Paris Climate Deal Will Drive Changes in the Global Energy Sector
The global move towards a low-carbon world is affirmed as the Paris Climate Conference in December 2015 reached a deal to tackle climate change and reduce carbon emissions. This will result in major changes in the global energy sector, with demands for renewable energy rising and consumption of fossil fuels being curbed. Businesses involved in green power and energy efficiency will benefit from this trend, whereas developing countries face huge challenges in achieving their emissions targets.
Global CO2 Emissions from the Consumption and Flaring of Fossil Fuels: 2000-2014
Source: Euromonitor International from Energy Information Administration of the US Government, International Energy Annual
- After two weeks of negotiations, the Paris Climate Change Conference ended on December 12th , 2015 with a landmark agreement between 196 nations. Among other pledges, the countries committed to curb their carbon emissions and agreed to hold the increase in the global average temperature to well below 2.0o C above pre-industrial levels. The agreement will come into effect by 2020. While not all aspects of the Paris deal, including the emission targets of individual countries, will be legally binding, it affirms the global political will to move towards a low-carbon world;
- Climate change has been a major threat to the planet as it results in melting sea ice, rises in sea levels and extreme weather conditions, thus having a drastic effect on countries around the world. The global carbon dioxide (CO2) emissions from the consumption and flaring of fossil fuels – the major contributor to global warming – increased by 44.3% between 2000 and 2014 to reach 34.6 billion tonnes by the end of the period. Developing and emerging countries were responsible for 64.2% of the global CO2 emissions in 2014, sharply up from 47.3% in 2000.
- The Paris agreement is expected to drive major transformations of the energy, transportation and other sectors in the coming years. Businesses involved in renewable energy (eg solar and wind power) and energy efficiency (eg efficient lighting and home insulation) will see expanding markets, as countries aim to reduce their carbon emissions. In China, the share of electricity produced by wind-powered generation already increased from 0.7% of total electricity production in 2009 to 2.7% in 2014. The demand for more renewable energy and cleaner technologies will benefit technological innovative economies such as the USA and Japan;
- Meanwhile, producers of fossil fuels which emit high levels of CO2 will face growing pressures from shrinking markets. Countries dependent on hydrocarbon revenues such as Russia and Saudi Arabia, which have already suffered from cheap oil prices, will have to cope with lower external demand. Yet fossil fuels remain the major energy source in the world so far, accounting for 67.0% of the global electricity production in 2014;
Electricity Production by Energy Sources in Selected Major Countries: 2014
Source: Euromonitor International from International Energy Association (IEA)
- Consumers will not likely feel the immediate impacts of the Paris climate deal. There will be a growing supply of energy-efficient products including electronics, vehicles and homes. The expansion of the renewable energy sector will create more jobs, while workers in the oil and coal industry may face a higher risk of being laid off;
- Developing countries will face more challenges than advanced nations in achieving their emission reduction targets, given the lack of technological and financial resources. Among the world’s top ten polluters in 2014, five were from the developing world including China and India, the world’s largest and third-largest polluters respectively. The Paris agreement pledges US$100 billion in climate financial aid a year to developing countries by 2020. Meanwhile, the United Nations estimates that about US$1.0 trillion will be needed a year for investments in low-carbon solutions globally.
- The Paris climate deal will accelerate investments in green power in the coming years, while major oil and gas and traditional energy companies will have to refocus their business strategies to cope with changes in the global energy sector;
- Advanced economies are already on track to gradually shift to a lower-carbon economy, but huge efforts will be required for developing countries to reduce their CO2 emissions. Ahead of the Paris climate conference, in June 2015, China already pledged to cut its greenhouse gas emissions per unit of GDP by 60.0%-65.0% by 2030 from 2005 levels. Similarly, India aims to reduce its emissions intensity by 33.0%-35.0% by 2030 from 2005 levels, and achieve 40.0% of its electricity production from non-fossil fuel energy sources. Coal consumption still accounted for 66.0% and 56.5% of primary energy consumption in the two countries in 2014 respectively. In order to curb its coal consumption, China plans to launch a national carbon market by 2017.