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Investors react to Paris climate deal

Uwe HesslerDecember 14, 2015

Mining shares and energy stocks have suffered losses following the landmark deal on carbon emissions. Meanwhile, renewable energy firms added value in a first sign a shift in global investment decisions may be underway.

Symbolbild Windkraftwerk Kohlekraftwerk
Image: Reuters

Australian mining shares sagged Monday as the country's stock market was the first to feel the impact of the Paris climate agreement, with fossil fuel companies ranking among the biggest losers.

The sell-off was broad-based, with BHP Billiton down 3.49 percent, Rio Tinto shedding 2.04 percent, and Santos slumping the most ending 4.84 percent lower.

Infografik Globale Entwicklung Erneuerbarer Energien Englisch
Global energy generation is still dominated by fossil fuels that are known to contribute massively to global warming

But analysts said it was still too early to attribute the fall in Australia's traditionally strong mining sector to the results of the Paris climate pledges that aim to limit global warming to below two degrees Celsius (3.6 degrees Fahrenheit) over pre-industrial levels by cutting greenhouse gas emissions.

"It's difficult to strip out what impact there has been, if any, given the day already had so many negatives," CMC Markets chief analyst Ric Spooner told the news agency AFP, pointing to weak oil and iron ore prices in Australia's mining-heavy economy. "That said, it's possible that investors will increasingly start to look to the medium- and long-term future of the oil and gas sector."

Renewables surge

In Europe, home to some of the world's top green energy systems producers, renewable energy stocks rallied on Monday. Norway's REC Silicon, which makes the key raw material for solar panels, surged 10 percent. Shares in wind turbine makers Vestas, Nordex and Gamesa rose by between 2 and 5 percent.

Novozymes, a maker of biofuel technology, climbed 1.2 percent, solar power generator Scatec Solar advanced 2.5 percent, Enel Green Power rose 0.7 percent and Greencoat UK Wind progressed 1.7 percent.

Andrea Williams, European equities fund manager at Royal London Asset Management, told the news agency Reuters that while her portfolio did not currently hold such stocks, the Paris climate deal might lead her to start considering buying up those companies.

"The Paris climate change agreement will definitely help the renewables industry, as it should lead to continued investment in the area by major world economies," she said.

Going Green - EnBW CEO Frank Mastiaux

US investment bank, Goldman Sachs, said the Paris climate agreement would boost the world's low carbon-emissions economy, which it estimated as a fast-growing, $600 billion-plus (547-billion-euro) market.

Along with the wind turbine makers, Goldman Sachs picked electric car company Tesla Motors, solar panel group SolarEdge and chemicals firm Albemarle, which supplies lithium, as strong beneficiaries from the Paris deal.

The Institute for Energy Economics and Financial Analysis (IEEFA), which researches issues related to energy and the environment, said that in the longer term the Paris agreement could, indeed, change investor habits.

"We have long outlined in our analysis that there is significant stranded asset risk in continuing to invest heavily in fossil fuel companies, particularly greenfield development projects," IEEFA analyst Tim Buckley told AFP. "Denial of an inevitable global transformation of energy markets has only served to make the end cost for investors and consumers higher."

Infografik Anteile erneuerbarer Energien am Energieverbrauch Englisch
Germany's shift to renewables has seen a massive built-up in wind, solar and bio-mass energy. But further rising electricity bills may cause some to consider relocating their business to countries with less ambitious climate goals.

German skepticism

Industry lobby groups in Germany, however, remain skeptical about the economic benefits of the agreement, at least in the short term. For the Association of German Industrialists (BDI), the climate pact doesn't go far enough.

"Unfortunately, the agreement falls short of what's needed in terms of a balanced and binding effort to protect the climate," Holger Lösche, a senior BDI official, told the German business daily Handelsblatt. "It means that Germany and Europe will have to continue to protect industries against unfair global competitors."

The Association of German Chambers of Industry and Commerce (DIHK) criticized that in contrast to the Kyoto Protocol, many of the Paris goals were "voluntary commitments."

"It remains to be seen if all major carbon emitting countries will implement those goals," DIHK President Eric Schweitzer told Handelsblatt. "None of those countries have so far made the slightest attempt to follow Germany along the path of its transition to renewable energies," he added.

Hope for carbon pricing scheme

For the most part, big business wanted one thing from the climate accord in Paris: a price on carbon dioxide (CO2) emissions. Multinational companies from oil giant BP to consumer products maker Unilever have called for a globally agreed way of pricing emissions of CO2 to create an incentive for power plants and factories to shift to cleaner forms of energy.

But this was met with fierce opposition from both big oil exporting countries such as Saudi Arabia as well as smaller ones like Bolivia, reluctant to embrace any market-based solutions. Instead, Saturday's landmark agreement was neither fish nor fowl, including an inelegant reference to what some analysts think could eventually build a bridge to a global CO2 emissions trading mechanism.

The binding part of the deal, for the nearly 200 nations that agreed to it, allows countries to use "internationally transferred mitigation outcomes" - also known as cap-and-trade - which could allow nations on a voluntary basis to offset their own CO2 emissions by buying credits from other nations.

That might lead to a tie-up between the European Union's Emissions Trading System (ETS), which is for now the world's biggest market for CO2 emissions permits, and China's planned trading scheme set to be launched in 2017, which will overtake it in size.

It is unlikely to happen as fast as some business sectors say they want. But Jeff Swartz, policy director at the International Emissions Trading Association (IETA), said that showed CO2 emissions pricing would increase regardless of the final Paris deal.

"I think we are going to see a multitude of approaches to CO2 pricing. Some of this will happen at this process and some will happen outside," he told Reuters.