What will the Paris Agreement mean for hydropower development?

After two weeks of intense negotiations in Paris, 195 nations have agreed on a plan to hold the “increase in the global average temperature to well below 2° C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 °C”.

World leaders celebrate the Paris Agreement

The deal includes commitments from 186 of the 195 signatories to cut or limit the growth of their greenhouse-gas emissions, marking the first time that any United Nations Framework Convention on Climate Change (UNFCCC) agreement has formally included a greater ambition than a 2° C target.

Moreover, the signatories agreed to reconvene every five years to evaluate their progress and steadily increase efforts, working towards the “well below” 2° C goal. In this sense, the Paris agreement is just the beginning of a much longer, and more challenging, programme of change.

While it is still early to understand the full impacts of the Paris Agreement on the renewable energy industry, including the hydropower sector, the agreement has sent a strong signal to business and investors that we are entering a new, low-carbon era.

It is particularly relevant to note that the text of the agreement acknowledges “the need to promote universal access to sustainable energy in developing countries, in particular in Africa, through the enhanced deployment of renewable energy”.

In order to achieve the ambitious targets set out in the Paris Agreement, all industries will need to work closely with governments to meet goals in emissions reduction and mitigation measures.

The agreement may drive financial institutions and investment funds to, increasingly, shift their portfolios away from fossil fuels into renewable energy technologies and may encourage governments to invest in more research on new forms of electricity generation and energy storage.

Trends have already started moving in this direction. The World Bank and other multilateral institutions, as well as some companies, are already implementing a shadow price on carbon for all new investments.

While a global carbon price was not established by the Paris Agreement, individual governments may be more likely to establish or join existing schemes that place a price on carbon at either a local, national or regional level.

It is generally expected that utilities will be required to reduce their reliance on certain fossil fuels, especially coal, and strive to increase the proportion of clean and/or renewable sources of energy in their mix, as well as increasing the focus on promoting energy efficiency measures.

The stronger pressure coming from the Paris Agreement and the regular review cycle will likely help to ensure support for hydropower within renewables policy frameworks."

These policies may benefit hydropower developers and operators, although they will need to be able to demonstrate that the greenhouse-gas emissions produced by reservoirs are low on a site-specific basis.

IHA has been working with UNESCO to develop a tool to accurately estimate the greenhouse-gas emissions profile of freshwater reservoirs – the G-Res tool (this project is now entering the testing and validation phase).

A global agreement requiring local action

While the Paris Agreement will have global implications, its implementation will take place primarily at the national level. Individual countries will strive to meet the voluntary commitments made in their Intended Nationally Determined Commitments (INDCs).

These INDCs are expected to shape the policy environment around the energy industry going forward. Policies will likely include both “carrots”, such as government support and subsidies for renewables, as well as “sticks”, such as carbon pricing.

The binding requirement for review and resubmission of increasingly ambitious plans every five years may also help maintain the pressure to implement and maintain supportive policy environments for renewables.

Each country will make its own decisions about how to address hydropower in its energy policy, but the stronger pressure coming from the Paris Agreement and the regular review cycle will likely help to ensure support for hydropower within renewables policy frameworks.

The Paris Agreement has also established the need for a stronger and more consistent monitoring and reporting framework for national greenhouse-gas inventories.

These two aspects could also impact hydropower development; some reservoirs are shown to be carbon sinks, while others may face increased pressure to demonstrate their carbon footprint.

Paris did not produce a significant increase in climate finance commitments or pledges beyond previously established, loose and largely unspecified intentions to provide USD 100 billion annually to help developing countries pay for climate change mitigation and adaptation measures.

However, the private sector, NGOs and subnational level actors were well-represented in Paris, indicating that the real climate finance impact could come from non-state actors through private investment, technology transfer and research initiatives.

The full impacts and implications of the Paris Agreement cannot yet be fully understood. IHA will continue to explore the impacts of the agreement, particularly through analysis of the respective country INDCs. In what ways do you think the COP21 agreement will impact the hydropower sector? Tell us what you think and join the conversation on the IHA Climate Change Knowledge Network. You can find out how to join the network here.

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