How the Paris Climate Deal Is Changing Energy Markets

How the Paris Climate Deal Is Changing Energy Markets

by | published October 18th, 2016

Seven miles from Paris’s city center, where I’m sitting right now, lies Le Bourget, a little hamlet of barely 13,000 residents. Until recently, it was best known as the location of the French Air and Space Museum.

But at the end of last year, this area became famous for something quite different.

On December 12, 2015, representatives from 195 countries gathered in Le Bourget to negotiate and sign the Paris Climate Agreement, which covers greenhouse gas emissions, changes in energy structures, and energy finance.

As of the EU’s acceptance this month, over 190 members of the United Nations Framework Convention on Climate Change (UNFCCC) have signed – and 81 have ratified – the agreement. That’s enough for the treaty to enter into force on November 4.

Now, regardless of what you might think of climate change, the Paris agreement is here, and it’s about to become legally binding. Whether we like it or not, we have to prepare for it.

And there’s no better place to find out what the deal means than Paris, the home of the International Energy Agency (IEA) and numerous financial institutions playing the energy game. But the consensus on the accord, here in Paris, took me by surprise.

On the one hand, there was near-unanimous agreement with one half of the climate deal. But almost no one liked the other half.

And that shows exactly how the Paris Climate Agreement will change energy markets…

With Nuclear Power, France Has a Head Start

I’ve found much more support for the agreement among my energy contacts here in Paris that I expected – at least when it came to the effort to reduce reliance on hydrocarbons like oil, natural gas, and coal.

Officially, last year’s Paris summit was the 21st session of the UNFCCC membership, and the conference had been working towards this deal for more than 20 years. As Article 2 of the Paris agreement states, its objectives are three-fold:

“(a) Holding the increase in the global average temperature to well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels, recognizing that this would significantly reduce the risks and impacts of climate change;

(b) Increasing the ability to adapt to the adverse impacts of climate change and foster climate resilience and low greenhouse gas emissions development, in a manner that does not threaten food production;

(c) Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.

Signatory countries also aim to reach “global peaking of greenhouse gas emissions as soon as possible.”

At least, that’s the idea.

As my colleagues here are quick to point out, both France as a whole and Paris in particular, had already embraced the fuel concerns addressed by last year’s climate accord. France already leads the world in generating electricity from nuclear plants. About 75% of the country’s power comes from that source, although there are moves to reduce it to 50% by 2025 and the introduction of more renewable power.

This commitment to nuclear power is quite remarkable. It has made France more energy self-sufficient than any other member of the EU, contributing to a rather secure ongoing policy of energy security.

But that’s not the only benefit to France’s nuclear strategy…

Nuclear Power and Expertise is a Key French Export

According to a July 2016 World Nuclear Association (WNA) report, France exports more electricity than any other country on the planet. That is largely a result of how cheap nuclear power is to produce, resulting in more than €3 billion ($3.3 billion) a year in export revenues, and the best domestic tariff regimen on the continent.

The nuclear sector also provides another active export market. Reactor technology along with processed fuel and related services provide opportunities for exports to broader markets. Third, as the WNA report noted, about 17% of all French electricity comes from recycled nuclear fuel.

Not everything on the French nuclear front is positive, however. Despite being a nice contributor to any initiative (like the Paris Climate Agreement) intended to lower the carbon footprint, public support for nuclear power is declining.

Some of this results from increasing fears of accidents, even though the French have a spotless record here. Supporters of solar and wind power also criticize the reliance on nuclear reactors. But most criticism comes for the high costs of maintaining the nuclear infrastructure, and the heavy bills coming due for refurbishing aging nuclear power plants.

Similar concerns are slowing down the adoption of nuclear power elsewhere (apart from Asia). But the Paris Climate Agreement will affect much more than just nuclear power…

Little Hope for Fracking in Europe

Here in France, there remains a consensus against developing shale gas deposits. The fracking debate was a very visible issue a few years back and the public rejected it. The primary shale reserves at the time were in the north of the country, close to population centers not that far from Paris. That hardly helped.

This debate will return as the new energy balance, and the Paris Climate Agreement, create a need for new, cleaner energy sources. But shale will still be a tough sell.

In Paris itself, there are also moves already underway to curb car pollution. In a landmark decision, by July 1 of this year all cars produced earlier than 1997 and all motorcycles built before 2000 have been restricted from all city streets during the week.

All diesel-powered vehicles will be prohibited in 2020. And it’s not just Paris – similar moves are being considered in London, have been passed in Frankfurt, and will be on the agenda throughout the rest of Europe.

