Carbon Regulations: Cost and Opportunities

In the second part of her two-part series, Nina Rachet continues her analysis of the COP21.

COP21 – the summit on climate change in Paris – is likely to result in a comprehensive framework to reduce carbon emissions. Current pledges by states will fail to match COP21’s objectives – limiting global temperature rise at 2˚C. However, it is likely that the Paris summit will result in an introduction to a comprehensive framework on the zero-carbon transition. Thus, a global deal on carbon emissions would impact key economic sectors – energy, agriculture and transportation – with a secondary effect on businesses tied these activities.

Energy: A global and complete transition to renewables

In order to meet reduction’s objectives, the energy business will be required to significantly reduce its emissions by 2050. This implies drastic reforms to its type of energy and important research into renewables as well as implementing current sustainable energies on a global scale. Over the coming decades, the fossil fuel industry will have to invest significantly into sustainable resources such as solar panels and hydroelectricity. Total has invested over US$1bn into SunPower since 2011. A popular alternative to fossil fuels could be nuclear energy, since it is currently the only industry large enough to supply a growing international demand. However, investing in nuclear energy implies some political and economic costs. Nuclear power plants are increasingly costly, due to growing energy demand. France reported 118% increased electricity prices and estimates that production costs at €3.7bn per year by 2025. In addition to relatively low public support, nuclear energy is not as sustainable as other renewables since uranium – the main component in nuclear – cannot be recycled. Making nuclear entirely renewable requires important amount of costly and long-term investments into research and infrastructure from public and private sectors. Also, the nuclear option is not available to all states due to important long-term costs but mostly due to important international security concerns of more states accessing nuclear weapons. Investing in other resources can be very beneficial on the long-term as a move to green energy is inevitable and necessary to avoid further increasing global temperature. Offshore wind and solar panels are two sustainable energies with immense potential. Creating energy through wind could be very beneficial for the UK as offshore wind could generate up to 400TWh of electricity per year, which could potentially be exported once that technology is a maximal capacity. Additionally, using solar energy to generate power could be greatly beneficial to the southern hemisphere. The Sahara Solar Breeder Project – a joint initiative between Algerian and Japanese universities – seeks to produce 50% of humanity’s energy by 2050. Indeed, the Sahara desert – world’s largest sand desert –is an immense source of energy in which sand could be used to create panels. However, these types of projects require lengthy and costly research into energy transmission and infrastructure as well as continued governmental support. Libya, which could be of great support for solar projects, is currently in chaos following the 2011-Arab Spring and the collapse of Gaddafi’s regime. Algeria has been facing increased security issues and an unchallenged by aging government, which could lead to political instability.

Agribusiness, and food production in general, will also have to make significant changes in their forms of production in order to meet NCDs. Studies on agriculture have so far failed to indicate the short-term impact of global deals on agribusiness due to the complexities of agricultural systems. Investments in agriculture can be risky due to the varying regulations and the economic impact of climate change on this sector. Careful and efficient planning as well as political cooperation is needed in order to avoid food crises, a peak in global food prices and important economic losses. However, research into organic food production will be far less costly than those in the energy sector, particularly in developing countries. In Rwanda, R&D on smallholder cash cropping have so far cost less than US$2 per person (US$14.2 millions). Investing in green agriculture and food businesses can thus be very beneficial, both from a political and economic point of view as organic food and production is increasingly becoming popular on a global level. Finally, adapting transportation to climate politics will require important investments, mostly in R&D and policy implementation. In order to achieve the EU’s goal, the transport industry will be required to reduce its carbon emissions by 20% for 2020. All transports (except air and navy transportation) are expected to use hybrid, electric or hydrogen energy by 2020. R&D funding is expected to be a problem since investments in this field are unpredictable and uncertain. The majority of EU’s effort to reduce its carbon emission in transport will be regarding its investments in China. However, returns on investments could be important, as there is a growing global demand for greener vehicles and public transport, particularly in Europe.

Nina Rachet has recently completed a MSc in International Public Policy from the University College London (UCL). Currently working as a freelance political analyst, her main interests are climate politics, post-war development and conflict. In the future, she aspires to work on international development and peace projects.

The views expressed in this article are those of the author and do not necessarily represent the views of Development in Action.


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