Paris Agreement – a Masterpiece of Gallic diplomacy

Kari KankaanpääPosted by: Kari Kankaanpää
17.12.2015

 
Having digested the outcome of the Paris climate conference for a while and the highest hype over the result being evaporated, the result can be judged on its merit. What did the world actually accomplish? Is this a real turning point in efforts to combat climate change?

Success factorsCOP21JPG_web

Definitely the outcome of COP21 was much better than anyone dared to expect. The biggest surprises finally were the ambitious 1.5 degrees target and the extensive role of markets in the text.

Actually there are a couple of success factors behind. The Agreement is a result of years’ progressive efforts. The world has changed in many ways and now the time was ripe. The bottom-up approach in preparing the agreement was flexible enabling countries to match their efforts to their circumstances. The French skilled diplomacy showed its power and numerous bilateral consultations around the world before the conference were most productive. There was a polite, but firm handling of “troublemakers”: everyone was heard during the process, everything was transparent and responsibilities were shared. Cooperation between the world giants US and China and US and India was active. Last but not least: the solidarity to France due to the unfortunate attacks in Paris a couple of weeks ago certainly played a role as well.

Progressive efforts

What makes a difference is that now we all are in the same boat, actions have to be undertaken by all. The earlier famous firewall between the developed and developing countries has been broken. All countries are obliged to present their national commitments (NDCs, nationally determined contributions) on mitigation, adaptation and financing, and report on the progress. Each subsequent pledge must be more ambitious, there is no backsliding possibility. Someone may question the conclusiveness of the deal: yes, there are no sanctions for non-compliance. But the collective target, transparent reporting and existing commitments by almost 190 countries are there. The coverage of the agreement is amazing: the current NDCs represent 98% of global emissions. Just to compare, the Kyoto Protocol covered less than 70% of emissions and less than 40 parties were involved.

Accelerated energy transition

The Agreement sends a clear signal for climate action by all. The direction is evident – phase out greenhouse gas emissions in the second half of the century. The deal will increase long-awaited predictability and stability to enable investments to be redirected to low-carbon and climate resilient development. As such, it is expected to accelerate low-carbon transition and give new business opportunities. It will boost all low-carbon and carbon free solutions, including nuclear energy.

The EU’s “solo-run” on climate ambition seems to be fading out, as the key competitors are onboard. Concern on carbon and investment leakage will gradually diminish. Naturally this depends on e.g. how the carbon price level in the Chinese emissions trading system starting in 2017 will evolve.

Business engaged

Business was broadly engaged in pre-Paris action and during the COP21. In the run-up to Paris and during the conference, business was consistent and constant with the expectations and contributions on business action and carbon pricing. Also the investor community made a raft of pledges, such as to decarbonise portfolios or increase the share of investment in low-carbon and climate related areas. The push for carbon markets to be part of the deal was strong.

Markets matter

Paris Agreement enables market-driven mitigation action both through cooperative efforts and a new mechanism to support sustainable development. The decisions text also specifically mentions the role of carbon pricing in cutting emissions. The new trading provisions are open to developed and developing countries alike. It could provide impetus for the development of carbon markets globally. Joint markets and market mechanisms enable global cost efficiency.

As market approach now is recognized, it is important that the energy and climate policies of the EU and the member states support this intent. Market-driven development must be trusted and the regulations reduced. The EU should open its carbon market for internationally traded emission reductions and consider raising its 2030 climate ambition.

In short term, the Agreement will not impact the EU carbon price and is unlikely to raise ambition in the EU.

COP21_webA piece of history

Most of the Paris Agreement is pretty boring legal text in UN jargon. Perhaps it is not entirely revolutionary, but evolutionary. It will not change the world overnight, in fact, it is a start of a long journey. A huge amount of work needs to be done in the next years to put “flesh to the bones” of the agreement. Most likely we have to wait for the next 10-15 years until we can judge whether Paris was a game changer or not.

This was my fourth COP attendace and definitely the best one. Although this sounds already a cliché, it was a once a lifetime experience to be witnessing this historic event!

 

Kari Kankaanpää
Senior Manager, Climate Affairs

Read more about Fortum and Paris climate negotiations

 

We can curb climate change – please, policy makers in Paris be ambitious and brave enough

Simon-Erik OllusPosted by: Simon-Erik Ollus
9.12.2015


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!

Simon-Erik Ollus
Chief Economist

Five “no regret” measures to improve the market

Timo_Karttinen_2014_60x60 Posted by: Timo Karttinen
25.9.2015

[published originally in European Commission’s DG ENER Monthly Newsletter in September]

Despite some genuine progress the political target to have fully integrated EU internal energy market in place by 2014 has been missed. A year past the deadline we see virtually the opposite trend taking place. The rapid increase in subsidy-driven renewable electricity is challenging the electricity and carbon market, while the economic recession has pushed down the demand. The power industry is struggling with unprofitable power plants when they should be investing in new low-carbon technologies. A number of national initiatives have emerged in place of the missing market signals. Regulatory failures have been “cured” with new regulations. Capacity mechanisms and national carbon policies are examples of such development.

Against this backdrop, the electricity market design consultation launched by the Commission in mid-July is very timely, and the questions put to governments, industry and other stakeholders are to the point. The core issue is about making a choice: do we aim for a common European market driven by market signals, or do we opt for a more regulated, more fragmented and less competitive energy system?

Fortum sees clearly the value added of a common competitive European energy market. The lower societal costs afforded by an efficient market benefit consumers, energy producers and societies alike. It is crucial to study a broad range of key elements of the current internal electricity market design and how they could be further developed. There is no silver bullet that alone would solve the current challenges, not even those much-debated capacity mechanisms.

My top five “no regret” measures to improve the current market would be: 1) Increase efforts in transmission infrastructure development and go for more regional system planning and optimization; 2) Full market integration of renewable energy including small decentralized generation; 3) Enforce CO2 price steering by letting the ETS do the work in the ETS sector; 4) Allow market price to drive investments and demand-response development without artificial price caps or other restrictions; and 5) Remove regulated end-user prices in all member states and make real-time pricing an option available to consumers.

Read also our response to the EU consultation on new electricity market design.

Timo Karttinen
CFO

In search of a better energy and climate policy framework

Simon-Erik Ollus
Posted by: Simon-Erik Ollus
12.2.2014

What is an ideal energy and climate policy framework?” can be considered a naïve question, but still worth spending some thoughts on.  Policy frameworks are important for several industries, but in particular for the energy industry as it is an essential player in decarbonisation and one of the most capital intensive industries.

Meanwhile, the energy sector landscape – which has traditionally been stable – has changed and become increasingly complex in the recent years. At the same time, the society calls for sustainability, carbon mitigation, competitive energy prices, more renewables and national security of supply, just to mention a few. Naturally we – as the energy industry – need to adapt and deliver what the society requires.  And we have a responsibility to answer these calls efficiently, keeping the total cost as low as possible. Continue reading In search of a better energy and climate policy framework