2016: climate outlook global · 2016-01-15 · 2 climate change global 5 january 2016 looking back...

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Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it. Issuer of report: The Hongkong and Shanghai Banking Corporation Limited View HSBC Global Research at: https://www.research.hsbc.com With a climate agreement in place, the emphasis is now on national governments to deliver targets; elections pose a risk Social impacts are rising up the agenda, as extreme weather is a factor in livelihood destruction, migration, and conflict Financial support continues to flow towards a low-carbon transition and adaptation in developing countries From global to national: We expect a focus on policy for Agreement delivery. The global consensus of staying under 2°C signals a global commitment to transition towards a low-carbon economy and adapt to climate impacts (see COP 21: Paris Agreement, 14 December 2015). Next steps are ratification in April and a synthesis report to add up emission reduction efforts in May. We expect the most important factor for sentiment towards climate action in 2016 to be the result of the US election. Election of a Democratic candidate should be positive for current climate policy in the world’s second largest emitter, whereas a Republican victory could pose risks. Early indications suggest that new governments in Australia and Canada are more pro-climate than predecessors, and we expect China’s 13 th Five-Year Plan to step up climate effort. We discuss potential policy developments from page 3. From physical to social: We expect a focus on food, population, and conflict. The Paris Agreement recognised the “urgent and potentially irreversible threat to human societies” from climate change. So far the impact of warmer temperatures has centred on physical changes, but we think new studies will emerge on the social consequences. Food security and local livelihoods are at risk from warmer temperatures, which can disrupt agricultural yields. This, combined with extreme weather-related natural disasters, can result in population displacement, and, in a worst case scenario, conflict. Government agencies such as the UK Foreign and Commonwealth Office, the US Army, and universities are increasingly assessing the linkages between drought and civil unrest. We think that weather agencies will continue to monitor the physical impacts of climate change, but 2016 will bring a range of conclusions on social linkages as well. We look at this from page 6. From pledges to projects: We expect 2°C finance to be put to work in 2016. We see finance as a key enabler for many developing countries to grow while decarbonising, and finance permeates many of the elements of the Paris Agreement. Transparency is a particular focus, and we view initiatives such as the Green Climate Fund, the China South-South Cooperation Fund and the International Solar Alliance as mechanisms that provide clarity on financial flows. Meanwhile, growth in green bonds should also continue, as more companies and municipalities explore options for funding their climate and environmental investment requirements, see page 9. 5 January 2016 Zoe Knight Head, Climate Change Centre HSBC Bank plc [email protected] +44 20 7991 6715 Ashim Paun, CAIA Climate Change Strategist HSBC Bank plc [email protected] +44 20 7992 3591 Wai-Shin Chan, CFA Climate Change Strategist The Hongkong and Shanghai Banking Corporation Limited [email protected] +852 2822 4870 2016: Climate Outlook CLIMATE CHANGE GLOBAL Low-carbon policy, social impacts, 2°C finance

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Page 1: 2016: Climate Outlook GLOBAL · 2016-01-15 · 2 CLIMATE CHANGE GLOBAL 5 January 2016 Looking back to look ahead: The climate economy in 2015 In 2015: Dissect, debate, deliver, (7

Disclaimer & Disclosures

This report must be read with the disclosures and the analyst certifications in

the Disclosure appendix, and with the Disclaimer, which forms part of it.

Issuer of report: The Hongkong and Shanghai Banking Corporation Limited

View HSBC Global Research at:

https://www.research.hsbc.com

With a climate agreement in place, the emphasis is now on

national governments to deliver targets; elections pose a risk

Social impacts are rising up the agenda, as extreme weather

is a factor in livelihood destruction, migration, and conflict

Financial support continues to flow towards a low-carbon

transition and adaptation in developing countries

From global to national: We expect a focus on policy for Agreement delivery.

The global consensus of staying under 2°C signals a global commitment to transition

towards a low-carbon economy and adapt to climate impacts (see COP 21: Paris

Agreement, 14 December 2015). Next steps are ratification in April and a synthesis

report to add up emission reduction efforts in May. We expect the most important factor

for sentiment towards climate action in 2016 to be the result of the US election. Election

of a Democratic candidate should be positive for current climate policy in the world’s

second largest emitter, whereas a Republican victory could pose risks. Early indications

suggest that new governments in Australia and Canada are more pro-climate than

predecessors, and we expect China’s 13th Five-Year Plan to step up climate effort. We

discuss potential policy developments from page 3.

From physical to social: We expect a focus on food, population, and conflict. The

Paris Agreement recognised the “urgent and potentially irreversible threat to human

societies” from climate change. So far the impact of warmer temperatures has centred

on physical changes, but we think new studies will emerge on the social consequences.

Food security and local livelihoods are at risk from warmer temperatures, which can

disrupt agricultural yields. This, combined with extreme weather-related natural

disasters, can result in population displacement, and, in a worst case scenario, conflict.

Government agencies such as the UK Foreign and Commonwealth Office, the US

Army, and universities are increasingly assessing the linkages between drought and

civil unrest. We think that weather agencies will continue to monitor the physical

impacts of climate change, but 2016 will bring a range of conclusions on social linkages

as well. We look at this from page 6.

From pledges to projects: We expect 2°C finance to be put to work in 2016.

We see finance as a key enabler for many developing countries to grow while

decarbonising, and finance permeates many of the elements of the Paris Agreement.

Transparency is a particular focus, and we view initiatives such as the Green Climate

Fund, the China South-South Cooperation Fund and the International Solar Alliance as

mechanisms that provide clarity on financial flows. Meanwhile, growth in green bonds

should also continue, as more companies and municipalities explore options for funding

their climate and environmental investment requirements, see page 9.

5 January 2016

Zoe Knight Head, Climate Change Centre

HSBC Bank plc [email protected]

+44 20 7991 6715

Ashim Paun, CAIA

Climate Change Strategist

HSBC Bank plc

[email protected]

+44 20 7992 3591

Wai-Shin Chan, CFA

Climate Change Strategist

The Hongkong and Shanghai Banking Corporation Limited

[email protected]

+852 2822 4870

2016: Climate Outlook CLIMATE CHANGE GLOBAL

Low-carbon policy, social impacts, 2°C finance

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CLIMATE CHANGE GLOBAL

5 January 2016

2

Looking back to look ahead: The climate economy in 2015

In 2015: Dissect, debate, deliver, (7 January 2015) we set out three themes that we believed

would dominate the climate agenda in 2015. Here’s how they played out.

Impacts: Less resilience, more ‘loss and damage’

In 2015, we thought that lower income countries, many of which have limited financial resources to

embed resilience to the risk factors that in turn affect economic development, would include

adaptation in their intended nationally determined contributions (INDCs). We also expected

adaptation, and financial flows from developed countries to fund adaptive strategies, to feature

heavily in a Paris deal. Ninety four countries included adaptation in their INDC and close to USD10bn

was pledged by developed countries at COP 21 to fund adaptation in developing countries.

Policy: Less vocal, more local

Last year, we expected 2015 to be the year when words were translated into print.

187 countries (95% of all parties to the UNFCCC covering 95% of global emissions) submitted

an INDC, a resounding endorsement of the process, in our view, and exceeding our

expectations. Developed countries mainly submitted mitigation goals on an absolute basis

versus a baseline year, whereas developing countries tended towards a relative approach

versus ‘business as usual’ projections, thus allowing for absolute increases in greenhouse

gases (GHGs) as they grow. Throughout 2015, we maintained our view that an agreement in

Paris would be signed, but that the sum of the unilateral emissions goals would not be enough

at the global level to meet the 2°C target. The synthesis report that aggregated individual efforts

pointed to a 2.7°C rise. Another synthesis calculation will be computed by May 2016. We were

positively surprised that the phrase ‘efforts to limit the temperature increase to 1.5°C above pre-

industrial levels’ was included in the Paris Agreement.

