Posted by: Simon-Erik Ollus
In order to reach decarbonisation the direction of energy and climate policy needs to change. Carbon pricing is the way forward.
The ongoing 2015 United Nations Climate Change Conference, COP 21, has the mandate to solve the climate change issue politically by making the right decisions as soon as possible. We business actors are actually able to deliver decarbonisation even faster than what the overall political commitments so far have promised. In order to succeed – we ask for clear direction, ambitious political commitments and stable and long-term energy and climate policy steering – both in Europe and globally.
Role of energy industry in mitigating climate change
The energy sector is today responsible for 2/3 of global CO2 emissions. It plays a vital role in the fight against climate change. One of mankind’s largest challenge is actually to decarbonise energy production in order to decouple economic growth and emission growth.
This challenge is fully possible to meet, even with today’s technologies. It requires strong political commitment and massive investments in new energy production while decommissioning of oldest polluting generation capacity prior end of lifetime.
I believe the energy sectors largest uncertainty today is that we miss this broad political commitment on where actually to head. The Finnish Environment Minister recently stated touché that the success of Paris COP will be measured with the volume of energy sector’s investments it will launch. Companies are racing towards a future low-carbon world but we cannot deliver, if they do not have the firm political support.
Utilities want to do more but need consistent policy
We as utilities want to mitigate climate change, but we need to deliver it on a commercial logic. Investors and customers need to be willing to pay for clean energy and there need to be incentives created for customers to do so. This will not happen if there is inconsistency in policy making, target setting and regulatory steering. Inconsistency creates uncertainty – and that is unfortunately where the European power industry is today.
Due to divergent national support schemes on renewable energy sources and actually divergent national energy and climate polices,- we are today endangering the benefits of the European Internal Energy Market, and even worse – endangering the opportunities to decarbonize the power sector. The European power companies have been one of the poorest performing industry during the last five years, decreasing shareholder value notably. And this is the same industry which should be investing much more – not less going further.
Momentum for carbon pricing increasing
The direction needs to change. Carbon pricing is the way forward. In Paris, stronger than ever, it has been promoted by numerous business organisations: IETA, WBCSD, CDP, World Bank, IEA, We Mean Business and Caring for Climate. And it is not only business doing this: we are accompanied by investors, pension funds and capital markets as a whole. Nobody has been able to ignore the importance of the issue.
Whether or not carbon pricing and markets finally are part of the agreement, the snowball is already rolling. Things are moving ahead in business and the economy, regardless of the negotiations or in spite of them. Markets will solve the situation, if the politicians cannot do that. However, a strong, binding and forward looking agreement could clearly boost the transition to a low-carbon economy.
Fortum paving the way
We at Fortum take climate change seriously. Fortum has in its mission statement a noble purpose: “to improve life of present and future generations”. This is a true promise we try to live up to. We aim to deliver carbon free energy. Today ~95 % of our European power production is CO2 free, mainly based on hydropower, nuclear and bio CHPs. We can – and should still do much more. But also we face challenges to make the noble mission to true business under current investment uncertainty. Fortum is one of the signatories of the Paris Pledge for Action – an initiative providing the opportunity for signatories to show that they are willing to support government efforts in meeting and exceeding commitments made to keep the world on a trajectory that keeps us within 2 degrees.
Let’s hope for successful last minute negotiations in Paris!