Paris Climate Change Agreement Will Officially Enter Into Force: What Businesses Need to Know

President Obama announced yesterday that the Paris Agreement has reached the minimum threshold for ratification and will officially enter into force on November 4th. First backed by an unprecedented 195 nations at the COP 21 conference in Paris last December, the agreement primarily revolves around coordinating efforts to prevent global temperatures from rising 2 degrees Celsius, and keeping the increase as close to 1.5 degrees Celsius as possible.

The agreement required official ratification from at least 55 nations that account for at least 55% of worldwide carbon emissions to go into force. Just weeks after the US and China—together accounting for about 40% of worldwide emissions—ratified the agreement in a rare bilateral move, the United Nations announced that the threshold for ratification had been met.

What This Means for US Climate Change Efforts

While praising the rapid international support for the agreement, President Obama said “what once seemed unthinkable now seems unstoppable.”

For businesses and other large energy users, “unstoppable” is especially important. In April, the Washington Post published an article explaining the importance of the Paris Agreement officially entering into force:

The Paris agreement does not state or limit when it can go into effect — it simply depends on when enough countries formally sign and join it. If that occurred while Obama is still in office, “then the next president could not withdraw until sometime in 2019, and the withdrawal would not be effective until sometime in 2020,” said Daniel Bodansky, a scholar of international environmental law at Arizona State University and a former attorney at the State Department focused on climate change.

Specifically, Article 28 of the agreement stipulates that ratifying nations cannot withdraw from the agreement until three years after it has entered into force. Even then, the country will not be officially released from its commitment for another year. So if the next president wants to remove the US from its commitment to the Paris Agreement, he or she will not be able to until November 2020.

So even while some of the individual energy- and emissions-related legislation and policies enacted under President Obama face legal scrutiny, the country’s commitment to reduce emissions will remain intact until at least 2020, regardless of how the political outlook changes.

What This Means for the Business World

One of the key objectives of the Paris Agreement is “[m]aking finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.” With the agreement officially entering into force, businesses and investors are preparing for a world where energy efficiency is a competitive differentiator.

Shortly after COP 21 last December, Fortune published an article that captured investors’ growing demand for transparency into emissions-related efforts following the climate change summit.

“The trend is still small, compared to the estimated invested global capital of more than $100 trillion,” the article explained. “But bankers and CEOs attending the Paris talks said they expect more and more companies to begin declaring their risks to climate change, and to the potential for limits on carbon emissions—something they say investors will increasingly want to know.”

Responding to UN Secretary-General Ban Ki-moon’s call for the investment world to drive changing behavior among energy-intensive businesses, Mindy Lubber, President of Ceres and Director of its Investor Network on Climate Risk, suggested that investors are going to favor businesses that are better prepared to meet the demand for data showing carbon emissions.

“Investors are better positioned than ever before to address climate risks and seize the economic opportunities presented by clean energy,” Lubber said in a UN press release. “Ultimately, global investment portfolios need to shift far more capital to low-carbon business activity and away from risky high carbon sectors that may perform poorly in the years ahead.”

Read the strategy brief from Enel X and PwC to see how businesses are re-thinking their energy strategies.
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Authored By Colin Neagle

Colin is a marketing manager for Enel X North America and editor-in-chief of the EnergySMART blog.

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