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Paris Agreement supports sustainable innovation

Paris Agreement supports sustainable innovation

The Paris Agreement on 12 December 2015 is great news for sustainable innovators.

Key Points of the Agreement (full text here):

  • Agreement to keep global average temperatures “well below” 2°C above preindustrial levels and pursue efforts to limit the temperature increase to 1.5°C
  • Non-binding, depending on countries’ own “nationally determined contributions” which were submitted prior to the Paris summit and which result in a global annual emissions total of 55GtCO2e – which is estimated will result in a global temperature rise of 2.7°C.
  • So beyond the national plans, which themselves require significant cuts beyond current programmes, additional reductions are still required to achieve 2°C (considered to require a global annual emissions of 40GtCO2e).
  • Developed nations will set up a $100B p.a. fund providing “climate finance” to help poorer countries to adapt to climate change and reduce emissions.
  • “Encourages” the voluntary cancellation of units issued under the Kyoto Protocol, including certified emission reductions that are valid for the second commitment period towards eliminating the accumulated surplus of credits, which would delay action.

Why it is significant

The Paris COP (and its lead-up) saw significant support for action to address GHG emissions from many sectors of society including business, investors, the church (e.g. the Pope’s second encyclical) and of course all 200 governments at the negotiation.

We believe that underlying the Paris summit is a maturing of global thought to a position of acceptance and the development of a rational plan to tackle the problem. We have seen a progression consistent with Elizabeth Kubler-Ross’s model of the stages of change[1]: denial, anger, bargaining, depression and acceptance.

The drive for a 1.5°C goal represents refreshed resolve to tackle the issue.

Support for the idea that the world is getting on with solving the problem can be found, for example, in Goldman Sachs’ report, “The Low Carbon Economy”, which begins with the paragraph:

The low carbon economy [is] now a growing, $600 bn+ pa revenue opportunity. Between 2015 and 2020, solar PV and onshore wind will add more to global energy supply than US shale oil production did between 2010 and 2015. By 2020, six in ten lightbulbs will be LEDs; and our analysts expect carmakers to sell 25 million hybrid & electric vehicles by 2025, 10x more than today. We estimate that these technologies will save >5 Gt of CO2 emissions per annum by 2025 and could help global emissions to peak earlier than expected around 2020, with ripple effects felt across our global coverage.

Significantly, this was published on 30 November 2015, before the Paris summit.

Most importantly the Paris Agreement provides a clear signal for investors, companies, governments and civil society that the transition to a low carbon economy is inevitable. For investors, this will have a marked impact on the value of many assets (including fossil fuel assets and low carbon technologies). For corporates, it provides confidence to invest in emission reduction projects and products that have been on hold through the economic downturn and policy uncertainty of the past few years. For innovative sustainable/cleantech SMEs it will provide long term support for growth.

For the last decade many have been calling for carbon signals that are “long, loud and legal”. The Paris Agreement meets these criteria.

Can it be done?

Technically we can get most of the way there right now – and economically. There are outstanding opportunities within:

1. Energy Efficiency

Energy efficiency is the elephant in the room. The Next Manufacturing Revolution study, co-authored by the University of Cambridge’s Institute for Manufacturing and 2degrees proved the massive untapped potential of energy efficiency. For example, Toyota’s European manufacturing operations have reduced energy use per vehicle by over 75% with limited capital expense and they acknowledge that they have substantial further savings to make. New approaches to energy efficiency are emerging to provide the necessary skills and encouragement for companies to find their own savings, such as Rype Guides.

2. Supply chain efficiency

We are at the dawn of a new collaborative age where companies are working with their suppliers (and their suppliers’ suppliers) to reduce their GHG emissions (and thereby costs) for the benefit of all. You can see examples at how to collaborate for sustainable innovation.

3. Circular economy

Remanufacturing re-conditions long life components removed from used items (like steel frames), combining them with new components to create as-new products that look and perform just like new. The long life components have the greatest cost and environmental footprint, so remanufacturing them creates GHG savings for the whole product of over 80%[2]. The photocopier industry (including Kyocera, Ricoh, Xerox and Fuji) has remanufactured their machines for years (you probably have one in your own office). And new circular economy business like Rype Office (which remanufactures office furniture) are beginning to disrupt their sectors with lower cost, lower GHG, and generally more sustainable products.