But there’s one aspect of the Paris Climate Agreement that energy experts here in France are quite unhappy with…

No One Knows Who’s Going to Pay for It All

Support for the Paris Climate Agreement disappears when the conversation turns to the financing side, especially how that relates to energy infrastructure. On this subject, I’m on very familiar ground.

Many acquaintances in Paris have read my writings on the energy infrastructure crisis that’s emerging globally. You’ve seen some of these points here in Oil & Energy Investor before.

The short of it is that at current rates of investment, the world will not meet new energy demand, and in some cases will not even be able to sustain current supply by replacing huge swaths of the existing energy production, generation, transmission, and distribution network.

As I have said before, at least $48 trillion is required to meet, by 2035, the so-called “New Policies Scenario”advanced by the combined efforts of the Paris-based International Energy Agency and the EU in Brussels.

That, we all agreed, was not likely to happen.

But the problem is complicated even further by the Paris Climate Agreement’s goal of keeping global warming below 2°C. That target is from the EU’s “450 Scenario,”first advanced several years back, and it will raise the infrastructure price tag to at least $53 trillion – and probably more.

Here in Paris, few of my (now) early morning drinking partners believe that is possible. Some are not even convinced it is desirable, given the assets that would have to be redirected from other essential needs.

In short, one year out, the Paris Climate Agreement remains an attractive prospect in theory for energy leaders here in Paris.

But how to achieve its targets in practice is anybody’s guess.

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  1. Miner49er
    October 18th, 2016 at 14:43 | #1

    Climate change is a false premise for regulating carbon dioxide emissions. Nature converts CO2 to limestone. Climate change may or may not be occurring, but is is for sure NOT caused by human fossil fuels use. There is no empirical evidence that fossil fuels use affects climate. Likely causes are well documented elsewhere.

    Here’s why. Fossil fuels emit only 3% of total CO2 air emissions. 95% comes from rotting vegetation. All the ambient CO2 in the atmosphere is promptly converted in the oceans to limestone and other carbonates, mostly through biological paths. CO2 + CaO => CaCO3. The conversion rate increases with increasing CO2 partial pressure. An equilibrium-seeking mechanism.

    99.84% of all carbon on earth is already sequestered as sediments in the lithosphere. The lithosphere is a massive hungry carbon sink that converts ambient CO2 to carbonate almost as soon as it is emitted. All living or dead organic matter (plants, animals, microbes etc. amount to only 0.00033% of the total carbon mass on earth. Ambient CO2 is only 0.00255%. Everything else is sophistry or mass hysteria.

    A modern coal power plant emits few air emissions except water vapor and carbon dioxide. Coal remains the lowest cost and most reliable source of electric energy.

  2. Paul Livingston
    October 18th, 2016 at 15:24 | #2

    Too bad they are ignoring the impact of solar flairs that are cyclical and predictable. The forecast due to the sun’s solar flairs cycle is global cooling to the point of a reduction in food due to less productive farm land in the northern hemisphere.

  3. Joseph Maxwell
    October 18th, 2016 at 15:43 | #3

    Since we have entered a Solar Minimum of the 200+ yr Solar Cycle. it is going to get much colder over the next 30 years. The Sun will stop this nonsense but the cold will be very much harder on us than heat. Crop failures, people starving, earthquakes and volcano eruptions.

  4. Neil
    October 18th, 2016 at 16:30 | #4

    I really enjoy your knowledge & insight . With all diesel powered vehicles to be banned in Paris and other places by 2020, will current diesel powered trucks be made to use ” natural gas ” engines ?

  5. Malcolm Rawlingson
    October 18th, 2016 at 18:07 | #5

    History will prove, as it did with the consensus that the world was flat, and the consensus that the Sun revolves around the earth, that the concept of increasing the total atmospheric CO2 by 3% is pure nonsense. For all the media coverage and pronouncements of the great scientist Obama this remains an unproven theory with many unexplained flaws. As pointed out above there is a large body of research that provides another much more accurate and far more plausible explanation which is interaction of solar flares with our atmosphere. This theory matches not only recent ice ages and periods of higher earth temperatures but every single event going back millions of years. Global warming (the man made effect) can surely only trace its roots to large scale use of fossil fuels….a few hundred years at most. So what explains the higher temperatures BEFORE humans produced CO2?
    But, we are here not to criticize the stupidity of others but to make money from it. Many will consider the future is wind and solar power but anyone can see that is not feasible for a modern industrial economy…and especially those located in the Northern hemisphere of the Earth as most are. So what is left? Hydroelectric power…mostly already tapped out for western economies. Wave power…perhaps some growth potential there….and that leaves unloved nuclear power. When it comes to keeping the lights on or freezing in the dark people will choose nuclear power….they will have zero choice. China knows this. That is why it is building out its nuclear fleet at breakneck speed. Britain has…after spending billions developing the technology…decided that nuclear power is the best option and now has had to resort to France and China to build it.
    So while I agree whole-heartedly with the comments above the money is going to be made in nuclear power and the Uranium fuel that is required to operate it. As Warren Buffet so succinctly put it be greedy when others are fearful and fearful when others are greedy. Everyone is fearful and has shunned nuclear power and Uranium miners. Now is the time to make yourself a fortune because, like it or not, if you are a climate change convert you will have to accept nuclear power on a very very large scale or this old world will go very dark and very cold in a very big hurry.
    Trillions will need to be spent and most of that will go to the people holding nuclear related stocks.
    Just a matter of time.

