At COP21 in Paris, governments will be coming ready and able. With seven weeks to go before the summit begins, 149 countries, covering almost 90% of the world’s greenhouse-gas emissions, have already submitted their national climate plans to the UN. These are individual pledges spanning the next ten to 15 years that have, in most cases, been hammered out by multiple ministries, and are therefore pan-government commitments, not on-the-fly wish lists. Accordingly, they can reasonably be expected to materialise.
The pledges — which are collectively, and often individually, more impressive than many pundits expected — will send a strong signal to the world in favour of renewables. Conversely, they will be perceived by many market players as essentially the death knell for fossil fuels.
This will not be the end of the story. Paris is just the beginning of the next phase of the drama that is the human response to climate change: the end of the beginning of the carbon war. In this second phase, the endgame has already been prescribed by the G7, no less. At their summit in June, the seven leaders agreed a total retreat from fossil-fuel emissions by 2100 at the latest, and more importantly a retreat of as much as 70% by 2050, just 35 years from now. This is what the scientists monitoring global warming almost universally advise them is necessary.
The main advocates for action among the seven were the US, German, and French leaders. President Barack Obama has fixed on climate change as his legacy issue. Chancellor Angela Merkel’s concerns on the matter are of long standing. President François Hollande is desperate for Paris to be a success. It was a surprise to many that these three leaders managed to pull the laggards among the other countries along with them. Canada has long been wedded to tar sands. Japan has not reined in its feudal utilities and their incumbency addictions. And UK policy is a laughing stock of nuclearphilia, shale obsession and willingness to actively suppress clean energy to make room for the flogging of those two dying horses.
Critics of the emerging Paris agreement point out that the sum of the pledges to date amounts to global warming of 2.7°C, 0.7°C in excess of the 2°C ceiling that governments have pledged to keep global warming below. Supporters point out that 2.7°C is impressive enough, given the realpolitik, and that provided governments agree to review progress against emerging climate science, and ratchet up individual and collective targets for emissions if they need to, then there remains a reasonable chance of staying below 2°C. Collective commitment to regular reviews — essentially, an open admission that this is just the start of an orderly but rapid retreat from fossil fuels, and that current treaty language probably doesn’t match the ultimate threat of climatic meltdown — is widely expected to happen in Paris now.
Consider the policies on offer from the two biggest emitters in the world, and how they are likely to benefit renewables. China has committed to peaking its emissions by 2030 at the latest, and to obtaining 20% of all its energy from non-fossil sources by then. On his visit to Obama at the White House in September, President Xi Jinping announced a national Chinese emissions trading scheme in 2017. As though the misfortunes of coal were not bad enough at that point — Goldman Sachs having concluded, for example, that the commodity is in “terminal decline” — Xi’s announcement had a whiff of nail-in-coffin about it.
Beijing and Washington have been locked in private bilateral negotiations on climate for several years now, notwithstanding their profound disagreements in other areas of international relations. Both have strategic interests in the Paris summit being a success. China is motivated by public concern about its dire air quality, as well as an appreciation of what the science of global warming entails for economic prospects on its rich coastal plains. The US government is driven by, among other things, fear of amplified versions of the catastrophic climatic extremes the nation has experienced in recent years. Anyone who is following the California drought will understand why.
Obama does what he can, in terms of policy, while facing a doctrinaire opposition that wears institutionalised climate denial as a dysfunctional red badge of courage. In August, he imposed his most far-reaching carbon restrictions on the power sector yet: 32% cuts in emissions by 2030 via measures that encourage the bypassing of gas, favouring a direct route from coal to renewables wherever possible. Essentially, he is reversing away from the oil & gas industry’s mantra of “gas as a bridging fuel” to a low-carbon future. US drillers were furious that Obama’s plan would give solar and wind a chance to compete.
Pope Francis was in Washington DC at the same time as Xi, partly to give his support to the US president on climate change. The Pope’s interventions during 2015, as the popular leader of the world’s one billion Catholics, are likely to have a profound influence on the outcome in Paris. In a mass in May, he declared that environmental sinners would face God’s judgment for world hunger. The “powerful of the Earth” have an obligation to feed the planet’s population and protect the environment, he said. In his Papal Encyclical on climate, published in June, he went further. He ascribed global warming mostly to humanity, and called for committed action to cut emissions. “The use of highly polluting fossil fuels — especially coal, but also oil and, to a lesser degree, gas — needs to be progressively replaced without delay,” he intoned.
The Pope went further than most on what that action should entail. Rich nations need to pay back their debt to the poor, he argued. His encyclical casts blame for the ecological crisis on the “indifference of the powerful”. In many places, it reads as a critique of modern capitalism: that greed and short-termism have much to do with fossil-fuel profligacy and the current climate dilemma.
Pope Francis is “the climate change Churchill humanity desperately needs,” renowned US climate expert Joe Romm wrote. “He has just elevated [climate change] to its rightful place as the transcendent moral issue of our time.”
