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After many false starts, we have
now reached a tipping point. The
21st session of the Conference of
the Parties (COP 21) to the United Nations
Framework Convention on Climate Change
(UNFCCC), will in all likelihood ratify a real
climate change deal when leaders gather in
Paris in December.
It has been a long road to get to this point.
The UNFCCC was established out of the 1992
Earth Summit, and has been holding an annual
gathering since 1995. In 1997 progress appeared
to have been made when the Kyoto Protocol was
adopted, but annual gatherings have since failed
to meet expectations as nation states squabbled
The fundamental reason why we will see
progress in Paris is not because of the negotiating
prowess of UNFCCC Executive Director Christiana
Figueres, who has left no stone unturned as she
has travelled the world meeting leaders, but
because we have now reached the point where
real progress is being made on the ground.
The fnal deal that will be reached in Paris is not
itself the harbinger of change, it is merely the fnal
stamp of approval on a broad global consensus
that has now emerged that change must happen.
Indeed, regardless of the outcome of COP 21,
the combination of investor and public awareness
and concern has made genuine progress on the
ground virtually inevitable.
The reality is that we are already in the midst of
an energy transition.
According to the International Energy Agency
(IEA) in 2014, electricity production in the
34 members of the Organisation for Economic
Co-operation and Development (OECD) fell by
0.8 per cent compared to 2013. As electricity
demand plateaus in developed countries we are
seeing an increase uptake in renewable energy
which is being driven by solar and wind.
The IEA estimates that in 2014, solar
photovoltaic overtook solid biofuels to become
the second largest source of non-hydro renewable
electricity in OECD Europe, with a share of
17.3 per cent. According to IEA since 1990, solar
photovoltaic has been increasing at an average
growth rate of 44.6 per cent per year, and wind at
27.1 per cent per year. In 2013 renewable electricity
generation overtook natural gas to become the
second largest source of electricity worldwide
producing 22 per cent of total electricity.
The maturity of renewable energy investment
is coupled with a revolution in battery storage
that has the capacity to enable solar and wind to
compete with fossil fuels, even when the sun isn't
shining or the wind blowing.
Battery storage will soon become commercially
available to households and businesses. Tesla
Motors Inc. has commenced building a $5 billion
Gigafactory in Nevada that will employ 6,500
employees that will produce battery packs that
will not only support building Tesla's market for
its electric vehicles, but will enable individuals,
communities and businesses to increasingly make
their own energy production decisions.
The utility sector understands the implications
of new technology, combining with already
reducing energy consumption---a concept that
has been termed the 'death spiral'.
The death spiral scenario is one in which utilities
are required to invest in infrastructure to replace
ageing assets at a time when energy effciency
and demographics is resulting in lower consumer
demand. Utilities would need to increase prices to
fnance infrastructure investment, which in turn
creates incentives for consumers to either use less
energy, or disconnect from the grid altogether.
Utilities are then left with a reduced revenue
base, which forces them to increase prices again,
leading to a further cycle of reduced consumption
and grid disconnection.
There is no doubt that policy makers will
need to manage the transition to a low carbon
economy, but there will be no stopping it.
After many diffcult years of development,
renewable energy and clean technology are now
frequently cost-competitive with fossil fuels and
are attracting signifcant investment.
In each of the sectors that we analyse, we
are seeing examples of innovations being
implemented by businesses that are focused
on future proftability. In the mining sector, for
instance, we are seeing companies implementing
solar power as a stable source of power compared
to diesel fuel.
We are also seeing investors increasingly
support the energy transition. The Climate
Bonds Initiative is one example of a collective,
collaborative effort which has helped propel
the issuance of green bonds to a 300 per cent
increase over the past two years. As businesses
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