2⁰C Finance – More visibility required

At the beginning of last year, we noted that finance was a persistent barrier to progress in

official climate talks, and that financial pledges were important for delivering the Paris

Agreement. Up until 7 December 2015, green bond issuance was USD 44.4 bn. In total, we

estimate that USD223bn was announced for funding climate activity through the course of 2015,

from a variety of sources. For instance, China announced USD 3.1bn of funding to support

developing countries in a joint US/China presidential statement on climate change in September

2015, and in Paris a group of 11 countries committing USD248m to the ‘Least Developed

Countries Fund’ specifically to support adaptation; the World Bank (along with Germany,

Norway, Sweden and Switzerland) jointly launched the ‘Transformative Carbon Asset Facility’, a

USD500m initiative to help developing countries transition to carbon pricing mechanisms. The

International Solar Alliance of 121 countries aims to mobilise USD1trn by 2030 and more

pledges were made to the ‘Green Climate Fund’ (GCF) by Vietnam and the cities of Brussels

and Paris – to take the total Green Climate Fund pledges to USD10.5bn.

Importance of non-state actors (NSAs)

We did not anticipate the volume of unilateral climate pledges from cities, regions, companies,

and investors that occurred during 2015. The NAZCA (Non-State Actor Zone for Climate Action)

portal recorded 10,825 initiatives on 30 December 2015. We expect this to continue since

NSA’s were welcomed as parties to facilitate the implementation of the Paris Agreement.

For a full analysis of the 2015 climate agenda – and our expectations for 2016, please see

Table 1 on pages 11-15.

Ninety four countries

included adaptation

strategies in their INDCs

INDCs were submitted

covering 187 countries, with

different formats for

mitigation goals as expected

2⁰C finance increased via

climate finance pledges from

developed countries and an

increase in new green bond

issuances

Non-state actors moved

unilaterally in 2015, going

beyond national regulation,

and we expect this to continue

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CLIMATE CHANGE GLOBAL

5 January 2016

Policy: from global to national

The Paris Agreement, which was adopted on 12 December 2015, is a positive advance, in our

view – a clear signal that the world has acted in a strong and coordinated manner to address

anthropogenic climate change, by putting forward plans to mitigate greenhouse gas emissions,

adapt to weather extremes, and slow the onset of climate impacts (see COP 21: Paris

Agreement, 14 December 2015).

The Agreement is the global road-map for the low-carbon transition, but it is down to national

governments to turn the aspirational goals into reality. Electoral cycles are important for climate

goals, in our view, because new leaders have the ability to alter or re-set national climate

strategy. For 2016, we think the main political focus among the G20 will be the US election. We

also expect a clearer picture of how new administrations in Australia and Canada will address

climate change, and China will put forward its 13th

five-year plan (13 FYP).

The Agreement will be open for ratification from 22 April 2016 for a year, and will come into

force after at least 55 countries representing 55% of global emissions ratify it. We expect this to

be achieved given the country efforts of submitting the INDCs. In 2016, we also expect further

clarification of how plans will be delivered.

In May, an updated synthesis report will be published on the amount of CO2 saved and the

resulting temperature implications capturing all INDC’s submitted by 4 April 2016. The first

synthesis report predicted a saving of Gt4CO2e pa by 2030 (see Climate: Paris pledges buy

time, 3 November 2015). We expect a small incremental saving in the new report, as 86% of

greenhouse gases were captured by INDCs in October when the first Synthesis report was

released versus 95% on 18 December 2015.

We expect countries to reflect on the relative ambition levels of their efforts as they move

towards converting Intended Nationally Determined Contributions into Nationally Determined

Contributions (i.e. without the ‘intended’). The newly established ‘Ad Hoc Working Group on the

Paris Agreement’ will further develop features of the pledges, to facilitate clarity, transparency,

consistency, completeness and understanding. In addition, six committees are responsible for

taking the Paris Agreement forward to turn high level policy into results. These cover: finance,

adaptation, least developed countries, loss and damage, technology, and capacity building.

The Presidential election takes place on 8 November 2016. A Democratic Party victory would

likely protect Obama’s climate legacy. President Obama could use executive powers (pushing

through legislation without requiring backing from Congress) to ensure the US ratifies the Paris

Agreement, but since the current term is Obama’s second and therefore final term (as per the

US constitution), his successors’ stance on climate goals have more of an impact on the

likelihood of policy delivery, in our view.

Hilary Clinton is currently the Democratic front runner according to a poll-of-polls carried out by

the realclearpolitics.com website on 4 January 2016. She has announced a pro-clean energy

policy stance and, according to her website, wants to make “the US the clean energy

superpower of the 21st Century”. The second-placed Democratic candidate with 32.2% of

votes, Bernie Sanders, has also expressed pro-climate views, with stated policies on

accelerating build-out of renewable energy and cleaner transportation while transitioning away

from fossil fuels.

A Republican Party victory, on the other hand, increases the possibility of a change in terms of

climate action. Several candidates for the Republican presidency have declared scepticism

about climate change (CBS News, 1 September 2015), including current front-runner Donald

Trump, and none have announced policy approaches to reducing emissions. Another

candidate, Marco Rubio, has already pledged to block Obama’s rules on reducing emissions

The Paris Agreement is good

news for addressing the

causes and impacts of

climate change

National policy is the means

to deliver the global roadmap

2016 will see countries

ratifying the Paris Agreement

The US election is important to

climate; Obama’s successor

may not be as strong on

environmental legislation

A Republican presidency could

pose risks to the trajectory of

US climate policy

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5 January 2016

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(The Guardian, 2 September 2015). The poll-of-polls carried out by realclearpolitics.com

currently has Trump leading the Republican nominations, with 35.6 % of the vote, while Clinton

has 54.6% of Democratic votes, as of 4 January 2016.

Australia, which has emissions that are more than triple the global per capita average, as seen

in Chart 1, shows that a leadership change can shift the climate stance. At COP 21, Malcolm

Turnbull announced ratification of the second period of the Kyoto Protocol, as well as more

investment in clean technology over the next five years. In June 2016, a special review of

Australia’s climate policy will be concluded and a report released. This will recommend the

action Australia should take to implement outcomes from the Paris climate conference and will

be based on broad criteria – cost effectiveness and international competitiveness,

environmental effectiveness and equity. The review will cover carbon pricing, emissions trading,

support for innovation and will have a sector focus on power sector emissions, which form

approximately one third of Australia’s total. In our view, this will deliver a firm indication of the

degree to which Turnbull’s administration is prioritising climate change.

In Q4 2015, Canada, another high per capita emitter, appointed its first new prime minister in

almost ten years. Justin Trudeau of the Liberal Party succeeded Stephen Harper of the

Conservatives. We think that climate rhetoric from the new government has been stronger so

far. For instance, in November, Catherine McKenna, the Minister of Environment and Climate

Change, spelled out government priorities, which are a shift from coal to renewable power,

improving buildings efficiency and modernising public transit. McKenna also highlighted carbon

pricing as a priority. British Columbia and Quebec have schemes in place and Alberta has now

joined them – we expect other provinces to follow as the country makes progress towards

national pricing.

Chart 1 : CO2 emission per capita

Source: BP Statistical Review 2015, World Bank, 2013 data

Environmental themes should permeate many areas of the 13th

Five-Year Plan. We expect a

continuation of the focus on building an ecological civilisation by making it a core part of almost

all areas of development. For example, urbanisation with limited resources means more public

transportation and climate-resilient infrastructure as the government seeks to allow 100m

migrant workers to settle permanently in cities; and the upgrade of industrial structure (to

implement the ‘Made in China 2025’ plan) should lead to more efficiency in terms of energy and

materials use as well as cleaner production and growth in a more sustainable manner.

