A historic and ambitious agreement to commit all countries to cut emissions, combat climate change and initiate actions and investment toward a low carbon economy and sustainable future was reached by 195 nations at the COP21 in Paris on December 12.

The Paris climate agreement, adopted under the United Nations Framework Convention on Climate Change (UNFCC), is the first to commit all countries to cut carbon emissions, and it is partly legally binding and partly voluntary. Some aspects of the agreement, such as submitting emissions reduction targets and the regular review of that goal, are legally binding. However, the targets set by nations will not be binding. The pact will help to keep sustainable development on the right track and realize Sustainable Development Goal (SDG) no. 13: “Take urgent action to combat climate change and its impacts.” The key countries and blocs, including the G77 group of developing countries, the Arab group, the oil-producing countries, China, India, and Russia welcomed the balanced landmark agreement which is guided by the principles of equity and common but differentiated responsibilities and capabilities in the light of different national circumstances. Also, for the first time, a climate agreement has the United States and Canada on board.

Two key aspects of the agreement are:

l Keep the global temperature increase “well below” 2 degree Celsius and pursue efforts to limit it to 1.5 degree Celsius above pre-industrial levels

l On climate finance, $100 billion per year will be given to developing countries by 2020, with a commitment on more finance in the future. This means the developing nations will not have to contribute any cash; the developed countries will have to give more money in the new deal and with greater predictability.

So, what does this agreement mean for the oil-rich countries? It sends a powerful signal that the world is fully committed to a low carbon future and that the transition to a low carbon economy is now unstoppable. In other words, it sends strong signals to investors and energy markets, which is likely to trigger a fundamental shift away from investment in coal, oil and gas as primary energy sources toward low carbon energy sources like wind and solar.

The structure of the new pact ensures that there will be regular five-year reviews, which will encourage global cooperation to find technological solutions to cut emissions and protect poor countries from the effects of climate change. This means that the agreement is of particular importance for the GCC countries because of the issue of fossil fuels, which form the backbone of the Gulf economies. All economic sectors depend almost entirely on fossil fuels. Therefore, any actions taken in line with the Paris climate pact may affect the demand for fossil fuels, the main source of carbon dioxide emissions, especially in countries that adopt laws and policies to reduce emissions. Thus, the agreement is a major challenge for countries that rely on fossil fuels as a major source of revenue.

On the other hand, the pact presents a key opportunity to GCC countries to speed up the process of economic diversification and invest more in clean and renewable energy sources, especially solar power. In fact, oil is unlikely to run out. As petroleum companies extract more and more from the earth’s crust, they have to reach deeper and deeper to reach new reservoirs. Eventually this will become very uneconomical while the unit costs of renewable energy forms decline. However, at least in the medium term, oil and gas will constitute one of the main sources of energy internationally. Currently, according to the IEA, oil and gas represent around 53 percent of the total global primary energy supply. This means that oil-rich countries have a good window of opportunity to use the wealth from oil and gas for investments in developing renewables technology.

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The writer is Environment Research Fellow at Gulf Research Center.