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China and US ratify Paris climate deal

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On the eve of the of the G20 summit in Hangzhou (4 to 5 September 2016), the US and China announced they would formally ratify the Paris climate change agreement. This is a significant step forward in combating global climate change. The two countries are the world’s largest emitters of greenhouse gas.

 

Allianz SE
Munich, Sep 05, 2016

Allianz-China and the US, the world’s two largest emitters of greenhouse gases, have ratified the Paris climate deal

China and the US, the world’s two largest emitters of greenhouse gases, have ratified the Paris climate deal

Considered as having seemingly insatiable fossil-fuel appetites and resistant to changing their energy status quo, China and the United States might not be considered interesting markets for investing into renewable energy infrastructures. Not so according to findings of the Allianz Climate and Energy Monitor, which ranks G20 member states on their attractiveness as potential destinations for investment in low-carbon electricity infrastructure.
 
For one, the investments needed to be in line with a 2° C global warming target in these two countries are tremendous. Of all the G20 countries, China and the United States have the highest financing gaps in achieving the required 2° C trajectory by 2035: 208 billion US-dollars per year in China and 141 billion US-dollars a year in the United States. In addition, with a significant dependence on hydroelectric, thermal and nuclear power, their current electricity infrastructures are particularly vulnerable to climate change manifestations such as drought and flooding.
 
From an investor perspective, China and the United States have attractive national climate and energy policies, a mature renewables market and generally good national investment conditions. Surprisingly, China ranked even better than the United States in the Monitor’s attractiveness score.
 
In 2011, China produced 70 percent of its energy from coal and emitted more carbon dioxide than the next two largest emitters combined (the US and India). Now committed to improving their air quality, Chinese energy experts estimate that by 2050, the percentage of China's energy needs being satisfied by coal-fired plants will have declined to 30 to 50 percent of its total energy consumption. Already today, China installs more windmills, solar panels and hydropower dams than anywhere else in the world. There are, however, inherent problems for an investor such as an underdeveloped funding landscape and uncertainties around the legal framework.
 
The United States, on the other hand, is only moderately invested in renewables – at least compared to other G20 countries – and action on the ground is mostly dependent on state not federal policy-making. This makes the United States a more fragmented market, where initiatives like The President’s Climate Action Plan are only taking root in some states like California and Texas. A cohesive, long-term climate energy policy can only help. However, its fate is dependent on the will of the people being played out in the current presidential election.
 
The takeaway here is that a clear political commitment and mandate to the low-carbon transition can lead to rapid change both for energy systems and the environment. 

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As with all content published on this site, these statements are subject to our Forward Looking Statement disclaimer:

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Nicolai Tewes
​Allianz SE
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