Some feared that going this far would allow the Pope’s message to be marginalised. A few Republicans, including presidential candidate Jeb Bush, tried to do just that. But most US Catholics seem ready to follow the Pope’s lead. “It is our marching orders for advocacy,” said Joseph Kurtz, president of the US Conference of Catholic Bishops and the Archbishop of Louisville. “It really brings about a new urgency for us.”
The first US presidential election candidate duly came out for 100% clean energy. Martin O’Malley, a Catholic who served as the Democratic governor of Maryland, announced a target of 100% by 2050, citing the encyclical. O’Malley won’t be the next president, but climate change and renewables are now clearly going to feature in the next presidential election, unlike the last. Hillary Clinton has come out against both the Keystone tar-sands pipeline and Arctic oil exploration, and tabled relatively ambitious clean-energy targets.
This leadership by the US, China and the Vatican is clearly encouraging other governments to follow suit. Brazil, the first major developing country to commit to an absolute emissions cut, targets 37% over the next decade, plus a halt to illegal deforestation in the Amazon by 2030. India has surprised many by coming to the party, with targets of tripling renewables capacity by 2022, and getting 40% of its power from non-fossil sources by 2030.
Would such policy initiatives by governments be possible unless there were helpful dynamics in the markets? Very likely not. As I have argued consistently in my columns in this magazine since 2013, two megatrends have been emerging in the markets that help climate policymakers greatly, mostly by default. The first is the general “cost-up” in incumbency industries. The second is the general “cost-down” in the insurgency industries. Let us consider the main dramas in those themes just in the past month.
In the US shale boom, a great financial drama has been brewing for months now, with drillers extracting oil and gas at a cost far above what they can sell the products for, clocking up a mountain of debt in the process. US shale drillers owe Wall Street getting on for $250bn, and most of the debt is junk-rated. Credit-line reviews by banks in October mean that the oil & gas industry “is expected to finally face a financial reckoning”, the Wall Street Journal has reported, “with carnage occurring as early as this month”.
It is not just shale oil that is uneconomic: $1.5trn of potential oil investment globally is “out of the money”, energy consultancy Wood Mackenzie estimated in a new report, echoing earlier work by Carbon Tracker.
As though to underscore the argument, Shell abandoned Arctic drilling at the end of September, having wasted $7bn of shareholders’ money. And as I write this, the US government has blocked future sales of Arctic oil exploration leases.
As for coal, producer BHP Billiton warned that miners are losing the battle for investor and public support. “It would be fair to say that as we stand here, in the court of public opinion, the ‘no coal’ camp has been more effective,” a spokesman said.
He missed the point. It’s not just the “no” camp, it’s the economics. Goldman Sachs concluded that coal will never again gain enough traction to lift it out of its slump.
Investors continue to divest from fossil fuels, citing either the climate imperative or the ethical one, or both. Funds worth $2.6trn have now pledged to dump coal shares. The value of funds pledging to shift away from coal, oil or gas has increased fiftyfold over the past year. A sample of just 7% of the investors involved suggests that between them their funds have sold or promised to sell about $6bn worth of fossil-fuel investments.
On 29 September came possibly the biggest torpedo yet for the fossil-fuel incumbency. Bank of England governor Mark Carney told the BBC that climate change is the biggest issue for the future, and asserted that investors must be given the data on potentially stranded fossil-fuel assets so that they can “invest accordingly”. He didn’t have to spell out the corollary.
This past month another factor in the drama has fallen into sharp focus: corporate malfeasance. The Volkswagen scandal, in which the German carmaker was caught cheating emissions tests on a massive scale, has created ripples that are likely to be long-lived and far-reaching. The US Environmental Protection Agency reported that the firm had been fitting nearly half a million VW and Audi vehicles with devices designed to bypass environmental standards.
Despite this setback for the business world generally, a recent report shows that of the top 100 companies in the world, 52 are supporting the Paris process. Forty-eight are not, and many of these actively trying to slow or sink progress. On the scorecard used, BP tops this list of corporate saboteurs of climate action. It is interesting to contemplate how such backward brands will fare, post-Paris, post-Volkswagen.
The second emerging megatrend is one all readers of this magazine know about. In the past month, wind and solar have boosted their cost-competitiveness further compared to fossil fuels. A Bloomberg New Energy Finance levelised-cost-of-energy analysis for the second half of 2015 shows onshore wind fully competitive in some countries, and solar closing the gap fast. “Wind and solar keep getting cheaper and cheaper,” The Washington Post announced in a headline. This was duly tweeted by the US president himself.
Obama must be in danger of suspecting his push for a legacy is going to work. “With [the] market on their side,” the normally conservative Wall Street Journal announced, “US utilities are embracing Obama’s power plant restrictions. Electricity producers say they plan to comply rather than contest the regulation.”
In the aftermath of Paris, this critical development, in one corner of the global battleground, may be a pointer to a more general trend, across all theatres of the carbon war.