Climate Deal: A Ratification For The Headlines

climate deal

Julius Baer Research | Alongside the G20 summit, China and the United States informed that they both ratified the Paris agreement on climate change. The treaty was negotiated and signed under the lead of the United Nations in Paris last December and will go into effect once countries in sum representing at least 55% of global greenhouse gas emissions ratified the agreement. With the world’s two largest climate polluters now joining, this obviously could incentivise other countries, especially European ones, to follow suit and could revive the climate change discussion in the short term.

There are two ways to look at the Paris climate deal. The ‘glass-half-full’ camp likes the fact that for the first time there is a global climate agreement, signed by almost every country. The ‘glass-half-empty’ camp dislikes the fact that the treaty lacks teeth as there are no binding pollution quotas and no mandatory emission reduction measures. The climate deal’s main statement is the pledge to keep global warming below 2°C, a threshold beyond which serious climate risks and economic threats loom, according to scientists. We are rather in the second camp and do not see the climate deal as something that alters the way investors should look at climate change and the risks and opportunities that come with it. The ratification by China and the United States is some-thing for the headlines, not for the climate.

Clean energy is the obvious beneficiary as the world slowly shifts towards a low-carbon economy. In the developed world and increasingly also in the emerging markets, wind turbines and solar panels have become the technology of choice when new power plants are added. This is the result of existing subsidies and government support but is also based on the fact that clean energy has become cost competitive in certain market niches. Across large parts of the United States solar and wind outcompete conventional natural gas and coal power plants on costs. Auctions across South America show a rising share of successful clean energy bids. China experiences market boom as subsidies expire. Meanwhile in Germany, solar roofs have become the cheapest option under certain conditions to source electricity for home-owners, not because of subsidies but because of the high tax and grid charges on residential power tariffs. Investing into clean energy remains tricky as the solar panel and wind turbine producers face a competitive environment with constant price and margin pressure. Global clean energy sales are set to plateau on high levels as electricity markets struggle with power plant overcapacities.

*Image: Me in ME via / CC BY

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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.