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By Russell Waite, of Affinity Private Wealth
As I write this article, heatwaves are affecting three regions worldwide simultaneously – China, southern Europe and the US are all currently experiencing dangerously high temperatures.
Death Valley, in California, has seen the mercury hit 54°C and forecasters are warning temperatures could reach a high of 46°C in mainland Europe. Heading east to China, a record temperature of 52.2°C has been reported in the Sanbao township in the country’s north-western Xinjiang region – a jump of 2°C on its previous record. Somewhat ironically, this comes only a few months after China reported its lowest ever temperature (-53°C) in the northern city of Mohe.
Climate change now appears to be happening in ‘real time’ and the global commitments towards reducing greenhouse gas emissions and decarbonising the world’s economy have become critically important.
The Paris Agreement is the legally binding international treaty on this issue and was adopted by 196 parties at the UN Climate Change Conference (COP21) in Paris, France on 12 December 2015.
The agreement aims to substantially reduce greenhouse gas emissions to limit the global temperature increase in this century to 2°C above preindustrial levels, while pursuing the means to limit the increase to 1.5°C.
An important policy mechanism underpinning these ambitions is ensuring polluters suffer a cost for the carbon they emit. In other words, this becomes a standard component of a company’s income and expenditure statement, and a rising carbon price incentivises them to transition their business to a decarbonised model.
As the need to price carbon to reflect its true cost to society and the planet has become accepted, the decision moves on to pricing it. Various approaches have been adopted around the world, with the latest being a carbon tax in the form of the carbon border adjustment mechanism being introduced by the EU in 2026. This will result in importers having to pay for the ‘embedded’ emissions in the products they bring into the economic bloc.
It seems safe to assume that there is no path towards limiting global warming and achieving the necessary transitions across the energy, materials and food systems without the use of carbon pricing further expanding and intensifying globally.
For finance directors, ‘cash’ will always be king; but carbon could eventually become a member of the royal household.
