Paris Agreement signals real progress
The most significant progress to date occurred at the December 2015 meeting of the parties to the United Nations Framework Convention on Climate Change, referred to as the Conference of the Parties. At “COP 21” in Paris, an agreement to limit global warming to 2° Celsius from pre-industrial levels was reached. The agreement was ratified the following year when countries representing 55% of global greenhouse gas emissions signed on, including, importantly, the United States and China. Under the agreement, all 197 countries must submit and report on carbon emission targets, and developed nations agreed to supply $100 billion to fund projects in developing countries. However, each country sets its own target, and there is no guarantee that the carbon emissions targets set will be sufficient to meet the 2°C target. Further, some believe that even if the target can be reached, it is insufficient to reverse the impacts and consequences from the damage that has already been done.
The recent U.S. presidential election has brought some uncertainty around the country’s commitment to reach the 2°C target, at least at the federal level. However, these goals are necessarily long-term in nature, and even if the U.S. wavers in its obligation over the next few years, progress is expected to continue globally. Also, even within the U.S., many states and cities continue to adopt new requirements for businesses and market participants to achieve climate-related goals. These will further highlight the need for additional green financing initiatives, including green bonds.
Progress of the Paris Agreement
The multinational plan to limit global warming, known as the Paris Agreement, seems to be progressing well. A total of 195 nations joined hands to agree to limit global warming to less than 2.0° Celsius (3.6º Fahrenheit) above pre-industrial levels. As of September 2016, 31 countries have officially signed the deal. Fifty-five nations, representing at least 55.0% of global emissions, need to sign up in order for the agreement to be implemented.
The agreement is expected to be in effect by 2020. It proposes to lessen greenhouse gas emissions by the second half of the century.
Trump’s new executive order to reverse climate-change policies
Although the United States was part of the Paris Agreement during the Obama administration, participation could be doubtful under the Trump administration. President Donald Trump has repeatedly said he’s going to reverse most of the existing climate change policies. On March 28, 2017, he signed an executive order directing the EPA (United States Environmental Protection Agency) to review the Clean Power Plan, which targets a 32.0% reduction in greenhouse gas emissions by 2030 compared to 2005.
The utilities (XLU) (FXU) (VPU) sector is expected to benefit from this executive order. No orders have been signed yet to withdraw the country’s commitment to the Paris Agreement. But questions are certainly being raised about the possibility.
Let’s see next what economic costs could come with changing climate goals.