Following agreement to constrain global warming to ‘well below 2°C’ at COP21 in Paris, businesses, as well as governments, will be obliged to demonstrate how they will be 2°C compliant.
After two weeks of intense negotiations and lobbying, the agreement reached by the global community at COP21 in Paris sets an agreed target to constrain global average temperature rise to ‘well below 2°C’, with an ultimate target of 1.5°C. It is clear that with voluntary commitments made by many of the world’s nations in Paris resulting in a predicted temperature rise of 2.7°C, much more is yet to be done.
In the past, whilst many individuals have taken proactive action on climate change, most businesses have tended to follow regulatory obligations, or for global enterprises, corporate policy set by regulatory obligations in a specific country.
Going forwards, businesses as well as governments, will likely start to have an obligation to demonstrate how they plan to be 2°C compliant. This will require business to take proactive steps to demonstrate change. The companies best able to thrive and grow over the coming decades will include those that recognise and address this challenge.
To constrain global average temperature rise to less than 2°C, requires action at international and national levels. However emissions are not generally created by governments, they are created by business. Power generation from coal and gas, steel, cement, refineries, chemical plants and a raft of other large energy users create CO2 emissions as part of their processes.
To have a 50% chance of staying below a 2°C global average temperature rise, requires us to extract and utilise no more than an additional 270Gt of carbon, at which point we would have emitted 840Gt carbon. At the current rate of emissions this will be used up by 2035. This is the available 2°C Carbon Budget. Managing climate change is clearly urgent.
Large energy users will need to ensure that their forward energy plans provide for emissions reductions in line with best practice and in a manner which will be 2°C compliant. This involves:
- implementing energy efficiency projects,
- changing from fossil fuel to low carbon options,
- identifying the potential for renewable power development, and
- exploring ways of supporting demand side energy flexibility.
Oil, gas and coal producers will need to increase transparency of their exposure to the 2°C limit, enhance reporting and indicate how their businesses with adapt or change to meet this new reality. These businesses need to report emissions associated with their fossil fuel products as well as their own operations and calculate a forward emissions profile from the future use of fossil fuel, yet to be extracted. Investors can then see how this compares with the available 2°C Carbon Budget.
For business, acknowledging the reality of climate change and waiting for government regulation, is no longer enough. Proactive action is required to implement change now and to plan for the long term, in order to be 2°C compliant.
This article was written by Sam Gomersall.