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MAINTAINING MOMENTUM BEYOND PARIS ›

WHAT NEXT?

12TH JANUARY 2016

This month, the Aldersgate Group hosted its 1st event of 2016 as part of its 10th anniversary series, Maintaining momentum beyond Paris. Co-hosted with Lloyd's of London and supported by Centrica, the event examined the outcome of the Paris summit, discussed the next steps for international climate diplomacy and explored what is now needed from domestic policy to continue growing the UK's low carbon economy.

Featuring a keynote address by DECC Secretary of State Amber Rudd MP and introductory remarks from Dame Fiona Woolf DBE, the event included speakers from Lloyd's of London, Bank of America Merrill Lynch, Nestlé UK & Ireland, Siemens Energy and the Financial Times.

Delivering the introductory remarks, Dame Fiona Woolf DBE, Aldersgate Group’s Honorary President and former Lord Mayor of London, celebrated Paris as a “positive step forward” but added that domestic follow-up action will be critical.
 
In order to be successful in the long term, Dame Fiona noted that the Paris Agreement requires national governments to develop ambitious domestic climate policies, which in the case of the UK would require a cohesive, clear plan to deliver on its carbon budgets under the Climate Change Act.

Keynote speaker Rt Hon Amber Rudd MP, Secretary of State for Energy and Climate Change, emphasised that following Paris we cannot “take our foot off the gas” and must “sustain action for decades”.
 
She praised the universality and long-term vision of the Paris Agreement, adding that it has “real teeth and accountability”, particularly given the five year review framework that requires countries to increase their ambition to cut emissions moving forward.
 
The excellent leadership of President Hollande and Minister Fabius were commended. But Ms Rudd noted that COP21’s successes must also be attributed to the early mobilisation and collaboration of national governments, cities, regions, business and civil society ahead of the talks. “Climate change isn’t going to be solved by frantic exhausted politicians going the extra mile on the last day of conference negotiations”.
 
Now it will be key for the UK to carry on with its own commitments and stay within its current and future carbon budgets. The government will develop its plan in 2016 to set out how the UK will continue to meet its carbon budgets, having already met the 1st and “expecting to exceed the 2nd and 3rd”. “Our national progress has been good to date. The UK has reduced emissions by 30% since 1990, substantially more than Germany”. Areas of focus will include the ongoing decarbonisation of the power sector, energy efficiency, heat and transport.
 
Moving forward, it must not be taken “for granted that our Climate Change Act is one of the world’s most ambitious” pieces of legislation globally to reduce emissions. Ms Rudd pointed out that “green isn’t to be measured in the amount of subsidies to be doled out”. Rather, one of the central themes for the year ahead will be innovation. We need “to breathe life into the RD&D cycle” to deliver technologies that are both green and cheap in addition to formulating new innovations in finance, investment and insurance.

Inga Beale, Lloyd’s of London CEO, emphasized that the insurance sector is “under no illusion” that climate-related events will become more frequent and claims pay-outs will increase accordingly.
 
Looking back to 2012, Ms Beale highlighted how the estimated 20cm sea level rise at the tip of Manhattan, with all other factors held constant, “increased losses from Superstorm Sandy in New York City by 30%”. The number of weather-related loss events each year has tripled since the 1980s, resulting in the annual insurance loss average jumping from $10bn to over $50bn over that same period.
 
In tackling climate change, Lloyd’s has invested in catastrophe modelling and is also working to build greater resilience in communities. This includes several of Lloyd’s syndicates working together on a $400m facility dedicated to helping developing economies, particularly those that haven’t experienced the benefits of insurance, to build resilience against natural disaster.

Sarbjit Nahal, Head of Thematic Investing Strategy at Bank of America Merrill Lynch (BAML), underscored that the transition to the low carbon economy is well underway, evidenced by changes in their clients’ priorities and financial flows globally.
 
Last year, BAML committed $125bn over the course of 10 years financing the transition for a low carbon economy. Clients are also already moving in that direction. In terms of demographics, “70% of Gen X’ers, 72% of female clients and 85% of millennial clients list environmental issues as a top three factor when making an investment decision. This will be absolutely key in terms of influencing the debate for the next generation”.
 
Over the last five years, $300-350bn has been invested annually in clean technology and $150-250bn in energy efficiency. And the Bank has seen up to “$4tn in assets under management that have moved away from fossil fuels”. Over the course of the next 15 years, BAML expects around $13.5tn in investments to finance the low carbon economy.

Anna Turrell, Senior Public Affairs Manager - Sustainability at Nestlé UK & Ireland, identified innovation as a key challenge and focus area to delivering on existing and future commitments.
 
Nestlé has made a number of pledges around climate change, including carbon pricing, a 35% reduction in greenhouse gas emission per tonne of product and a switch to 100% renewable energy. The agreement in Paris “only serves to strengthen this engagement and Nestlé’s commitments to reducing environmental impacts”. This also includes harnessing renewable technologies across their UK and Ireland operations, working towards more than 50% of electricity use coming from wind power.
 
Innovation in the UK is currently challenged by a “significant skills gap” which is “compounded by an aging technical workforce”. The food and drink manufacturing sector is really looking to “improve productivity by building a pipeline of employees with STEM skills and by embedding sustainability throughout the learning and apprenticeship process”. Companies cannot “develop innovations in glorious isolation” so collaboration will be critical moving forward.

Matthew Knight, Director of Strategy and Government Affairs at Siemens Energy, noted that the outcome in Paris is allowing Siemens to carry on with its activities in the low carbon space with “much greater confidence than before”.
 
Political risk is the greatest uncertainty in the energy sector, adding considerable costs to projects. Mr Knight thanked the Secretary of State for her efforts as Paris has significantly “de-risked both the international and UK political risk”. Siemens is spending about £1m/day developing a factory in Hull to build blades for offshore wind turbines. “Until the energy reset speech, there was zero visibility on whether we’d have any market beyond 2020 for the output of that factory”. Mr Knight’s one wish would be for all parts of government, with industry, to set out the future electricity mix, allowing supply chain and developers to plan and invest in the UK.
 
Energy efficiency is a differentiating factor for Siemens’ products. The drive to increase efficiency is simultaneously a driver for competition. Siemens is committed to decarbonising its own operations by 2030 through the investment of €100m over the next three years “because we sell energy efficiency to our customers and must practice what we preach”.

Event chair and chief economics commentator at the Financial Times, Martin Wolf CBE closed the event with three remarks regarding the progress made at the Paris climate summit as well as the significant amount of work needed to deliver it on the ground and make the deal a more tangible reality:

  1. Paris is a much better outcome than expected.
  2. The evening’s discussion had provided encouraging insight on what’s going on in both policy and businesses.
  3. Efforts to decarbonise the world economy thus far are not enough and energies must be focused on “ratcheting the process up to the point that it will be a very deep and profound transformation”. Moving forward “it is important to not confuse agreements, which are better than non-agreements, with actually solving the problem”. 

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