We expect a reiteration of policies in 2016, with a gradual tightening in certain areas, including:

the resilience of urban infrastructure, the energy efficiency of new residential and commercial

buildings, the efficiency of other electrical appliances as well as tighter standards on the air and

water pollutant discharge from manufacturing processes. Environmental incidents (such as

0

5

10

15

20

USA Canada Australia UK China

Emissions Per Capita World Average(tCO2/person)

New Australian PM in favour

of climate action, but home

policy may contradict

New Canadian government

wants renewables, carbon

pricing, green buildings and

electric vehicles

The 13th

FYP for China will

mean more public transport

and climate-resilient

infrastructure

Smog, floods, and droughts

will strengthen resolve and

tighten policies

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CLIMATE CHANGE GLOBAL

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smog during the winter months) as well as weather events (such as floods and droughts) will

strengthen the resolve to bring in and enforce tighter policies. We believe China will continue

tightening the enforcement capability (and willingness) of relevant authorities gradually at first in

2016, then more rapidly towards the end of the 13FYP period. 2016 should also see the

release of the (long awaited) ‘Action plan for soil pollution and remediation’.

We anticipate new environmental targets to be set in China to reduce air, water, and soil

pollution as well as goals for the continued decarbonisation of the economy. After China’s well-

received and positive participation at the climate summit in Paris, China will need to begin

implementing its climate pledge – by setting up policies now. For example, through the State

Council’s ‘ultra-low emissions from coal-fired power plants’ initiative, which aims to reduce

pollutants and CO2 emissions. We expect more clarity around how this plan will be achieved.

We also believe there will be more international scrutiny of the quantity and quality of China’s

coal consumption – which may result in more disclosure and transparency.

More details of national emissions trading should emerge throughout the year although we do

not foresee a full set of clear guidelines to be released publicly. The seven pilot emissions

trading schemes (Beijing, Shanghai, Tianjin, Shenzhen, Chongqing, as well as Guangdong and

Hubei) will continue to refine the scope of sector involvement and the volume of allowances.

Other jurisdictions such as Qingdao and Hangzhou, as well as Gansu and Anhui provinces may

also begin emissions trading during the year. In anticipation of 2017 – when the national

scheme is supposed to launch – we think there could also be announcement of regional tie-ups

between schemes as well as more discussion of international linkages.

In addition, financial liberalisation will likely be a key theme of the 13FYP and this includes more

green financing such as exploring new investment and financing mechanisms for low-carbon

development, as well as improving green credit mechanisms. In our opinion, green credit

financing has the potential to contribute to the funding of all climate and environmental

initiatives. We believe China will continue to encourage the development of more green

investment products that are able to use capital market institutions such as green stock indices.

We also think more policies will emerge that facilitate the setting up of green development funds

(demand), as well as encourage banks and other enterprises to issue green bonds (supply).

China also plans to create a state-owned investment company that will support environmental

management and ecological protection using state funds, with a view to ‘crowd-in’ other

investors and funds.

China’s coal-fired power

generation sector to be

cleaned up

The list of seven emissions

trading schemes may widen

to include Qingdao,

Hangzhou as well as Gansu

and Anhui provinces

Green finance to support

environmental management

and ecological protection

aims

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Impacts: From physical to social

We expect the social consequences of rising temperatures to increase in focus in 2016.

The Paris Agreement recognizes that “climate change represents an urgent and potentially

irreversible threat to human societies”. In previous years, scientists have focused on attributing

the physical extreme weather events to climate change (see Weather on steroids in 2012,

19 July 2012). Now, we expect more studies linking climate impacts to food security, population

displacement, and conflict. Chart 3 shows that the number of people affected by extreme

weather events – defined by the Centre for Research on Epidemiology of Disasters (CRED) as

requiring immediate assistance during a period of emergency, i.e. requiring basic survival needs

such as food, water, shelter, sanitation and immediate medical assistance – was over 11 times

higher in 2014 than in 1950.

Chart 2: Number of natural disasters per annum

Chart 3: Number of people affected by extreme weather per annum

Source: Intl Disaster Database, CRED; NB: Extreme events = Drought, Extreme temperature, Flood, Wildfire, Storms

Source: Intl Disaster Database, CRED; NB: Extreme events = Drought, Extreme temperature, Flood, Wildfire, Storms.

The Paris Agreement also recognizes “the fundamental priority of safeguarding food security

and ending hunger, and the particular vulnerabilities of food production systems to the adverse

impacts of climate change”. Climate change disrupts agricultural yields, with lower productivity

potentially leading to conflict. In ‘Climate change: a risk assessment’, published in July 2015,

the UK Foreign and Commonwealth Office found that extreme water stress and competition for

productive land could both become sources of conflict as well as leading to migration ‘on a

historically unprecedented scale’.

22.5m People displaced by climate factors pa

Many people have already been impacted by climate factors. For instance, the Norwegian

Refugee Council estimates that an average of 22.5 million people have been displaced by

climate, or weather related disasters, each year since 2008, which is equivalent to 62,000 every

day. On the first day of COP 21, President Obama made the causal link from climate change to

agricultural productivity to conflict to mass migration.

Fields that no longer grow. Political disruptions that trigger

new conflict, and even more floods of desperate peoples

seeking the sanctuary of nations not their own

President Obama, COP 21 Day One

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We expect more studies

linking climate impacts to

food security, population

displacement, and conflict

Climate change disrupts

agricultural yields, with lower

productivity potentially

leading to conflict

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Studies have also linked the uprisings in the MENA region, collectively termed the Arab Spring,

to weather and climate-related factors. Columbia University found that a drought as serious as

the one in Syria from 2006 to 2011, the years preceding the outbreak of the conflict, has been

made two to three times more likely from climate change than by natural variability alone. The

study found that the drought had very severe consequences for food production, which resulted

in up to 1.5 million people moving from rural to urban areas in a short period of time, because of

loss of livelihoods. UN data shows c4.3million refugees have fled Syria.

30% Drop in Mali’s rainfall since 1998

French Minister of Foreign Affairs and International Development, Laurent Fabius, described the

conflict in Mali as “France’s first climate change war” during a speech in May 2015. The US

Army’s Strategic Studies Institute published a paper on the Malian conflict, linking climate

change to a 30% drop in average annual rainfall since 1998 and creeping desertification as a

cause of the conflict. Ongoing impacts on agricultural productivity will “put even greater strains

on the population and society in northern Mali, and increase the potential for instability that can

be exploited by criminals and militants”. 75% of Mali’s 15.3 million people rely on agriculture for

their food and income, according to the UN Food and Agriculture Organisation.

We think that weather agencies will continue to monitor and assess the linkages between

extreme weather events and climate change, (i.e. physical factors), but that in 2016 the focus

will shift to climate change implications for food security, population, and conflict.

The global average land-ocean temperature in 2015 is likely to be the warmest on record,

according to the World Meteorological Organisation (WMO). From January to October

temperatures were 14.72°C, which compares with a central estimate set out in December 2014

of 14.64°C for 2015 as a whole. The WMO expect 2015 to be the first year to record more than

1°C warmer temperatures than the pre-industrial era (defined by the WMO as 1890-1899). The

central forecast for 2016 from the UK Meteorological Office is for 14.86°C.

The WMO attributed 2015’s high temperatures to a combination of strong El Niño conditions

and human-induced global warming, as the average northern hemisphere concentration of

atmospheric CO2 passed 400 parts per million for three consecutive months in May 2015, also

for the first time (the pre-industrial level was c280ppm). Temperature increases are one of the

ten indicators (Appendix 1 on page 16-17) that the US National Oceanographic and

Atmospheric Administration measures to gauge the impacts of climate change – the trend is

unequivocally supportive of climate change in each.

The 2011-2015 period has been the warmest five-year period on record and the frequency of

higher temperatures has shifted over the last 30 years (Chart 4). Over the past three decades

(1986-2015), the annual land-ocean average temperature was extreme (greater than three

standard deviations above the 1951-1980 average, NASA defined) in 24 years. Chart 5 shows

six years of extreme heat (greater than six standard deviations above average). In contrast,

these levels were not reached from 1921 to 1980.

