When I learned on Saturday that a climate deal was agreed to by all 195 nations attending this year's climate talks, I had only one regret — that I had to return to the U.S. before the final “overtime” day and did not get to personally see the gaggle of normally-staid and dignified diplomats high-fiving each other.  

During the two-week negotiations process, everyone at the COP thought a deal was a certainty, but I also saw a lot of fingers crossed as I walked around the facility in Paris. 

So what's in the deal and what does it mean to you?

Let’s look at the key elements of the agreement and the takeaways for the electricity sector.

What’s in the deal

In a big move, the agreement calls for “efforts” to try to limit temperature increase to 1.5 degrees Celsius by 2100, while effectively committing to a target of 2.0 degrees.

Emissions reductions

The crafting of the deal never really talked specifically about tons of CO2 reduced. It has relied on a computation that combines reductions in tons of CO2 (or CO2-equivalent) with other efforts that might create a “sink” and take greenhouse gasses out of the atmosphere (e.g. forest growth and expansion). That computed number is then tied to outcome scenarios such as sea level rise, icecap melting, etc. 

A poignant fact at the COP was that practically no one disputed this method, and no one disputed that a number of island nations would disappear under the 1.5 degree scenario. Most importantly, no one seemed to dispute that the emissions reduction pledges made by countries prior would not keep things at a 2 degrees scenario, unless efforts are ratcheted up beyond what is in the final agreement.

Transparency

These commitments are great, especially when no one really ever checks to see if you are keeping one that you made. This was a major issue right up until the end, with a push from the U.S., EU, and developing nations for a monitoring process and a review of contributions every five years where nations would undergo a more serious review. The five-year mark was discussed as a time when additional contributions might be brought forth if there is a demonstrable need.

Funding

Everyone tried to follow the money during the two weeks of COP 21. There was a tremendous amount of ante-ing up by the private sector and various governments during the talks, but everyone knew and agreed that it was not enough. The final deal has a large target of $100 billion in investment. That money has to come from a lot of places and it has to come fast. There is not a lot of detail on that in the final deal, and not a lot of teeth for extracting it. But the mood at the COP was not dampened by the unknowns regarding this issue.

I personally cannot think of a scenario where the money will not eventually come based on the seriousness of the situation. That may sound like I am suddenly suffering from blind optimism. But just as countries and sub-national entities have played chicken and exercised brinkmanship on emissions reductions in the past, they will certainly do the same when it comes to forking over money. 

Like a battleship making its well-known slow turn, the Paris Climate Accord is going to cause all sorts of funding channels and mechanisms, both private and public, to shift where the money goes. Funding climate mitigation and adaptation is going to rise in priority.

Is the deal real?

Can you name the last time 195 nations agreed to the words on any one document? I can’t. 

Given the seriousness of climate change scenarios, I don't see this deal getting scuttled or getting stuck on the shelf. My view is that it will not only stick, it will be modified to get more aggressive over time as more climate data (and awareness) exists and a greater need for action is identified. 

I recently described the structure of the then-likely deal as akin to the policy “vehicles” that are often created in Washington. Once established, the gas pedal can be stepped on if the situation calls for it, and more fuel can be put in the tank if necessary. The important thing is that you don’t have to go back and build a new car each time you want to do something or react to something.

Will countries cheat on their commitments?

Of course, some will try. But the key thing about COP-21 is that no country was against a deal even before coming to Paris. No country at the COP was denying climate change. No country is unaware that when it comes to climate change, the whole world is now watching the whole world. And the deal does contain important provisions on transparency and reviews.

There is the obvious question of whether a country might simply change politics and adopt a denialist position. But while some in a legislative body (such as our Congress) might maintain that approach, will a national leader do so in the face of rising public awareness and support for addressing climate change, and potentially see themselves judged for having led their country in the wrong direction? I don't think so. 

Takeaways for the U.S. electricity sector

The elements of the agreement will be the key talking points surrounding the deal, but what does the deal mean for the U.S. electricity sector?

Here are 5 takeaways:

1. The CPP is stronger than ever

Thanks to the global agreement in place, the EPA Clean Power Plan (CPP) is now even more embedded than before. 

The Paris Accord will not change the CPP, but it will bolster support for it. As part of the deal, the U.S. has agreed to reduce greenhouse gas emissions by 26% by 2025. The CPP, which aims to reduce CO2 emissions from the power sector 32% by 2030, is one of the main ways the U.S. is making its contribution to the climate deal.  

The idea that the U.S. should not act on carbon has been fading, but now one of the key practical reasons that opponents have used is gone. That is, the U.S. would be acting unilaterally and that the rest of the world would be free riders. Another argument, that it is too costly and uneconomic, is also losing steam as the rest of the world has agreed emissions reductions are the "smart" thing to do. 

