It seems that the battle to either take action on climate change, or continue expansion of fossil fuels and greenhouse gas emissions, has developments almost every day. This is truly a momentous moment in history, and also for investors in energy (Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), BP (NYSE:BP), Royal Dutch Shell (NYSE:RDS.A) (NYSE:RDS.B), Peabody Energy (OTCPK:BTUUQ)) and transport stocks (GM (NYSE:GM), Ford (NYSE:F), Tesla (NASDAQ:TSLA)).
This isn't just about politics. It is about what sort of world we'll leave our children, and also it will decide which classes of investment will thrive and which will disappear.
India pledges to ratify the COP21 agreement
Yesterday Narendra Modi, the Prime Minister of India, announced that India will join the US, China and 58 other countries to ratify the COP21 Paris climate agreement on October 2. In making the announcement, which will occur on Mahatma Gandhi's birthday, Prime Minister Modi referred to Gandhi's minimal carbon footprint as an inspiration.
India is the country (after China) which most in the West see as critical to attempts to control greenhouse gas emissions and hence global warming. There was concern that India would have difficulty in committing to the agreement as it seeks to provide electricity 24/7 to all of its citizens.
India represents 4.1% of emissions, which together with 7 countries planning to ratify before the end of the year (France, UK, Australia, Germany, Canada, New Zealand and Japan: 12.87%) will bring countries representing 64.75% of emissions to have ratified.
With 64.75% emissions ratified, this starts to get towards a situation where there could be a binding agreement WITHOUT the US participating. If all of the EU (which is likely) and Russia ratified, that would be enough for 55% emissions without the US. This might help focus the US.
Key former EPA administrators, who served three Republican presidents, support President Obama's Clean Power Plan
A key measure for the US to implement the initial phase of the COP21 agreement is the Clean Power Plan.
Today in the opinion pages of the New York Times, William Ruckelshaus (Administrator of the EPA under Presidents Nixon and Reagan) and William Reilly (EPA Administrator under President George Bush) argued that President Obama's Clean Power Plan is the correct way for the EPA, and hence the US, to act. Ruckelshaus and Reilly argue that Obama's focus on power plants will have a dramatic impact on reducing emissions.
They indicate that the groups trying to block this action are the chief polluters who are trying to stop beneficial change. It is clear that they are seeking to block changes that will help prevent warming and also lead to dramatic health benefits.
Ruckelshaus and Reilly have filed a brief supporting the Clean Power Plan with the court. They see the actions stemming from the formation of the EPA by President Nixon as of enormous benefit to the US. The implementation of the EPA powers was delegated to the States who are closer to implementation.
The state of play
The US Supreme Court has delayed the implementation of the Clean Power Plan.
Bloomberg has summarised the key issues which the US Court of Appeals for the District of Columbia will address on Tuesday. There is a lot of detail in the arguments. One curious comment is that President Obama is just carrying out one of George Bush's unfulfilled election promises!
The history of attempts to block the development of the Clean Power Plan go back many years and the fossil fuel industry has not always played fair, with much misinformation.
The core of the Clean Power Plan is the definition of specific greenhouse gas emissions cuts, based on electricity generation in 2012. Alaska, Hawaii and Vermont are not included as they have no coal plants. States have discretion as to how they achieve the cuts.
The fossil fuel industry funded co-ordination of the plan of attack on the Clean Power plan and meetings with Republican Attorneys General.
As often happens in a legal battle, the Clean Power Plan might end up being resolved by a fight over small details of past legislation. For those interested in the details, today's New York Times discusses the fine print. 28 States and more than 100 companies and Labor and Industry groups are trying to overturn the plan, while 18 States and dozens of environmental and public health groups are supporting the Obama administration.
Note that the populous Eastern US Grid has been shown to be capable of incorporating substantial penetration of renewable energy (30% by 2026) using existing technology. So there is no technical impediment to implementation of the Clean Power Plan.
Even if the Clean Power Plan gets voted down, the US could still achieve its emissions targets, although the job would be harder to achieve. It is notable that several of the States seeking to block the Clean Power Plan are in fact proceeding with implementing key aspects of the Clean Power Plan even as they seek to prevent its implementation.
The Clean Power Plan isn't enough
The above fight, like just about everything about the global attempts to address greenhouse gas emissions and hence global warming, isn't enough to limited warming to 2C, much less seeking to keep emissions well below 2C with a goal of 1.5C.
However, it is a crucial start to the process and that is what the COP21 Paris agreement is seeking to achieve. The argument is that by having all nations striving to reduce emissions, and with regular reviews of progress, a successful outcome will be achieved.
This is about your fossil fuel and renewable energy investments
No doubt some will seek to obfuscate by claiming that this is all a political plot. The key thing to realize is that this is not a parochial US issue, as the whole world is engaged.
Also it is critical to realise that, while it will be much harder to make rapid progress with the US behaving as a spoiler as has happened in the past with attempts to address greenhouse gas emissions and climate change, the world is already engaged in the switch from fossil fuels to renewable energy. There are significant risks to the US (and US companies) if it pulls out of the race.
Pay attention and think about what you are going to do with your fossil fuel and renewable energy investment strategies.
I'm not a financial analyst, but I am interested in key trends that threaten or favor big change.
If my commentary helps you make sense of prospects for your fossil fuel and renewable energy investments, perhaps you might consider following me.
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