Columbia University has

identified climate change as

one of the drivers for civil

unrest in Syria

US army identified creeping

desertification as a cause of

the conflict in Mali

Physical linkages will still

be monitored

2016 temperatures to be

hotter again

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CLIMATE CHANGE GLOBAL

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Chart 4: Global Land-Ocean temperatures Chart 5: Global land-ocean temperature

anomaly

Source: UK Met Office, Note: Global average of near land-surface air temperature and sea-surface temperature relative to 1961-1990 average; data up to October 2015

Source: NASA Goddard Institute for Space Studies; Note: 24 and 6 of the last 30 years had temperature greater than 3 std. and 6 std., respectively, of the distribution over 1951-1980; 2015 data up to the month of October

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Annual temp Average

oC~ 1oC rise in global temperature in

2015 compared to 1850-1900 levels

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1951-1980 1986-2015 1921-1950

24 of the last 30 yrs

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2°C Finance: From pledges to projects

We expect 2°C finance to be put to work in 2016, as pledges are converted into projects. We

expect more scrutiny of the funding requirements set out in INDCs, and that the Green Climate

Fund will disburse more capital for mitigation and adaptation in developing countries. Pledges to

the GCF have reached USD10.2bn, with the largest contributions being USD3bn from the US

and USD1.5bn from Japan.

In Energy Beyond Paris, November 2015, we found, using energy system modelling with

University College London’s Energy Institute, that delivering the policy aims of INDCs globally

on a cost-optimal basis would require USD785bn in annual investments in the power sector

alone by 2030, with investment flows in renewables totalling about USD160bn, split 47%:53%

between wind and solar.

An OECD report concluded that, in 2014, climate finance reached USD62bn, from USD52bn in

2013, and excluding the Green Climate Fund. These levels have been disputed by the BASIC

countries – Brazil, South Africa, India and China, which for us is a reminder that finance will

continue to be a critical issue for the successful implementation of the Paris Agreement.

Throughout 2015 pledges have continued. In September, China announced RMB20bn

(USD3.1bn) towards “setting up the China South-South Climate Cooperation Fund to support

other developing countries to combat climate change”. At COP21, many new climate finance

pledges were made, as shown in Chart 6.

USD220bn Climate finance pledges made at COP 21

At COP 21, the International Solar Alliance was launched by India’s Prime Minister Narendra

Modi, with 121 countries aiming to mobilise USD1trn by 2030 for solar, globally. The Indian

government is contributing USD30m to set up the HQ (in India), which fits well with India’s INDC

pledge for 40% renewables in its power mix by 2030. We expect to see progress on the

establishment of the Alliance in 2016.

Chart 6: Growth in climate finance pledges

Source: OECD: ‘Climate Finance in 2013-14 and the USD 100 billion goal’ – 2015, UNFCCC, Country INDCs

52.3 61.8 61.8

175.9

43.9

3.1

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Mobilised COP 21 Multilateral Pledges COP 21 Country Pledges Other prominent 2015 pledges

18%

361%

USDbn

Climate finance requirements

will grow, with large sums

needed to build out

renewable energy alone

The Green Climate Fund and

other sources of climate

finance continue to grow

Solar targeted for funding

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USD44.4bn Of green bond issuance in 2015, up 37% vs 2014

We expect broadening and deepening of the green bond market as more corporates and

municipalities explore finance options for implementing stated climate and environmental aims.

Chart 8 shows that, according to our data, annual issuance rose from USD2.4bn in 2012, to

USD32.9bn in 2014. In 2015 (up until 7 December), green bonds worth USD44.4bn were

issued. As the market matures and investors and advisers become more comfortable with the

green bond format, we expect to see more issues from a wider range of economic sectors than

has historically been the case. We anticipate discussion of the market growth benefits of market

standardisation to pick up in 2016, via a single green bond market metric to gauge the green

credentials of an issuance, for example, tonnes of CO2 emission reduction to be achieved per

thousand US dollars of bond outstanding (see Corporate Green Bonds, November 2015).

The market could benefit from a single metric to gauge

green bond environmental quality

Michael Ridley, Corporate Green Bonds, November 2015

We expect more issuance relating to energy efficiency, which can come from a range of sectors

and public institutions. We also expect more issuances which include adaptation among use of

proceeds (this is uncommon but has been seen, for instance issues from real estate companies,

Rikshem and Vasakronen, see Green Buildings and Climate, 21 July 2015).

Chart 7 : Breakdown of Green Bond Issuance in 2015

Chart 8 : Green Bond Issuance by Issuer Type

Source: Bloomberg, HSBC; 2015 data is up to 7 December 2015 Source: Bloomberg, HSBC; 2015 data is up to 7 December 2015

We also think the Green Bond market in Asia will broaden and deepen in 2016. More entities

(multilateral agencies, policy banks, corporates and municipalities) are expected to explore

finance options for implementing stated climate and environmental aims. Last year saw the total

non-Japanese Asian green bond issuance go through USD3.4bn outstanding, an increase but

only 4% of the total amount of green bonds outstanding, globally. For examples of green bond

issuance in Asia (see The View – Asia’s Bond Markets, 14 December 2015). More broadly, we

think China’s Presidency of the G20 should enhance green finance opportunities in Asia, as

China has already indicated that green financing will be a focus of its presidency of the G20 in

2016. This may also result in more carbon pricing mechanisms and further discussions on the

phase-out of fossil fuel subsidies.

32%

34%

10%

3%

11%

10%

Corporate Financial Sovereign/Reg ional

ABS Multi-Lateral US Mun icipal

0

10

20

30

40

50

2010 2011 2012 2013 2014 2015YTD

Corporate FinancialSovereign/Regional ABSMulti-Lateral US Municipal

USDbn

Transparency on use of

capital proceeds is provided

through the green bond

market

More sectors will issue green

bonds as the market matures,

energy efficiency and

adaptation to be emergent

themes

Green bond issuance in Asia

is growing, with first

issuances from China and

India in 2015

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Table 1: Climate policy: Strategy – looking back, looking forward – our projections for 2015 and 2016

Country What we said in 2015 What happened in 2015 What’s next in 2016

Global INDCs from leading countries (EU, US, China) to be

submitted by March; others later in the year. INDC efforts aggregated before Paris 2015.

146 countries submitted INDCs before the October 1st; In total 187 countries submitted their INDCs by the end of the Paris conference

Ratification of the Paris Agreement will start in April 2016 and run for 12 months.

Australia Pressure on the Government to deliver meaningful change with the Direct Action Plan could grow after January’s devastating bush fires across many states. International pressure on Australia to commit to post-2020 emissions cuts should also increase.

= Emission Reduction Fund, centrepiece of Governments climate action policy, provided support in terms of passing legislation to enable auctions and provided another years funding for 2018-19 Has pledged in its INDC to reduce emissions by 26-28% of 2005 levels by 2030

Funding in place for the Emission Reduction Fund, USD 354.5m in 2016-17. Focus to see whether the country takes a new trajectory under change of PM but not party.

Brazil Economic stagnation may lead to increased pressures on forests from the agriculture and timber sectors as the government fails to meet its 2008 commitment to end net deforestation by 2015.

= Pledged to achieve zero illegal deforestation by 2030; restoring and reforesting 12 million hectares of forests by 2030 in INDC Pledged to reduced emissions by 37% of 2005 levels by 2025 in its INDC

Canada Federal elections in October could see climate change mentioned as part of campaigning.

Current Prime Minister Justin Trudeau pledged to take decisive actions on climate change in the elections; Pledged to reduce emissions by 30% of 2005 levels by 2030 in its INDC.

New government to drive low carbon national transition policies. National Energy Board reports on viability of Energy East and Transmountain pipelines. Alberta government to consult on implementing a per-annum limit of 100 megatons of carbon emissions on the oil-sands industry.

China We expect more climate-related policies (energy and pollution, etc.) as preparations for the 13th Five-Year Plan (2016-20) are made.

