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The Road to Paris – Part Two

With the Paris Climate Change Summit (COP21) now underway, decisive action looks closer than ever. In the final preceding weeks leading to the conference, there has been a major shift in mind sets and rhetoric.

Action on climate change is no longer viewed as an aspiration; governments have recognised that they must act, and they must act quickly. This move towards ‘walking the walk’ on climate change is perhaps best exemplified by the 150 nations applauded by Europe’s climate change chief, Miguel Arias Canete recently for making  positive progress towards a global deal on CO2.

This is significant progress, strongly implying that the fight against climate change is no longer an elusive ‘hope’, or a fight simply for ‘tree huggers’ or climate change activists amongst us. Rather, politicians, businesses and the investor community are throwing their hats into the ‘ring’ to help work towards a global deal that can ultimately help create a cleaner planet.

In the UK, action is underway to address the nation’s status as Europe’s third-biggest coal polluter and to meet the EU 2020 targets on renewable energy. As part of this on going effort to reduce the UK’s carbon emissions and move to a cleaner, low carbon economy, Amber Rudd MP recently made a bold call to action – the last coal plant in the UK must close by 2025

Rudd called on the government to refrain from funding ageing, carbon-intensive legacy energy infrastructure in favour of investment in alternative energy sources. With just five years to comply with the EU’s targets and a decade to prepare for a shortfall in energy production brought about by the closure of coal-fired power plants, it’s clear that the Government must take decisive action to readdress the UK’s energy mix, with investment in renewable energy sources, a logical choice. However, to secure the large scale investment needed in the private sector, steps must be taken to make this more attractive.

Furthermore, ‘peer pressure’ also has a role to play. With several high-profile political figures pledging that the UK should move away from the most carbon-intensive of fossil fuels – the institutional investor community cannot help but listen up. Many economists are taking Rudd’s pledges one step further, with leading economist Thomas Piketty calling for investors to move their money from fossil fuels, as public wellbeing is at risk from continued investment in coal, oil and gas.

Aside from appealing to the ‘heart’, Piketty’s argument holds up financially as well. Reallocating capital into climate change solutions such as solar parks or onshore wind farms delivers inflation-linked, stable returns. As Shell recently discovered from its Artic drilling ventures, you may drill for oil but you won’t always find it. On the other hand, renewable energy is based on proven technologies that generate electricity all year round. There are tangible financial returns to be had here.

Reaching a global deal on climate change at COP21 is imperative. Businesses, investors and governments from all nation states must learn from one another, and work together to create a positive and stable investment climate for those looking to make long-term and large-scale investments in renewable energy production. By agreeing a global plan at COP21, we can address climate change while securing, clean and reliable energy production for the future.