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A Signal to Industry to Go Green in an Era of Carbon Reduction

Published ON: December 14, 2015
A Signal to Industry to Go Green in an Era of Carbon Reduction

With the ink barely dry on a landmark climate accord, nations now face an even more daunting challenge: how to get their industries to go along.

If nothing else, analysts and experts say, the accord is a signal to businesses and investors that the era of carbon reduction has arrived.

It will spur banks and investment funds to shift their loan and stock portfolios from coal and oil to the growing industries of renewable energy like wind and solar. Utilities themselves will have to reduce their reliance on coal and more aggressively adopt renewable sources of energy. Energy and technology companies will be pushed to make breakthroughs to make better and cheaper batteries that can store energy for use when it is needed. And automakers will have to develop electric cars that win broader acceptance in the marketplace.

“It’s very hard to go backward from something like this,” said Nancy Pfund, managing partner of DBL Partners, a venture capital firm that focuses on social, environmental and economic development. “People are boarding this train, and it’s time to hop on if you want to have a thriving, 21st-century economy.”

Wall Street is clearly paying attention.

Top executives from Bank of America, Citibank and Goldman Sachs dropped by the Paris talks or related side events, as did philanthropist business leaders like Bill Gates and Richard Branson. Chief executives of blue-chip companies like Coca-Cola, DuPont, General Mills, HP and Unilever all expressed support for an ambitious deal.

On Twitter on Saturday night, BP, the British oil giant, called the Paris agreement a “landmark climate change deal” and pledged to be “a part of the solution.” In June, BP, Royal Dutch Shell and Total called for a tax on carbon emissions, saying it would reduce uncertainty and help oil and gas companies figure out the future.

“The policy developed from these commitments will bring better market certainty to investors and open up significant opportunities,” Jack Ehnes, chief executive of the California State Teachers’ Retirement System, said last week.

But not all business representatives embraced the accord and resistance to new policies appears inevitable. “The Paris climate conference delivered more of the same — lots of promises and lots of issues still left unresolved,” Stephen D. Eule of the U.S. Chamber of Commerce said in a statement, noting that the agreement is not legally binding.

By any measure, the world economy has a long way to go to break away from the use of coal and oil that fueled progress since the Industrial Revolution. Globally, renewable energy sources are growing fast but they still account for about only 10 percent of total energy supply, with most of that coming from hydroelectric power, according to a new report from the research firm Sanford C. Bernstein & Company. Solar and wind account for 1.6 percent of total energy.

Some energy experts said that without a multinational carbon tax or other pricing of carbon, which was not specified in the agreement, the hopes of environmentalists for a true sea change that will curb climate change remain challenged.

Still, there are examples of industries changing their practices.

Automakers, under intense pressure to meet strict American fuel economy standards, have hastened the trend toward smaller engines, and have increased investments in hybrid and electric vehicles.

Last week, Ford Motor said it would invest $4.5 billion on 13 new electric vehicle models by 2020 — even though sales of alternative-fuel models are still a fraction of the market.

“We’re doing it for two reasons,” Mark Fields, Ford’s chief executive, said on Friday. “One is that people love electric vehicles when they try them, and secondly the regulatory requirements are hard to meet.”

Globally, the focus on auto emissions has never been sharper. The cheating scandal at Volkswagen has galvanized regulators around the world to test more cars and increase scrutiny of harmful emissions — both in conventional cars and diesel-burning heavy trucks.

Beyond the auto industry, the money is flowing. According to a recent Goldman Sachs study, the combined market size of low-carbon technologies like wind and solar power and electric and hybrid vehicles exceeded $600 billion last year, nearly equivalent to the United States defense budget.

On the flip side, coal investors have been heading for the exits. Major producers like Alpha Natural Resources, squeezed by low natural gas prices as well as stiffening regulations, have filed for bankruptcy as the industry endures a painful retrenchment.

“Capital markets react to logic,” said Mindy S. Lubber, president of Ceres, which seeks to focus investor attention on the financial risks of climate change.

But the record of government and corporate actions so far remains mixed. Europe has tried to lower its carbon emissions with a cap-and-trade system that gives companies incentives to cut emissions. But special allowances, or credits, are worth far less than was hoped a decade ago, and Europe continues to depend on coal for power. Coal also remains a dominant fuel in India and across much of Southeast Asia, with little sign of change.

Looming over the carbon pollution issue, though, is China. Just as it became the world’s biggest carbon emitter as its economy surged, it is moving aggressively to implement climate control measures, including plans for a national carbon trading market in 2017.

“The policy makers have given a very clear sign to the companies,” that have already begun expanding investment in clean energy and energy efficiency, said Yu Qingchan, the climate change program coordinator at the Global Environmental Institute, a nonprofit in Beijing.

Two provinces, Hubei and Guangdong, and five metropolitan areas — Beijing, Shanghai, Chongqing, Tianjin and Shenzhen — already have their own pilot programs for carbon trading by large enterprises. Big companies in these areas have tended to be more positive about national limits on greenhouse gas emissions.

One corporate leader in curbing emissions has been the Hubei Yihua Group, a large fertilizer producer in Hubei province, where a provincial carbon trading program has developed rapidly. Cai Zhong, the company’s assistant general manager, welcomed the Paris accord.

“The fact that the Paris agreement on climate change was eventually agreed upon,” Mr. Cai said, “we believe is good news for the world and for China.”

Not surprisingly, among the most enthusiastic supporters have been executives of the renewable companies.

Tom Werner, chief executive of SunPower, the large solar manufacturer and developer based in California, said the agreement would help open the investment taps for Africa and countries like India, where access to capital for large projects has been limited.

“There are so many countries participating that it opens up new markets to solar that weren’t that aggressive,” he said.

Michael Skelly, president of Clean Line Energy Partners, a Houston-based company that develops long-haul transmission lines for renewable energy, saw the accord as a pivot point for a changing industry.

He pointed to the investments that the United States made during the last century in its power grid and hydroelectric power. “Both have provided low-cost electricity in the ensuing decades,” he said. “In 2050, we will look back at the investments prompted by the Paris accords and see exactly the same phenomena.”

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