Yes, there is always a strain of isolationism in the U.S. and some will still make the argument that we shouldn’t or don’t need to do anything. However, the existence of a global agreement bolsters the CPP and makes it politically more difficult to eliminate, even under a new president who may not like it.

Based on my numerous discussions in Paris with delegates from other countries, the U.S. may get a lot of visitors in the near future as others look at the CPP and how states are putting together their compliance plans.

2. Business decisions will be made with climate in mind

Climate is going to increase in prominence as a filter, screen or criteria in all sorts of decision-making processes – especially on funding. 

The financial sector – in particular, the insurance industry – has paid sharp attention to the risk of climate change in recent years. This has flown somewhat under the radar but started to become more evident over the past year (even at the World Bank). In Paris, this trend burst onto the scene with a high degree of visibility. 

Financing and issuing insurance is a business that relies on numbers and time periods. That sector is starting to act based on both when it comes to climate as they further analyze the risks of climate change and the potential for stranded assets, which is higher than it was before the COP agreement for carbon-based facilities. You quite can’t draw a straight line between the two, but the indirect impact will start to show up.   

3. Support for carbon pricing is growing

There will be more support for carbon pricing. This was a main topic of both formal and informal discussions at the COP. In fact, page 19 of the accord includes the provision that participating countries "[recognize] the important role of providing incentives for emission reduction activities, including tools such as domestic policies and carbon pricing." 

Carbon pricing does not refer only to a carbon tax. Cap and trade is considered carbon pricing, and there was a lot of discussion in Paris about what the governments of Quebec, Ontario, and California have been doing in that area. The little-known success of the carbon tax in British Columbia was also talked about.

I believe most people, once they agree on the need to address climate change, gravitate towards the sensibility of a carbon tax or some other way to embed carbon pricing. Various business executives over the years, including some prominent ones from the utility industry, have spoken of a carbon tax as a tool that makes sense if emissions are to be reduced. I see the Paris agreement as a new platform for some of the groups in the U.S. that have been quietly working behind the scenes to find a way to price carbon, whether it be in a state compliance plan or legislation at the national level.

4. Energy opportunities emerging in developing countries

The opportunities for cleantech and smart grid companies abroad should increase significantly as a result of the climate deal.

Remember: Key to this deal was assuring the developing world — including India, which some say will overtake China at some point as the number one emitter, yet for UN classification purposes is a developing country — that they can join the “developed” world. 

Get familiar with the words “energy access," as that is what these countries are trying to give their people, while simultaneously building out their economies and keeping their emissions in check. That will be no easy feat, but it opens up a lot of opportunity for U.S. companies. One of the things that stood out for me at this COP was the high level of interest among delegations from countries around the world in what the U.S. is doing in emerging areas such as demand response, microgrids, distributed energy resources, and more. 

The post-COP world will see countries trying to refine their individual plans that they submitted to the UN going into the COP. They are hopefully using some of the ideas and examples they learned about at the COP. Institutions like the Global Green Fund and the World Bank and programs like Power Africa and the various efforts of USAID and the U.S. Trade and Development Administration have already talked about how they are gearing up to help these countries.

5. R&D is getting more validity because of Paris

Everyone agrees that there is no lack of technology options to address climate change – both in terms of emissions reductions and sequestration. But in the discussions held at the COP and in the words of Bill Gates and his new band of funding brothers, the need for new “things” is becoming accepted as something that will be necessary to reach the 2 degree cap. That means the electricity sector is going to be looking at even more technologies coming down the road that will help lower emissions further and better optimize operations.

Looking ahead

In my first event since returning from the COP, I attended an electric utility industry event yesterday that featured several utility executives and other industry experts. The topic was not about Paris or even climate change in general, but when it came time for the Q&A, someone in the audience asked what they thought of the climate agreement that was reached there. The responses were what I will call “pre-COP” answers in that they ranged from comments about the economics, and the willingness of the rest of the world to do something, to the caution and deliberation that the U.S. should exercise in addressing climate change.  

It will be easy for some to label COP-21 as a protected bubble where everyone was drinking the same kool-aid. But that falls apart when you look at the make-up of the people who were there. It was not just environmental activists. The utility sector was there. The financial sector was there. Local governments, including many U.S. governors and mayors, were there. This was not some temporary, feel-good tent city. This was an assembly of the people that understand climate change and how to address it. It was not only the creation of a common worldwide platform and framework for addressing climate change; it is a partnership among nations, business and NGOs that is only going to grow. 

Climate change is like an illness that has symptoms and needs options for treating it. Paris will be remembered as something akin to a medical convention where all the doctors in the world agree that an outbreak was underway and intervention is required before serious consequences occur. My hope is that Paris will be remembered as the place where the world started to take its medicine and get back on the path back to good health and the prosperity that comes with it.