I'm staying at the Peninsula Hotel in the 16th arrondissement of Paris right now. It's one of the city's most affluent neighborhoods and centrally located among some of Paris' most popular historic landmarks. For instance, just downstairs from where I'm sitting is "Le Bar Kléber," where U.S. Secretary of State Henry Kissinger signed the Paris Peace Accords that ended the Vietnam War.
But I'm not here for the history. This trip is about the future of energy markets, and the Paris Climate Agreement that was signed barely seven miles from here, in the small town of Le Bourget.
You see, as of the European Union's acceptance of the agreement this month, more than 190 members of the United Nations Framework Convention on Climate Change (UNFCCC) have signed the agreement, and 81 members have ratified it. That's enough to bring the treaty into force on Nov. 4.
Now, regardless of how you may feel about climate change, the Paris Agreement is fact - soon to become a legally binding one. The rules covering greenhouse gas emissions are going to change, but most importantly for investors, we'll see changes in energy markets and finance.
It makes good sense to prepare for these changes, and I'm in Paris to help you do just that. The City of Light is home to the International Energy Agency and many of the biggest players in the global energy game.
This city, and France as a whole, are at the leading edge of an energy trend - one that the Paris climate pact will only intensify.
It's going to change a lot, but we should see the most profitable changes here first...
With Nuclear Power, France Has a Head Start
I've found much more support for the agreement among my energy contacts here in Paris than I expected - at least when it came to the effort to reduce reliance on hydrocarbons like oil, natural gas, and coal.
Officially, last year's Paris summit was the 21st session of the UNFCCC membership; the conference had been working towards this deal for more than 20 years.
As Article 2 of the Paris agreement states, its objectives are threefold:
- (a) Holding 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 above pre-industrial levels, recognizing that this would significantly reduce the risks and impacts of climate change;
- (b) Increasing the ability to adapt to the adverse impacts of climate change and foster climate resilience and low greenhouse gas emissions development, in a manner that does not threaten food production;
- (c) Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.
Signatory countries also aim to reach "global peaking of greenhouse gas emissions as soon as possible."
At least, that's the idea.
As my colleagues here are quick to point out, both France as a whole and Paris in particular have already embraced the fuel concerns addressed by last year's climate accord.
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France already leads the world in generating electricity from nuclear plants. About 75% of the country's power comes from nuclear, although there are moves to reduce it to 50% by 2025 with the introduction of more renewable power.
This commitment to nuclear power is quite remarkable. It has made France more energy self-sufficient than any other member of the union, contributing to robust energy security.
But that's not the only benefit to France's nuclear strategy...
Nuclear Power and Know-How Are Huge French Exports
According to a July 2016 World Nuclear Association (WNA) report, France exports more electricity than any other country on the planet. That is largely a result of how cheap nuclear power is to produce, resulting in more than €3 billion ($3.3 billion) a year in export revenue - and the best domestic tariff regimen on the continent.
The nuclear sector also provides another active export market: Reactor technology, along with processed fuel and related services, provide opportunities for exports to broader markets. Third, as the WNA report noted, about 17% of all French electricity comes from recycled nuclear fuel.
The French nuclear sector looks picture-perfect, but not everything is so positive.
Despite being an active, vocal contributor to any initiative (like the Paris Climate Agreement) intended to lower the carbon footprint, French public support for nuclear power is declining.
Some of this results from increasing fears of accidents, even though the French have a spotless record here. Supporters of solar and wind power also criticize the reliance on nuclear reactors. But most criticism comes for the high costs of maintaining the nuclear infrastructure, and the steep bills coming due for refurbishing aging nuclear power plants.
Nevertheless, nuclear power will likely be one of the "winners" in the post-Paris Agreement world - especially in Asia where its adoption is strong and where there is little resistance - and exchange-traded funds like the Market Vectors Nuclear Energy ETF (NYSE Arca: NLR) should respond accordingly.
There will be losers, too; the Agreement will change much more than nuclear power. For instance, unlike the United States where fracking is of course very much a reality, it has little hope of catching on in France and the wider European Union.
Indeed, there are restrictions on fossil fuels here that would be all but unthinkable in the U.S. at this point.
In Paris itself, there are also moves already underway to curb car pollution. In a landmark decision, by July 1 of this year all cars produced earlier than 1997 and all motorcycles built before 2000 have been restricted from all city streets during the week.
All diesel-powered vehicles will be prohibited in 2020. And it's not just Paris - similar moves are being considered in London, have been passed in Frankfurt, and will be on the agenda throughout the rest of Europe.
As I've discussed in my twice-weekly Oil & Energy Investor service, there are still some significant hurdles to overcome before the lofty goals set forth in the agreement can be put in to practice. But, one year after signing and mere weeks before coming into force, the Paris Climate Agreement remains an attractive prospect for energy players here in Paris.
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About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.