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Ahead of the UN Conference of the Parties in 2021, signatories to the Paris Agreement work towards various climate goals. Freddie Fuller, European Equity Product Specialist, and James Jamieson, Portfolio Manager, RBC Global Asset Management (UK) Limited, discuss the events over the course of the year that have impacted climate action across the globe, and whether we are on track to reach the Paris targets. [10 minutes, 10 seconds] (Recorded December 15, 2020)

Transcript

Welcome, everybody. I’m Freddie Fuller, the product specialist on the European Equity Team, and I’m joined today by James Jamieson, portfolio manager on the desk. And we’re going to consider the international progress that’s being made towards the target set out in the 2015 Paris Agreement, something, James, we’ve seen some very big moves in even the last year or so.

Hi, Fred. There certainly have been many important developments, which is actually impressive to my mind, given the general disruption of COVID, but also bearing in mind that the UN Conference of the Parties, which is the big annual symposium where Paris Agreement signatories meet to discuss their progress, is on recess until November 2021. So the action we’re seeing coming through right now is very much proactive rather than just reactive ahead of the event, which is encouraging.

Yeah. Absolutely. And it’s very tangible, especially that progress within Europe. The most obvious one, I suppose, is the green deal, which does what it says on the tin, but followed in very quick succession by the EU Recovery Fund. And importantly, 37% of that is earmarked to green initiatives, whilst not necessarily unprecedented I think we can agree is pretty unique.

Absolutely. These are major milestones in the journey. Europe gets an awful lot of airtime on this subject, so perhaps what’s more interesting is to look at some of the progress coming through elsewhere in the world from countries that are significant or even more significant in some cases with regard to the future trajectory.

Yeah. Very true. And I suppose the obvious one is the United States and with the Biden victory in the recent presidential election. This is very important because President-elect Biden has made it very clear from the outset that rejoining the Paris Agreement would be one of his number one priorities. And that’s important in a global context because the U.S. is the number two emitter of greenhouse gases in the world at around 15%.

Yeah. Ultimately, apart from anything else, they are the leader of the free world, and the leader of the free world has been totally absent from the decarbonization discussion since Trump took office four years ago. As of today, going forward from now, they will be part of it. In fact, they’ll be absolutely leading it, as climate change is a core policy initiative for the Biden administration.

But is the potential at least for a divided Congress potentially going to stymie the efforts of this administration, do you think?

I think it probably does, yes. But whatever comes to pass in January when the conclusive outcome of the Senate arrives, lots can be pushed through regardless, and that’s what we need to keep sight of at this point. Biden’s already committed the U.S. to rejoin the Paris Agreement and appointed a special envoy on the climate crisis. And let’s not forget the huge fiscal spend will be mobilized, with the Democrats currently targeting $2 trillion of investment into green initiatives over their four-year term, which is major.

Yeah. These are extraordinary spending figures. And if we take a step back from, well not just the U.S. but the west in general, it’s very encouraging to see that momentum is picking up elsewhere, especially in Asia as well, isn’t it?

Certainly seems to be the case, Fred, yes. Look at China who, well to my mind are often misconceived when it comes to their climate endeavours. By way of example, people are very often surprised to learn that 25% of their power generating capacity is already from renewable sources. Now it’s true to say that they’ve historically been shy to set targets, but it does seem they’re now beginning to formally commit. Just recently at their address to the UN, they’ve pledged to be net zero by 2060, with carbon dioxide emissions peaking in the coming decade.

And it’s not just grandiose gestures and wayward targets. They’ve also outlined how they will get there, with two of their four main points in their five-year plan relating specifically to climate, the first very directly being less pollution, and the second, more indirectly, is upgrading infrastructure and sort of traversing up the value chain, within which climate is a very important factor.

Fredddie Fuller: Yeah. Of course, in about, give or take, a third of global emissions and perhaps more personally two-thirds of the growth in CO2 emissions in the last 20 years, they are the big delta. They are the keystone in this, and that’s why we need to focus on it. And stemming partly at least from this announcement, Japan and South Korea have now each come forward with what we would term as I think an assertive new direction, both now explicitly targeting net zero but by 2050 rather than 2060. So slightly earlier than China.

And again, looking at the numbers, Japan is the fifth biggest emitter in the world, so this is another potentially big input into the equation. Albeit, as with many things in this realm, questions are being raised. Criticism is being raised as to whether or not this can be brought to fruition in this timeline given Japan’s heavy reliance on fossil fuels, especially since its move away from nuclear power, post-Fukishima. But despite this, I think we can probably say that progress is definitely being made.

Yes, indeed. Thinking it through, Fred, there is one anomaly in this region which comes to mind, and that’s India. Now India are known as the number four emitter. It’s about 7% of the total. And they’ve been making incredible inroads in recent years with a very aggressive buildout of solar capacity specifically. A good place to do so.

But unfortunately, COVID has derailed the path they were on. It’s not to say that their commitments don’t remain firm, but unfortunately, the reality for now at least has seen a slowing of progress.

So if we can remove—I know it’s very difficult to do, but remove the COVID disruption from this, we can look at it as predominately positive changes. But given we are talking about this in the context of the Paris Agreement, I guess the question we really need to ask ourselves is does all of this positive change in aggregate set us on course to hit the target set out in the agreement?

In a word, I think we can plainly say no, it doesn’t.

Right.

If you take the world’s commitments to date and you model them out, obviously there’s lots of assumptions involved, but the world is currently on a course to see temperatures rise by just shy of 3 degrees Celsius by 2050. And that compares with the Paris target we have set of a 1.5 to 2 degree rise.

So clearly we are a very long way off. However, the important point to stress is that the direction, particularly over this last year, is absolutely the right one. We now have the two world superpowers finally getting busy. And from my perspective, this should certainly serve as a catalyst for other countries to follow suit exactly as you’ve mentioned with Japan and South Korea.

Yeah. And this is paramount, isn’t it? This is the key, which is getting onto that Paris trajectory is predicated on global cooperation, everyone doing their bit. And, you know, there are examples of potentially game-changing movements, I suppose, to facilitate getting onto those trajectories. The obvious one is a universal carbon market.

Now, regional progress has certainly been made on this, and there are now around 60 carbon pricing initiatives globally at the moment, and long-standing initiatives to support the growth of this number. You just look at the International Carbon Action Partnership, which serves as a forum to bring about these.

Yeah. I mean, look, it’s great that efforts appear more universal and aligned now, but as you say going forward they really need to come together for the targets to be hit.

The only unity point, and bringing it back to Europe, I think others accelerating their actions really serves to spur on European companies, because European companies are the leaders both technologically and in sheer scale across many of the green verticals. So there’s also this rather interesting dynamic of a constructive rival that should begin to come through, which is yet another positive.

Yeah. Well, there we are. A whistle-stop tour of international progress towards the Paris Agreement. That’s all we have time for this time. Thanks, everyone very much for tuning in and thank you, James.

Thanks, everyone.

Disclosure

Recorded: December 15, 2020

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