What investors need to watch for at the Paris climate conference

What investors need to watch for at the Paris climate conference

As the United Nations climate summit in Paris approaches, investors would do well to keep watch on key issues including renewable subsidies, energy efficiency and China’s changing role in the energy landscape, according to energy information provider Entelligent’s quarterly newsletter, entelligent.insights.

The conference, which aims for a binding agreement among nations on keeping global warming in check, comes amid an energy landscape increasingly moving away from fossil fuels and embracing renewable energy, offering investors opportunities if they know where to look.

As governments look to meet emissions commitments hammered out at the meeting, they will consider three main ways of doing so — carbon taxes, shifting subsidies to renewables from fossil fuels and improving energy efficiency.

Entelligent’s modeling, based on Climate Interactive’s En-ROADS, shows that scenarios involving these policy changes would begin a process to lower annual greenhouse gas emissions, a step critical for nations to achieve their carbon reduction goals.

Key points for investors to watch for at the Paris include comments and commitments on government subsidies and taxes.

Even though subsidies can be controversial, they are here to stay, and investors can learn to profit by navigating regulatory waters that are shifting as subsidies for renewables displace those for fossil fuels, writes Entelligent CEO Thomas H. Stoner Jr.

Declining fossil fuel subsidies from international banks will probably be the first wave of change, followed by equity markets becoming increasingly geared toward renewables, he writes.

Shifting away from fossil fuel subsidies — and, to an even greater extent, taxing carbon emissions — will be key to realizing a win for environmentalism,” Stoner writes.

As that happens, investors stand to benefit by tracking changes in subsidies like investment and production tax credits. There is room to find investment opportunities when companies will benefit from a tax-advantaged status, like that enjoyed by master limited partnerships, he writes. 

Lori Siegel, senior modeler with Climate Interactive, writes that the Paris accords will present investors with opportunities.

“Nearly any agreement in Paris will achieve a positive impact versus business-as-usual, as governments change domestic energy policies to meet their climate commitments and investors respond by choosing, or choosing not, to invest in new technologies,” she writes.

It is energy efficiency that is often overlooked by investors in an age of industrial-scale solar and wind farm projects, writes Brandon Shenfield, an energy storage developer and energy analyst.

The trend for improvements in appliances, lighting, heating and cooling infrastructure and insulation stands to help utilities retain more customers and is expanding the market for intelligent technology based energy management systems, Shenfield writes.

For instance, Google last year paid $3.2 billion for Nest Labs, which makes next-generation thermostats and smoke alarms that work with smart phones.

While important, governments shouldn't just focus on energy efficiency, Shenfield argues. He says that would leave electricity more expensive than a carbon reduction approach that also involves carbon taxation and renewable subsidies.

Even as governments consider these issues, a key shift toward lower emissions has already been underway in China, which has stopped increasing its coal use and is boosting nuclear, hydro, wind and solar projects, writes contributor Robert Hutchinson, an energy industry consultant and senior fellow at the Rocky Mountain Institute think tank.

As the Asian giant continues to pursue these policies, it is likely to use “its size and scale-up ability to provide energy-efficient products to global consumers, just as it now produces and sells the lion’s share of the world’s photovoltaic modules,” he writes.

For investors, China flexing its renewable muscles may continue altering global energy equipment markets, according to Hutchinson.

“It represents a fundamental change in the cost of both renewables and efficiency that is already beginning to change the game,” he writes.

Members can view current and past newsletters in their entirety at https://www.entelligent.com/newsletters.

Matt Whittaker is a journalist specializing in natural resources coverage. His work has appeared in The Wall Street Journal, Barron’s and other international publications. He has reported from the Americas, Europe and Asia.


Originally published on November 23, 2015