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Post Paris Signals: The Race to Incentivize Low Carbon

Post Paris Signals: The Race to Incentivize Low Carbon

The race for clean energy is heating up. Renewables accounted for almost half of the world’s new power generation capacity in 2014. But if the world is to meet its climate goals and stay under the 2-degree warming limit, this push for global decarbonization will need to intensify in the coming years.

Much is resting on the Paris Agreement as a key enabler to scaling up international efforts. The UK’s special representative on climate change, Sir David King, believes the historic roadmap will create a massive market pull – not just for renewables, but for other key innovations such as energy storage, smart grids and interconnectivity.

Speaking at a post-COP21 panel discussion hosted by the Grantham Institute, he said: “190 nations each producing a surge in demand and that demand being met by the private sector – that to me is the first and most important outcome of Paris.”

Sir King predicts that the global market for low carbon energy will be worth $2-3 trillion annually by 2020. In the UK alone, it represents one of the fastest growing sectors, generating £45.3 billion turnover in 2014.

Maintaining this momentum depends on several factors, including strong policy, competitive price points and reducing the cost of supply, particularly for breakthrough technologies. For investors like EBRD’s Josué Tanaka, carbon pricing is a must-have. “Unless carbon starts having a price, or at least you start reducing the level of subsidies for fossil fuel, the whole incentive framework is wrong.”

While Paris generated some much-needed mobilization with vehicles such as the Intended Nationally Determined Contributions (INDCs), these tools aren’t enough to deliver the scale of ambition required on their own. Some, like Tanaka, believe INDCs need to evolve from statements of intent to concrete frameworks for action and investment.

How businesses re-frame themselves will also be critical. Unilever’s chief sustainability officer, Jeff Seabright, sees INDCs as a “good down payment” but says that greater collaboration is needed within the business community.

By working in a pre-competitive fashion, companies can not only make markets work faster and accelerate new solutions, but help reduce risk for the wider political agenda. Seabright feels that transformational agendas need to happen in a number of sectors, including energy efficiency. “By getting that kind of scale and aggregated demand in the marketplace, we can help bring costs down,” he said.

Securing the level of upfront investment needed will be critical going forward, not just for mitigation strategies, but adaptation too. “The finance was there at Paris, but it wasn’t enough,” observed Neil Thorns, chair of NGO group The Climate Coalition. “We’re already in a 1 degree temperature rise. Look at the humanitarian impact it’s having across the world.”

Other notable developments that took place during COP 21 included a landmark partnership between the UK and US to roll out clean energy to off-grid villages across Africa. In addition, the Bill Gates-led Mission Innovation coalition, back by more than 20 nations, pledged to double funding into clean energy research and development over the next five years.

As demand grows, Sir King is confident it will result in a self-accelerating process. “As renewable energy, plus storage, plus smart grids come onto the market at competitive prices – by which I mean competitive with the mature fossil-fuel industry – we will see much more rapid change. find that things will change much more rapidly.”