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Climate Change: A Tipping Point in Paris

December 18, 2015
My expectations weren’t high as I headed toward Paris earlier this month for the United Nations Conference on Climate Change in Paris (COP21). Frankly, I’d been jaded by the lack of progress on climate change over the last 20 years.

But my mood turned optimistic even before the conference culminated Dec. 12 with the historic Paris Accord, committing countries to limit emissions of greenhouse gases and keep atmospheric warming under 2 degrees Celsius. What I found when I got to Paris was a new enthusiasm and commitment—by investors, companies, civil society, and heads of state—to steer away from fossil fuels.

At hundreds of side events and press conferences, more than 11,000 cities, provinces, large companies, and countries introduced new and current actions to reduce emissions. Meanwhile, more than 400 investors and pension funds announced plans to divest from fossil fuels and/or pledged billions for addressing climate change.

The excitement was clear and infectious! Even without a formal U.N. agreement, investors are taking real action to help cities and countries transition to a low-emissions economy. I'm now much more optimistic about our ability to avoid the most damaging aspects of climate change. Besides the Paris Accord itself, here are key reasons why:

  • Financial institutions are starting to divest from the 200 largest fossil fuel companies. The NGO community has prioritized its aim to keep 80 percent of fossil fuel reserves in the ground. Helping their case is the fact that non-fossil fuel companies have outperformed fossil fuel companies over the last 10 years. Earlier in 2015, several large investors and pension funds announced they will divest from coal and/or all fossil fuels, and many more announced similar initiatives during COP21. In Paris, I heard a lot of discussion about the “tipping point” toward disassociation from fossil fuels and large emitters. And I heard this from representatives of very large investment firms, banks, and pension funds, not just environmentalists.
  • Climate finance is mobilizing fast. Investors, multi-lateral development banks, and pension funds have created numerous private funds for investing in both mitigation and adaptation. The Breakthrough Energy Coalition announced by Bill Gates and 27 other investors during COP21 is one of the biggest, but others are aligning with climate change goals, such as the Global Investors Coalition for Climate Change, which manages $24 trillion in assets.
  • Large businesses recognize climate change risk and see economic opportunities in a low carbon economy. Multiple businesses showcased clean technologies at COP21 and at several high-level private sector events around Paris. Hundreds of CEOs were in Paris to actively lobby for an agreement that introduces a price on carbon. The business community wants a long-term signal to facilitate investment and so actively urged negotiators to come to an agreement. Unlike previous COPs, business groups opposing a deal were absent.
  • Increased focus on removing fossil fuel subsidies. Almost 40 countries have signed a communiqué promising to phase out billions supporting fossil fuels. In Paris, side events on subsidy reform were packed. So far, 11 countries have committed to addressing fossil fuel subsidies in their Intended Nationally Determined Contributions.
  • Switching from coal to renewables. In Paris, EPA administrator Gina McCarthy said,“coal is no longer marketable,” while negotiators circulated pictures of smog-cloaked Beijing under its first air pollution red alert. Meanwhile, a huge push to invest in renewables to meet new capacity is quickly reducing the price of these technologies. The World Resources Institute estimates that COP21 renewable energy pledges by the eight biggest emitters—Brazil, China, the EU, India, Indonesia, Japan, Mexico and the US—will double overall capacity by 2030. An October 2015 report by the International Renewable Energy Agency shows renewables are now often the cheapest source of new capacity in the power sector, even without financial support.

Together, these trends will shift enormous resources toward clean energy and climate-resilient infrastructure. The International Energy Agency estimates COP21 pledges will lead to $13.5 trillion in energy-saving and other low-carbon investments over the next 15 years.

These shifts indicate an immediate need to build the capacity of developed and developing countries to identify and scale bankable projects, including via investment mechanisms that attract multi-lateral funds and private finance. Abt Associates is tackling this topic through a monthly discussion series hosted by USAID’s Climate Economic Analysis for Development, Investment, and Resilience (CEADIR) project. Developing countries also need systems to manage and track funds, such as Abt’s CarbonCounts™, a web-based tool that helps governments, cities, and organizations manage climate change actions and programs.

Measuring the effectiveness of existing climate investments will inform the design of new programs and partnerships. Such information will be critical as countries examine ways to strengthen Paris Accord commitments, and investors identify cost-effective projects that generate lasting change.
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