4. Sharing economy

Sharing cars, taxis, homes, equipment, office space and all manner of products is reducing our GHG emissions (and costs), sometimes through avoiding the need to manufacture as many assets, at other times reducing the fuel used, and sometimes both (e.g. in the case of car pooling).

5. Deforestation/Reforestation

The large number of forest schemes that were developed in the early days of carbon trading is testament to the low cost opportunities for avoiding deforestation, and separately, reforestation that exist.

6. Renewable energy

Unlike most of the above opportunities which both reduce emissions and save money, the public’s general perception is that renewables require subsidies which push up electricity prices. There are a number of counterpoints worth noting:

Any price premium “can be recouped through energy efficiency”, as Baroness Worthington eloquently noted in answer to this concern on television news in the aftermath of the Paris Accord.

Several forms of renewable energy are already cost-competitive with grid electricity including on-shore wind, solar in sunny locations, and run-of-the-river hydro. And costs continue to rapidly decrease thanks to the scale effect.

The International Energy Agency’s latest estimates indicate that fossil-fuel consumption subsidies worldwide amounted to $548 billion in 2013, four times greater than the subsidies to renewable energy.

7. Nuclear

Has to be included in the solution set, however must be carefully considered regarding:

The safety of nuclear, related to the creation of highly toxic waste materials that last for tens of thousands of years.

The cost. Building a nuclear electricity plant is very expensive, Those considering nuclear should not rely on the cost estimates from nuclear power plant providers but instead look at the actual construction costs of the most recent plants, and then add a premium for post Fukushima safety precautions. The levelised cost of the electricity produced is breathtakingly high.

Acting on these opportunities takes confidence, investment and leadership. Confidence and investment have been discussed above.

Leadership is already being displayed (e.g. politicians at the summit; business leaders like Paul Polman). But much more is required.

To achieve their stated aims, our politicians must now:

  • Collaborate with industry to raise awareness of and support the solutions listed above
  • Dismantle perverse subsidies which generate emissions in the face of powerful vested interests
  • Bring the community with them to address NIMBYism

This will not be easy, nor is it impossible – it is the next step that must be taken to reduce GHG emissions.

Is it worth it?

Whether or not climate change is not occurring, addressing greenhouse gas emissions has a number of benefits:

  • Many actions save money (see opportunities 1 through 4 above)
  • Emissions have a number of impacts beyond global warming including health dangers, as seen in the air pollution in recent months in several Chinese cities
  • It is an insurance policy. If climate scientists are correct and sea level occurs as a result of unabated GHG emissions, displaced refugees from low-lying Bangladesh (with a population of 157M) and other affected countries would create tensions orders of magnitude higher than the current Syrian refugee crisis (population 23M).

What comes next?

The draft agreement is scheduled for ratification by countries in April 2016.

In the meantime governments are now revisiting their current plans to hit their nationally determined contributions, looking for further opportunities towards limiting temperatures to 2°C and beyond that to 1.5°C.

Investors will rebalance their portfolios.

Companies will be driving change within their own operations and their supply chains because:

  • They will save money
  • Their competitors will be doing it. Carbon neutrality is being hotly pursued by many and already achieved by a number including Google (since 2007) and Interface’s European manufacturing operations (since 2014).
  • There is now substantially reduced risk of acting to reduced GHG emissions, especially since government initiatives recognise early action.

 

ABOUT THE AUTHORS

Greg Lavery and Nick Pennell are Directors of Lavery/Pennell, which helps companies with Rapid Sustainable Innovation and develops profitable sustainable solutions. They have identified billions of dollars of value for some of the world’s leading companies both through revenue growth and cost reduction from resource efficiency opportunities.

 

[1] Kubler-Ross, E., Kessler, D. “On Grief and Grieving: Finding the Meaning of Grief Through the Five Stages of Loss” Simon and Schuster, 2014.

[2] Sources: Giuntini, R., Gaudette, K. Remanufacturing: The next great opportunity for boosting US productivity, Business Horizons, Nov-Dec 2003, p. 44.; Advanced Remanufacturing and Technology Centre, Singapore website http://www.artc.a-star.edu.sg/about-artc/remanufacturing.aspx.

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