The path of decarbonisation

Source: Fotolia

After all the analyses I have made in my previous posts, it is clear that climate change imposes great impacts on global economic stability and political secureness. Estimations given in Stern Review on the Economics of Climate Change suggests failure to slow down impacts of climate change will result in an overall costs comparable to losing at least 5% of global GDP each year, greater risks and impacts may push the estimates even higher to 20% of GDP or more. This makes global effort to reduce impacts of climate change immensely crucial and imminent. Unlike previous UN Climate Conferences which attempted to resolve the problem through incremental change, the COP 21 has assured a serious transformation that is “good enough to tip the world decisively towards rapid decarbonisation” (Johan Rockström, 2015).

The Paris Agreement 2015, agreed by all participating 195 countries, sets the goal of keeping global warming well-below 2°C compared to pre-industrial levels by cutting greenhouse gas emissions though all kinds of decarbonisation methods. Additionally, the agreement recognises the importance of adaptation and resilience capabilities of societies to the changing climates, as damages were done and reversing the current climate condition is simply impossible. While these capabilities can be enhanced through provision of implementation resources such as access to clean energy technologies and financing, the effectiveness of the proposal is highly depended on how it is implemented and enforced at the national level (Helgesom and Ellis, 2015).

Despite the historic climate accord, the effectiveness of the “ambitious and balanced” agreement is still questionable.

1. Ratification from high-emission nations
   The Agreement will only become legally obligatory when the high-emission nations including the US and China, which contribute over 55% world’s greenhouse gas emissions, have ratified the Agreement. 
2. The “nationally determined contribution” lacks enforcement mechanism
   The bottom-up approach of the agreement allows countries to set their own goal to reduce greenhouse gas emissions. These goals are voluntary and vary significant depending the country’s reliance on the carbon economy. Not surprisingly, you will not be punished or sanctioned if the targets set are not met. 
3. The equity issues
   It is not fair to those nations, which have contribute almost nothing to climate change yet suffering from irreplaceable environmental damages and economic losses, to reduce that tiny bit of greenhouse gas emission. Although the agreement urges the at least $100 billion financial assistance annually to developing countries, there is doubt on the activeness of developed countries in helping other nations, considering their own internal economic and environmental affairs aroused by the determination to reduce GHG emissions. 

There is still optimism in this agreement though. In a classical economic perspective, high oil price helps accelerate decarbonisation as it increases costs and reduce efficiency. Yet the current persisted low oil price seems to be more effective in redirecting the world economy from fossil fuels to cleaner energy sources. 

WYI crude oil price in past 1 year. 

Source: Nasdaq market data

Brent crude oil price in past 1 year. 

Source: Nasdaq market data

The ambition of the agreement in accelerating decarbonisation has given a clear signal to world economy that the global political leadership is entering a new sustainable epoch. This should encourages more investments and business confidence in new energy and sustainable technology researches and developments. 

Increasing trend in global investment in renewable energy. 

Source: UNEP, Bloomberg New Energy Finance

Profit-maximising energy companies will also see an urgent need to reorient their business plan to renewable energy systems as profits from conventional fossil fuels are becoming economically unsustainable and politically inconsistent. We shall expect a global shift towards low-carbon economy in the coming years.