Released Action Plan on Water Pollution Prevention and Control; includes tools for enforcement, and allocation of responsibility; Released an updated air pollution law, targets coal INDC aims to peak emissions by 2030 and cut carbon intensity of GDP by 60-65% by 2030 (2005)

China’s 13th Five-Year Plan (13FYP) will plot economic growth drivers for 2016-2020, continuing focus on building an ecological civilisation, core to most areas of development. Urbanisation, industrial upgrading and air, water and soil pollution to feature. Expected support for green financing mechanisms.

EU Framework Strategy for a Resilient Energy Union with five priorities: enhance security of energy supply; build a single internal energy market; increase energy efficiency; decarbonise the economy; and boost research and innovation

France Landmark Bill on energy transition law (Grenelle Bill); reduction of final energy consumption of 20% in 2030 and 50% in 2050; reduction of fossil sources of 30% by 2030 vs 2012; reduction of nuclear in electricity mix to 50% by 2025 from 75%.

The Grenelle Bill also mandated investor disclosure of carbon exposure and risk management, the first iteration of which will be seen in 2016.

India India will come under increasing pressure to join other top emitters in terms of early submission of INDCs and commitments on lowering emissions.

Aims to cut emissions intensity of GDP by 33-35% by 2030 (2005); achieve 40% installed electricity capacity from non-fossil fuel sources. In February India agreed to phase out hydrofluorocarbons, further fund clean energy research and target polluting sectors.

Air pollution should rise up the agenda in India in 2016, especially in light of the build out of its coal-fired power capacity. We also think vehicles will see policy change to tackle pollution, for example, the Vehicle Fuel Efficiency Program begins in April.

Japan Between one and three reactors will likely restart in H1 2015. Final plans for other reactors are then likely to be submitted, with potential to restart by end-2015 or early 2016.

Japan restarts two reactors at Sendai in August and October; decommissioning of Hitachi BWR plants; 24 plants are in the approval process, five plants have shown they comply Aims to cut emissions 26% vs 2013 by 2030 (INDC)

We expect a handful of reactors to restart in 2016, although the political debates will continue as some local authorities may block restarts even if they pass safety inspections by the nuclear watchdog. Climate change might be on the agenda as Japan hosts the G7 summit in Shima from 26-27 May.

Mexico Mid-term elections on 7 June. Following a bill to liberalise the energy sector, regulatory bodies to be set up to govern the newly open energy sector.

Reopened oil and gas reserves to foreign investors; auction of 14 exploration areas; new rules allow longer PPAs, clean energy certificates, and promote renewables through market incentives;

Aims to cut emissions by 25% vs BAU by 2030 (INDC), 40% conditional on Paris Agreement

Energy Transition Law was revised and approved by Senate (2 December 2015) and sent back to Chamber of Deputies for final approval in 2016; established 35% of electrical energy to be generated from clean sources by 2024. Long term INDC pledge to reduce 50% of emissions by 2050 from 2000.

UK Scaled back on renewable subsidies; cut funding to wind and solar; aims to phase out coal by 2025; subsidies being offered to fracking and nuclear; permanently exempt energy intensive industries like steel and chemicals from cost of environmental tariffs

Possibility of 'Brexit' referendum – the UK leaving the EU – could allow for different environmental policies than the EU, including more support for fracking.

US More details on clean power plan proposals. President Obama could face increasing opposition to participation in a Universal Climate Agreement, given the Republican Party’s control of both Houses of Congress.

Clean Power Plan passed; opposition from Republican party over Paris Agreement, contribution to GCF and Clean Power Plan; Aim to cut emissions 26-28% vs 2005 by 2025 (INDC)

Final rules for standards to regulate methane in the US are due mid-year, having been proposed in 2015. US elections in November to define climate policy.

Source: HSBC

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Table 1: Climate policy: Carbon market and funding – looking back, looking forward – our projections for 2015 and 2016

Country What we said in 2015 What happened in 2015 What’s next in 2016

Australia Safeguard mechanism for AUD2.55bn

Emissions Reduction Fund should start on 1 July and some of the funds could be disbursed before end 2015.

Safeguard mechanism introduced, has spent almost half the AUD2.55bn emissions reduction fund to buy less than half the greenhouse reductions needed to meet its 2020 target. 236 contracts were awarded for 92.8m tonnes of abatement.

Safeguard mechanism will commence on 1 July 2016.

Brazil Created 15bn Real (USD3.9bn) energy fund for its southeastern and centre-west regions to finance the construction of 2.5GW of new generation – including wind, biomass and gas-fired plants – to supply large industrial groups over next 20years

Emissions Trading Scheme plans to be introduced as per Brazil's National Climate Change Policy (PNMC)

Canada More discussions of linking provincial carbon pricing schemes with other jurisdictions. Quebec and Ontario to introduce electricity trading (due late 2015) to improve energy efficiency.

= British Columbia, Quebec, Ontario and Alberta announced means of pricing GHG emissions: Ontario releases details of proposed cap-and-trade program; British Columbia and Quebec release Climate Leadership Report and new GHG targets; MoU between Quebec and Ontario for more power trade

Policy approach to address stated national priority of new government for pricing carbon nationally.

China China prepares to establish a national market for carbon trading in 2016. Possible linking and expansions of pilot carbon trading schemes.

= China will launch a national emissions trading system in 2017. = China’s national cap-and-trade system will support emissions reductions in power generation, iron and steel, chemicals, building materials, cement, paper, and non-ferrous metals = China will reduce traditional car subsidies to boost development and sales of renewable-energy cars Make available CNY20bn (USD3.1bn) through a bilateral fund designed to help developing countries combat climate change

More details of national emissions trading to emerge. Jurisdictions such as Qingdao and Hangzhou as well as Gansu and Anhui provinces may also begin emissions trading during the year. Announcement of regional tie-ups between schemes as well as more discussion of international linkages, for example, potentially with Korea.

EU The EU ETS auction volume will be reduced by 300m allowances in 2015.

Volume decreased to 300m allowances Legislative proposal to revise the EU ETS for the period after 2020; overall number of emission allowances will decline at an annual rate of 2.2% from 2021 onwards, compared to 1.74% currently; legislation submitted for further consideration Two funds: modernisation fund and innovation fund to help industry and power sectors in low-carbon transition Market stability reserve to be established by 2018; legislative proposal passed by EU Parliament and Council in 2015; placing of allowances in reserve to operate from 2019

The 2016 phase of backloading of the auction volume will recycle allowances by a further 200m.

France Increase in the French carbon tax, currently at EUR14.50/t. The special commission in the Assemblée Nationale put back in a proposal from the Senate, which foresees to raise the carbon tax with a mid-term objective of EUR56/t in 2020 and EUR100/t in 2030; to be incorporated in the national low carbon strategy

Japan Second compliance period (FY2015-2019): 15 or 13% reduction below base year emissions in Saitama ETS implemented; 15-17% in TMG (Tokyo) ETS)

Credits trade to commence between TMG ETS (Tokyo Cap and Trade) and Saitama ETS; although no trade occurred in 2015 (as of 10 September 2015)

Russia Requested European Bank for Reconstruction and Development (EBRD) to draft a concept and design for the further development of the Russian carbon market;

South Korea

Launch of national emissions trading scheme from January 2015.

Launched 12 January 2015; Korean Credit Unit (KCU) started trading at KRX from April 6 2015; 2015 cap of 573 Mt CO2e Provided support worth KRW1.83bn to eight small-and medium-sized companies (SMEs) participating in ETS; project implementation via Korea Environment Corporation

The first deadline for compliance under the ETS is in June 2016, which will allow a first analysis of the effectiveness of the scheme.

US Washington State and Pennsylvania may launch emissions trading schemes.