  6. Robert in Vancouver
    October 18th, 2016 at 18:22 | #6

    There are more than enough cold hard facts that prove man-made global warming is just a fictional religious belief. But this won’t stop left wingers in gov’t and the environmental movement from forcing everyone to convert to their religion. One way or another we are all going to pay dearly to support their religion.

  7. October 18th, 2016 at 19:07 | #7

    They think they can dial in Earth’s temperature by somehow setting the CO2 concentration. But data prove CO2 concentration is a function of temperature rather than the way the ecofreaks believe. So the agreement won’t work, no matter how much money they spend. It would be a lot cheaper to listen to the real climate scientists (whom they call deniers) than to change our whole infrastructure. Just look at a temperature reconstruction from ice cores. These prove CO2 did not cause the Earth to warm out of the last ice age. And they prove today’s temperatures are low compared to the last 10,000 years. The climate freaks are as delusional as the Aztec priests who cut out beating hearts and rolled decapitated heads down temple stairs, all to bring rain for their crops.

  8. October 18th, 2016 at 21:54 | #8

    we are supposed to have all these great educated people who know everything, seen everything and done everything (EXCEPT) learned everything, they have gotten so smart that they forgot who made the world and who will take care of it, if all these smart asses were put in a room and asked, what actually is climate change, you would get a dozen different answers and a dozen different answers on how to fix it. I always wanted to ask one of these smart asses how much sulfur and other contaminates a volcanic eruption put into the atmosphere in a 24 period and how long it would take to be livable in the area and what affect it has on people, plants and animals.

    I think we all have seen the results of volcano eruptions, can man stop them from erupting, can we keep them from destroying the atmosphere, and most of all, can they prove man has actually destroyed the atmosphere more than the thousands of years of volcanic eruptions and were are still living, breathing creatures living longer todaqy than two hundred years ago when we didn’t have coal powered power plants, cars trucks and airplanes, remember, its much easier to let the cat out of the bag than put it back in,

  9. Joseph Maxwell
    October 21st, 2016 at 19:08 | #9

    The human caused climate change is part of the One World Government agenda to have a common goal and get people to go along with them. There are powerful forces behind this including the UN. They can call everyone that disagree with them deniers and say the science is settled but the Sun is going to put a stop to this and not too soon to stop a lot of damage they are doing to the economies. I hope people around the world will turn on them and put to death the One World Government movement forever.

  10. Steve from Casa Grande, Az
    October 22nd, 2016 at 11:32 | #10

    The solar cycle is I’m charge, man is insignificant in world climatology. Al Gore is a con artist suggesting global flooding when the ice caps melt. A first grader knows that ice expands when it freezes therefore it will take up less space in the ocean when it melts causing the oceans to lower. Since the poles have more ice than on the land mass no negligible change in ocean level. The scam is all about money in selling carbon credits. And creating world government by destroying economies by taxation. And who is behind this plot George Soros, Al Gore, The Clintons, the Obama’s and other political leaders who stand to make trillions if we let them by believing this nonsense.

  11. retirng nuclear worker
    October 22nd, 2016 at 22:35 | #11

    I live in SW Ontario Canada. We have in the last few yrs refurbished our nuclear fleet and closed “ALL” of our coal plants. Since then we have had 3out 4 yrs with out a smog alert. The only trouble we have come across the border from the states that still use coal. You spout all this technical data and I would love to see your sources and if you have any your qualifications as expert in the field. You sound more like someone that has a vested interest in the oil and gas sector. Please enlighten me.

  12. Robert Streeter
    November 1st, 2016 at 00:05 | #12

    It has always been from the start, and will always be, a super simple taxation plan, referred to as carbon credits.

    Proof…If I buy your reduction in carbon credits, to equally offset my own carbon emissions, how has this changed the total balance of carbon in them whole?

  13. StevenB
    November 1st, 2016 at 22:07 | #13

    Politicians and idiots in Hollywood are the dummies that think there is global warming, truth of it is Nuclear power plants are very clean.. New ones are built different then when the Mark Ones were built.

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