities takes confidence, investment and  leadership. Confidence and investment have been discussed above.

Leadership is already being displayed (e.g. politicians at the summit;  business leaders like Paul Polman). But much more is required. 

To achieve their stated aims, our politicians must now:

  • Collaborate with industry to raise awareness of  and support the solutions listed above
  • Dismantle perverse subsidies which generate  emissions in the face of powerful vested interests
  • Bring the community with them to address NIMBYism

This will not be easy, nor is it impossible – it is the next step that  must be taken to reduce GHG emissions.

Convincing the non-believers

Whilst the sustainability community recognises the science of climate change, many individuals do not. Hence it is important to stress the other benefits of addressing greenhouse  gas emissions, including:

  • Many actions save money (see opportunities 1  through 4 above)
  • Emissions have a number of impacts beyond global  warming including health dangers, as seen in the air pollution in recent months  in several Chinese cities
  • It is an insurance policy. If climate scientists  are correct and sea level occurs as a result of unabated GHG emissions,  displaced refugees from low-lying Bangladesh (with a population of 157M) and  other affected countries would create tensions orders of magnitude higher than the current Syrian refugee crisis (population 23M). 

What comes next?

The draft agreement is scheduled for ratification by countries in April  2016.

In the meantime governments are now revisiting their current plans to  hit their nationally determined contributions, looking for further  opportunities towards limiting temperatures to 2°C and beyond that to 1.5°C.

Investors will rebalance their portfolios.

Companies will be driving change within their own operations and their supply chains because:

  • They will save money
  • Their competitors will be doing it. Carbon  neutrality is being hotly pursued by many and already achieved by a number  including Google (since 2007) and Interface’s European manufacturing operations  (since 2014).
  • There is now substantially reduced risk of acting  to reduced GHG emissions, especially since government initiatives recognise  early action.

 

ABOUT THE AUTHORS

Greg Lavery and Nick Pennell are Directors of Lavery/Pennell, which helps companies with  Rapid Sustainable Innovation and develops profitable sustainable solutions. They  have identified billions of dollars of value for some of the world’s leading  companies both through revenue growth and cost reduction from resource  efficiency opportunities.


[1] Kubler-Ross, E., Kessler, D. “On Grief and Grieving: Finding the Meaning of  Grief Through the Five Stages of Loss” Simon and Schuster, 2014.      

[2] Sources: Giuntini, R., Gaudette, K. Remanufacturing: The next great opportunity  for boosting US productivity, Business Horizons, Nov-Dec 2003, p. 44.; Advanced  Remanufacturing and Technology Centre, Singapore.