Regional Greenhouse Gas Initiative RGGI (RGGI) in its third compliance period (2015-2017); Minimum auction price: USD2.05 (EUR1.66) in 2015, increasing by 2.5% per year; Cost Containment Reserve (CCR). Trigger Prices: USD6 (EUR4.87) in 2015

Cost Containment Reserve (CCR), trigger Prices to be USD 8 (EUR6.49) in 2016

Source: HSBC

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Table 1: Climate policy: Renewables – looking back, looking forward – our projections for 2015 and 2016

Country What we said in 2015 What happened in 2015 What’s next in 2016

Global 'HSBC’s wind and solar equity research

analysts see strong demand for 2015, solar demand to grow by 17% y-o-y, up from 11% y-o-y in 2014, driven mainly by the US, China and Japan. For wind, the US, China, India and Brazil are the key markets, driving an estimated 19% y-o-y increase in new wind installations globally, building on the estimated 19% y-o-y growth in 2014.

= World added 21.7GW new wind power capacity in the first six months of 2015, bringing total to 393GW at the end of June 2015. = Solar capacity was up 22% and wind up 15%, although in absolute numbers these were stronger than expected because final revised 2014 numbers were higher than originally anticipated.

HSBC expects growth in capacity additions in 2016 expected to be 14% for solar and 3% for wind

Argentina Set a target of 8% of electricity from renewable sources, and 20% in 2025. Funded with min 50% of cash savings resulting from shifting from oil to renewables, estimated to be about USD41bn by 2025

Australia Possible revised renewable energy policies. Small-scale solar granted reprieve under reforms to renewable energy target (RET) – increasing RET recommended from 20% to 23.5% of total electricity in 2020; agreed to set RET at 33,000GWh – 2yr review scrapped Member of Mission Innovation which aims to accelerate global innovation to make clean energy widely available; committing to double clean-energy R&D investment over five years. Other G20 members include Brazil, Canada, China, France, India, Japan, Mexico, South Korea, UK and the US.

Future of government bodies driving investment and innovation in the area – the Australian Renewable Energy Agency and the Clean Energy Finance Corporation – to be resolved.

Brazil Renewables are expected to continue to grow without subsidies.

Developed investment fund seeking up to USD6.5bn; subsidies no longer to be a burden for Brazil's Treasury Showed highest growth rate of major markets; increased wind power capacity by 14 % since start of 2015 Expanding renewables in the total energy mix between 28% and 33% by 2030; renewables (ex hydro) in the power supply to at least 23% by 2030

Canada Ontario's first renewable procurement since cancelling feed-in tariff for large-scale projects in 2013. 25 wind projects totalling 2.03GW among 103 proposals submitted to the Ontario Independent Electric System Operator (IESO)

Policies to address stated national priority of new government for shifting from using coal to using renewables in power generation.

China China’s wind sector to continue growing amidst removal of subsidies. China could benefit from the reduction of US tariffs.

= Market expected by HSBC to grow by 7% YOY in wind sector in 2015 amidst anticipation in cut of renewables in near future NDRC aim to raise wind power capacity to 200GW and solar to 100GW by 2020, up from 95.8GW and 26.5GW, respectively, at end of 2014

More clarity around how the State Council’s ‘ultra-low emissions from coal-fired power plants’ initiative which aims to reduce pollutants and CO2 emissions will be achieved.

EU Moving towards a subsidy-free market with focus on auction-based mechanisms. We expect a flattish growth in the wind sector.

Subsidies (support) continue to be provided for offshore winds. Flattish growth seen in the wind sector as per H1 2015

Most major EU countries winding down subsidies by 2016; moving towards auction-based mechanisms

France Passed law driving renewable energy to 32% of total energy by 2030; increasing renewables in power to 40% by 2030 Expected to have added 1200MW in 2015

Growth in wind to be seen; expected to add 2,000MW in 2016 Auction of 800MW of PV power in 2016

India Growth in the renewable sector, especially solar, with support from the government.

Solar power (4.8GW) overtakes biomass-based power capacity (4.6GW) to become 2nd largest renewable technology after wind (24.7GW); 827MW solar capacity added; 1.2GW wind added

Target of 10.8GW solar installation in 2016 International Solar Alliance, announced at COP21, will be based in Delhi, with initial plans becoming evident in 2016.

Japan With the arrival of the first solar PV FiT cut in April 2015, Japan’s FiT level decreased from JPY32 (USD0.27) per kilowatt hour (kWh) in 2014 to JPY27 (USD0.22) from 1 July 2015

End of tax breaks commercial solar installations on 31 March 2016

UK Solar under the feed in tariff faces a 98% cut in expenditure to just GBP7m over three years; ended renewable obligation scheme for solar a year early; community schemes that receive subsidies – such as feed-in-tariff-backed solar PV arrays – will no longer be eligible for EIS tax relief from 30 November 2015; scaled back by as much as 87%

To end issuing new subsidies for onshore wind by 1 April 2016; funding to be made available for offshore wind in auctions if conditions on cost reductions met

Source: HSBC

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Table 1: Climate policy: Low Carbon Power (Nuclear, CCS, Biofuels) - looking back, looking forward – our projections for 2015 and 2016

Country What we said in 2015 What happened in 2015 What’s next in 2016

Argentina Atucha 2 at full power in February 2015 – nuclear to 10% of power Construction of Atucha 3 to be started in 2016 Brazil Increase share of sustainable biofuels in the Brazilian energy mix to

approximately 18% by 2030 Nuclear plant (Angra3) to be built as a public works project, private equity in the next four units

Canada Two CCS Projects set up, each of which is capable of reducing greenhouse gas emissions by up to one million tonnes of CO2 each year The oil-sands industry in Alberta faces limit of 100 megatons of carbon emissions p.a. The province will phase out coal power by 2030

China Policies to be enacted to implement the 2020 Energy Plan. Discussion of new initiatives in preparation for the 13th Five-Year Plan.

= More detail on the country's nuclear build-out should be clearer from the 13th FYP.

We expect more details in the 13FYP and related policy documents as this sector remains important to economic and environmental planning.

France Reduction of nuclear share in electricity mix to 50% by 2025 from 75% today; nuclear is capped at 63.2GW; no new reactors can be built without taking other, older ones off the grid

India Target 63GW nuclear capacity by 2032 (INDC) India exploring a nuclear deal with Japan for setting up nuclear reactors; nuclear cooperation agreement signed with UK in November Approval for new nuclear plants at ten sites in nine states in April

We expect some contracts to be awarded for the build out of nuclear as India tries to attract foreign companies to secure technology and fuel.

Indonesia Russian and Indonesian companies win contract for preliminary design of multi-purpose 10MWe HTR in Indonesia

Feasibility study to be completed by January 2016; tender for construction of the reactor to be drawn

Japan Continued public debate over nuclear reactor restarts.

Public debate ensues; Japan restarts two reactors. Japan's nuclear restarts will provide a template for the future power mix and so drive decision making in 2016 relating to fossil fuel technologies.

Saudi Arabia

President’s annual state of the nation address in February 2015 confirms 9.6GW nuclear target, with first unit on line in 2023. Also announced plans to build carbon capture and use plant, which will capture 1500t CO2/day for use in other petrochemical plants; supported by INDC pledge to build world’s largest CCS plant.

More nuclear to be built to provide 15% of power by 2040

South Korea

Government to use CCS as a key means to cut CO2 emissions 7th basic long-term power development plan of electricity supply and demand 12 new reactors to be in operation by 2029 20y extension to Korea-US Atomic Energy Agreement signed in June

Two reactors with gross capacity of 1400MWe to be commissioned in 2016

Turkey Official agreement between Turkey and Japan to build nuclear plant ratified by Parliament in March 2015

Construction of a reactor to start in late 2016

UK UK to plug exit of coal from energy mix by 2025 with natural gas and nuclear; nuclear energy to be subsidised - GBP1bn carbon capture storage funds scrapped in UK

US Ongoing legal challenges in 2015 from opponents to carbon pollution regulation.

