History was made over the weekend as over 190 countries affixed their signatures to the COP21 climate change agreement in Paris.
The treaty – which takes effect from 2020 – is a binding agreement that involves nations limiting global warming to 2 degrees celsius above pre-industrial levels, and going carbon neutral in the latter half of this century.
Additionally, the deal will eliminate the use of coal, oil, and gas for energy as well as provide financing for renewable energy initiatives to poorer nations.
Needless to say, the agreement could have a profound effect on oil and gas producers like Woodside Petroleum Limited (ASX: WPL) and Santos Ltd (ASX: STO), as well as coal miners like New Hope Corporation Limited (ASX: NHC) and WHITEHAVEN COAL LIMITED (ASX: WHC).
If the agreement is followed diligently – an open question, considering how often the previous Kyoto protocol was ignored – it seems likely that many of these companies could cease to exist in 50 years or so.
Even if they're not legislated out of existence, pressure is mounting on companies to abandon fossil fuels. Australia's largest electricity providers, Origin Energy Ltd (ASX: ORG) and AGL Energy Ltd (ASX: AGL) have both already undertaken to abandon coal power by 2050 and grow their renewable energy portfolios. These initiatives are likely to accelerate after the agreement in Paris.
On another front, Australia's big banks like Macquarie Group Ltd (ASX: MQG) and Commonwealth Bank of Australia (ASX: CBA) are being pressured to limit or reduce lending to fossil fuel companies, especially miners.
While many of these businesses can also source funding from overseas, Australia's resource companies do employ a significant amount of debt and reduced lending or higher interest rates from Australia's commercial lenders would certainly be a negative outcome.
As with many other agreements of this type, there is absolutely no rush to abandon your fossil fuel stocks. Increasingly, however, investors will have to look for alternatives over the next few decades.
