In December of this year, a climate summit organised by the United Nations is being held in Paris. So far over 150 countries have submitted their plans for the coming years regarding the reduction of carbon dioxide emissions.
These cover over 88 per cent of global carbon dioxode emissions and include the submissions of China and India. If these plans are really implemented, one could really expect what may be a drastic change in the world economic order. Some analysts have claimed that the impact could be valued at around $90 trillion.
What is so drastic about all this? And why is the position adopted by India and China so important?
Six years ago, the climate summit held in Copenhagen had ended in bitter disagreement. Countries with a propensity for being pro-environment were accusing emerging economies, such as China and India, that their economic development programmes were a major cause of the climate change.
If a climate deal is really achieved at the Paris summit, the negative impact of such a deal on the big energy giants such as BP, Exxon and Shell can be easily imagined
On the other hand, these countries argued that they should be allowed to develop and generate wealth, as climate change was not being caused by them but by past economic policies of the so called developed world. For the developing countries, going green would have stalled their economic progress.
The fossil fuel industry was convinced that the developing world would continue to block any serious effort to reduce greenhouse emissions, and that there was no viable alternative to oil, gas or coal for several years to come. Six years ago, the International Energy Agency was predicting that solar power would, at best, reach 20 gigawatts by 2015.
Not many had predicted that in fact by 2015 it would have reached 180 gigawatts, as it actually did. This made a UN official exclaim that no amount of lobbying was going to reverse this trend. The commitments presented so far by these 150-plus countries for the Paris summit on climate change show that fossil fuel demand will decrease by around 30-40 per cent in the next 20 years.
So if a climate deal is really achieved at the Paris summit, the negative impact of such a deal on the big energy giants such as BP, Exxon and Shell can be easily imagined – unless they start to invest in renewable energy. One also understands the impact that this will have on the oil-producing countries, hence my reference to a cataclysmic event, all thanks to China and India having changed their position from six years ago.
On the other hand, there are also opportunities. The numbers involved are mind-boggling. The Internal Energy Agency estimates that $90 trillion of new energy investment is required to keep the global economy growing at current rates. A climate deal in Paris would mean that most of this investment would go into renewable energy. For example, India is pledging that it will raise the share of renewable sources of energy to 40 per cent of power output by 2030. Similarly China is planning to produce 200 gigawatts of wind energy by 2030. That is as much as the solar power being produced today.
The investment funds are also seeing the opportunities coming their way. It was reported that a forum on renewable energy held in London’s financial district was packed with bankers and fund managers, all eyeing this investment boom. The financial markets are expected to be lured by all this and provide a safety valve for the current glut of capital.
It is interesting to note that cheaper costs of production of energy from renewable sources will also help immensely the poorer countries in Africa, Asia and Latin America, as they stop building power stations and rely more on grids based on solar power.
One sincerely hopes that a climate deal is achieved in Paris. It will not only be positive for the environment, but it will also generate opportunities for investment that is bound to create wealth across the globe. It is also likely that it will lead to a structural shift downwards of the price of energy. This is why it may be described as an event that will change the world economic order.