= Legal challenges in 2015 against provisions in Clean Power Plan of EPA Nuclear Regulatory Commission (NRC) extended the licences of 78 reactors , 75% of US total; almost all reactors to have 60 year lifetime

Source: HSBC

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Table 1: Climate policy: Energy Efficiency - looking back, looking forward – our projections for 2015 and 2016

Country What we said in 2015 What happened in 2015 What’s next in 2016

Australia National Energy Productivity Plan targets a 40% improvement from 2015

to 2030 (INDC)

Brazil Achieving 10% efficiency gains in electricity sector by 2030 New standards for clean technology, efficiency and low carbon

Canada More stringent post-2018 standards for heavy duty vehicles (INDC) Ban on construction of traditional coal-fired power units, phase-out of existing coal-fired units without CCS (INDC)

Policy to improve efficiency of buildings and modernising public transportation with electric vehicles.

China Continued measures to ensure China meets its 2015 (end of 12th Five-year Plan) energy intensity target of a 16% reduction from 2011 to 2015.

= In its INDC, directs its National Development and Reform Commission to implement policies aimed at reducing coal consumption; also take action to boost the proportion of cleaner fuels, encourage natural gas development and use Fined companies for not complying with environmental regulations

We expect the 12FYP energy efficiency targets to be met (even exceeded) and anticipate a new target in the 13FYP. More efficiency standards for specific sectors and industries should also emerge.

EU 13th Energy Community Ministerial council adopted 20% target on energy efficiency and trans-European energy infrastructure regulation. Phase-out of "D"-class halogen lamps postponed to 1 September 2018. Adopted 195 key energy infrastructure projects to deliver Europe’s energy and climate objectives. Rules on ecodesign and energy labelling for boilers, heat pumps and water heaters came into effect. At least 27% energy savings compared with BAU (INDC).

France Supportive actions such as interest-free credits for private building renovation, subsidies for switching to new electric cars, etc., totalling EUR10bn.

India The PAT scheme is targeting that every plant, on average, improves energy efficiency by 4.8% in 2015.

Report of the results of PAT scheme still awaited; set a target of covering more than 50 per cent of energy use in second phase. National Smart Grid Mission launched for efficient transmission & distribution network (INDC); Green Energy Corridor projects worth USD6bn is being rolled out to ensure evacuation from renewable energy plants (INDC); Super critical / ultra-super critical coal plants to be >50% of the coal based generation capacity (INDC)

We expect details of the second phase of the PAT scheme to emerge (after the results of phase 1 are published).

Japan 32% cut in energy related emissions in residential and 30% in commercial sector by 2030 from 2005 levels; thermal insulation in renovation of existing houses; high efficient lighting; high efficiency and conservation program of equipment; smart meters (INDC) 12% reduction in energy related emissions by 2030 from 2005 levels (INDC)

Mexico New market rules provide longer PPAs, clean energy certificate obligations; auctions to be held to award 6m certificates via 20y contracts, as well as 15-year contracts for energy and power that produce 2,500MW of additional power generation from clean sources; National electricity company CFE the only buyer, to help meet mandate for 5% of power from cleaner sources by 2018

Last day to register bids in January 2016; results announced after 31 March 2016

Turkey Reduced electricity T&D losses to 15% in 2030; establishment of micro-generation, co-generation systems and production on site (INDC)

US The EPA will conclude reviews of scientific assessments of impacts of short-lived climate pollutants (black carbon, HFCs and ozone). President Obama may aim to mark his penultimate year as President with further regulation targeting these pollutants.

Clean Power Plan bill passed to encourage energy efficiency; directs state to shut down inefficient coal power plants Reduce the use and emissions of high-GWP HFCs through the Significant New Alternatives Policy program (INDC) Energy Policy Act and Energy Independence and Security Act to reduce buildings sector emissions; energy conservation standards for appliances and equipment; building code for residential buildings

Promulgate post-2018 fuel economy standards for heavy-duty vehicles (INDC)

Source: HSBC

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Appendix 1: Ten indicators of climate change

Global land surface air temperature Global sea surface air temperature

Source: UK Met Office; Note: Shows the rise in near land-surface air temperature relative to the average temperature over 1961-1990

Source: UK Met Office, Note: Shows the rise in sea-surface temperature relative to the average temperature over 1961-1990

Marine air temperature Ocean heat content anomaly (0-700m depth)

Source: NCDC, NOAA; Note: Shows the rise in temperature of the near ocean-surface air relative to the average temperature over 1961-1990

Source: PMEL, NOAA; Note: Shows the increase in ocean heat content relative to 2005-2010 average derived through vertical temperature sampling of upper ocean layers (0-700m depth)

Lower tropospheric temperature anomaly

Specific humidity anomaly (marine)

Source: NCDC; NOAA; Note: Shows the trend of global average temperature of the lower tropospheric layer (up to ~8 km) relative to 1979-98 average

Source: NCDC, NOAA; Note: Specific humidity is the ratio of water vapour to dry air by weight; the chart shows the specific humidity of the air above the ocean surface

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1854 1874 1894 1914 1934 1954 1974 1994 2014

ºC

-0.80

-0.60

-0.40

-0.20

0.00

0.20

0.40

0.60

1853

1869

1885

1901

1917

1933

1949

1965

1981

1997

2013

ºC

-0.3

-0.2

-0.1

0

0.1

0.2

0.3

0.4

0.5

0.6

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

ºC

-100

-60

-20

20

60

100

1994 1997 2000 2003 2006 2009 2012 2015

1021J

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1958

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

ºC

-0.3

-0.2

-0.1

0

0.1

0.2

0.3g/kg

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Mean sea-level rise Northern hemisphere snow extent

Source: Univ. of Colorado; Note: Shows the global mean sea level rise relative to the level in 1996

Source: Rutgers; Note: Shows the annual snow cover extent over the Northern Hemisphere including snow over the continents and the Greenland ice sheet

September month Arctic Sea ice extent Global glacier mass balance

Source: Univ. of Colorado; Note: September month sea ice extent is the minimum as the month draws the annual cycle of summer ice melting to an end

Source: NCDC, NOAA; Note: Global glacier mass balance is the difference between the snow accumulated in the winter and the snow and ice melted over the summer

Temperature rise in 2016 based on 1850-1900 average

Source: UK Met Office; 1850-1900 average temperature = 1.03

-2.0

0.0

2.0

4.0

6.0

8.0

1995

1997

2000

2002

2004

2006

2009

2011

2013

2015

Cm

23.0

23.5

24.0

24.5

25.0

25.5

26.0

26.5

27.0

27.5

1974

1978

1982

1986

1990

1994

1998

2002

2006

2010

2014

Mn Sq Km

3.3

4.3

5.3

6.3

7.3

8.3

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

Mn Sq. Km

-1400

-1200

-1000

-800

-600

-400

-200

0

200

1980

1984

1988

1992

1996

2000

2004

2008

mmw .e

13.0

13.3

13.6

13.9

14.2

14.5

14.8

1851 1866 1881 1896 1911 1926 1941 1956 1971 1986 2001 2016f

Annual temp AverageoC

2015 on the w ay to be a record warm year with temperature rise of ~ 1oC abov e 1850-1900 lev els; 2016 to be further w armer by ~0.1oC (UK Met Office)

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External Research Papers

Canadian Oil Sands: Life-Cycle Assessments of Greenhouse Gas Emissions, Congressional

Research Service, March 2014

Climate Change: A Risk Assessment - Policy Brief, July 2015

Climate change in the Fertile Crescent and implications of the recent Syrian drought, Colin P.

Kelley, et al. Colombia University, November 2014

Water, Drought, Climate Change, and Conflict in Syria, Peter H. Gleick, February 2014

What is Next for Mali? The Roots of Conflict and Challenges to Stability, Dona J. Stewart Ph.D.

US Army War College; Strategic Studies Institute, 2013

Datasets

Bloomberg, Green Bonds

British Petroleum, BP Statistical Review 2015

Food and Agricultural Organization of the United Nations, GIEWS Country Briefs

International Disaster Database, Centre for Research on the Epidemiology of Disasters

International Energy Agency, Policy and Measure Databases

United Nations Human Rights Council, Syria Regional Refugee Response, Inter-agency

information sharing portal

The World Bank, The World Bank Database

World Resource Institute, Climate Analysis Indicators Tool

Websites

Bernie Sanders – Official Website

Energy East Pipeline

Food and Agricultural Organization of the United Nations

Hillary Clinton – Official Website

National Oceanic and Atmospheric Administration

Securities Exchange Board of India

The White House

TransCanada – Official Website

TransMountain – Official Website

United Nations Framework Convention on Climate Change

Realclearpolitics – polls

UK Meteorological Office

References

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COP 21: Paris Agreement, 14 December 2015

COP 21: the end is nigh, 10 December 2015

COP 21: financing a deal, 4 December 2015

MENA climate pledges, 27 November 2015

Paris and climate change, 20 November 2015

More non-state-actor pledges, 10 November 2015

Climate: Paris pledges buy time, 3 November 2015

Energy beyond Paris, 2 November 2015

Bonn - the long bridge to Paris, 27 October 2015

Discussing climate in Bonn, 22 October 2015

Climate: Scaling up finance, 12 October 2015

India's economic climate pledge, 9 October 2015

The rush for climate inclusion, 30 September 2015

China-US: climate presidents, 29 September 2015

A fortnight of climate pledges, 25 September 2015

China's ecological civilisation, 24 September 2015

China-US climate cooperation, 17 September 2015

Tackling polluters in China, 15 September 2015

Keeping it cool: Moving towards global carbon

pricing, September 2015

Building bridges in Bonn, 8 September 2015

No water, more trade-offs, 24 August 2015

US: Methane next in line, 20 August 2015

Taking stock of progress to Paris, 12 August 2015

Obama targets coal-fired power, 5 August 2015

Negotiation tool to expedite talks, 28 July 2015

UK: mixed messages on climate, 27 July 2015

Japan’s nuclear-reliant pledge, 21 July 2015

Green buildings and climate, 21 July 2015

Adapting to the worst case scenario, 14 July 2015

UK: no help for tackling CO2, 10 July 2015

New Zealand’s provisional pledge, 8 July 2015

Singapore signs up to Paris, 6 July 2015

Green Bonds in China, 6 July 2015

China’s ambitious climate pledge, 1 July 2015

Korea pledges for Paris, 1 July 2015

Improving health with climate, 25 June 2015

Decoupling CO2, energy & GDP, 18 June 2015

Bonn: slowly but surely, 12 June 2015

Ethiopia first LDC to pledge, 11 June 2015

G7 climate change declarations, 9 June 2015

Morocco pledges for Paris, 8 June 2015

Bonn: more vocal, less text, 5 June 2015

Paris shifts up a gear, 29 May 2015

Canada sets out pledge for Paris, 20 May 2015

Green bonds: More to come, 8 May 2015

Minnows maintain momentum, 8 May 2015

Climate Impacts: Getting hotter, 23 April 2015

China releases Water Plan, 16 April 2015

Stranded assets: what next?, 16 April 2015

US and Russia set climate aims, 1 April 2015

Norway and Mexico set out aims, 31 March 2015

UK: favoured oil is climate foe, 26 March 2015

Winning China’s war on pollution, 20 March 2015

EU: No surprise en route to Paris, 12 March 2015

Switzerland: a good opener, 4 March 2015

Keeping it cool: Oil, CO 2 and the carbon budget,

2 March 2015

EU: climate strategy on track, 27 February 2015

Geneva climate talks deliver, 18 February 2015

EU: Saving energy, 13 February 2015

HSBC climate change reports

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India & US: Courting consensus, 3 February 2015

Pollution control in shipping, 29 January 2015

Feverish planet, 23 January 2015

US to regulate methane emissions,

15 January 2015

Korea’s emissions trading begins, 13 January 2015

2015: Dissect, debate, deliver, 7 January 2015

Selected HSBC videos on climate change

Video: COP 21: Paris Agreement,

15 December 2015

Video: Paris and Climate Change,

24 November 2015

Video: Energy beyond Paris, 2 November 2015

Video: China's ecological civilisation,

24 September 2015

Video: Tackling polluters in China,

15 September 2015

Video: Keeping it cool: Moving towards global

carbon pricing, September 2015

Video: No water, more trade-offs, 24 August 2015

Video: Green buildings and climate, 21 July 2015

Video: Green Bonds in China, 6 July 2015

Video: Green Bonds, 11 May 2015

Video: Stranded assets: what next?, 16 April 2016

Video: Keeping it cool, Oil, CO2 and the carbon

budget, 2 March 2015

Table 2: The global climate calendar: upcoming events

Year Location Detail

16-17 January Abu Dhabi, UAE 6th Session of the International Renewable Energy Agency (IRENA)

24-27 February Nairobi, Kenya 41st Session of the IPCC 10 March Washington D.C. US and Canada to discuss energy and climate change 8-11 March UN HQ, New York, US 47th Session of UN Statistical Commission 7-11 March (tentative) GCF HQ, Incheon, South Korea 12th Meeting of the Board of the Green Climate Fund (GCF) 14-18 March Peru 14th Session of the UN Conference on Trade and Development

(UNCTAD XIV) 11-12 April UN HQ, New York, US UNGA High-level Thematic Debate: Implementing Commitments on

Sustainable Development, Climate Change and Financing 25 April - 7 May Montreal, Quebec, Canada 20th meeting of the SBSTTA and the first meeting of the

Convention on Biological Diversity (CBD) 05-06 May Washington D.C., US Climate Action 2016 16-26 May Bonn, Germany 42nd Sessions of the UNFCCC Subsidiary Bodies 23-27 May Nairobi, Kenya 2nd Meeting of the UN Environment Assembly 30 May - 2 June Nairobi, Kenya 10th Meeting of Open-ended Working Group of Basel Convention

(OEWG 10) 1 June TBA 22nd Annual Conference of the European Association of

Environmental and Resource Economists 6-9 June Washington D.C., US 50th Meeting of the Global Environment Facility (GEF) Council 13-26 September UN HQ, New York, US 71st Session of the UN General Assembly (UNGA 71) 24-27 October 2016 Washington D.C., US 51st Meeting of the GEF Council 7-18 November 2016 Marrakech, Morocco 22nd session of the Conference of the Parties (COP22)

Source: HSBC

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Disclosure appendix

Analyst Certification

The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the

opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their

personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific

recommendation(s) or views contained in this research report: Zoe Knight, Ashim Paun and Wai-shin Chan

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Climate Change Centre of Excellence

Head, Climate Change Centre of Excellence Zoe Knight +44 20 7991 6715 [email protected]

Director, Climate Change Strategy – Asia-Pacific Wai-Shin Chan,CFA +852 2822 4870 [email protected]

Director, Climate Change Strategy Ashim Paun, CAIA +44 20 7992 3591 [email protected]

HSBC Climate Change Indices

Global Head of Equity Quantitative Research Joaquim de Lima +44 20 7991 6836 [email protected]

Director, Head of Indexation Vijay Sumon +44 20 7991 6839 [email protected]

Amit Shrivastava +44 20 7991 3095 [email protected]

Clean Technology

Vice President - Clean Technology Sean McLoughlin +44 20 7991 3464 [email protected]

Director, Head of Utilities & Alternative Energy – Asia-Pacific Evan Li +852 2996 6599 [email protected]

Charanjit Singh +91 80 3001 3776 [email protected]

Gloria Ho, CFA +852 2996 6941 [email protected]

Summer Y Y Huang +852 2996 6976 [email protected]

Simon Fang +852 2822 4665 [email protected]

Murielle André-Pinard +33 1 56 52 43 16 [email protected]

Ravi Jain +1 212 525 3442 [email protected]

Utilities

Head of Utilities - EMEA Adam C Dickens +44 20 7991 6798 [email protected]

Verity Mitchell +44 20 7991 6840 [email protected]

Pablo Cuadrado +34 91 456 6240 [email protected]

Global Climate Change & Clean Technology Team