So, now that the dust is starting to settle….What has Paris accomplished? (Part one)

The Paris Agreement has now been in place for close to two weeks.  After an initial flurry of headlines and blogs, the issue receded from most media headlines by the end of last week.    Commentaries ranged from characterizing Paris as a “magnificent failure” (Eric Reguly of The Globe and Mail, December 18, 2015) to the UNFCCC Executive Secretary Christiana Figueres referring to it as “….a decisive turning point inscribed into history….”.  One thing that cannot be denied was the masterful and courteous service provided by the French hosts : from President Hollande’s orchestration of the leaders’ summit at the beginning of CoP 21, to Foreign Affairs’ Minister Fabius impeccable diplomatic skills in corralling 170 plus countries (with the interesting exception of Nicaragua) around an agreement to the efficient, effective and impeccably friendly service provided by security and all other support personnel at the Bourget CoP site.

Nor can there be any doubt that the agreement in Paris represents a ‘game changer’ in at least one respect – virtually ALL countries have now agreed to take national actions to reduce GHG emissions.  For those of us who have followed these negotiations for more than two decades, it is difficult to exaggerate the enormity of this development.  In fact, the very terms “Annex 1” and “non-Annex 1 Parties” are not mentioned once in the agreement.  Yes, there is still the expectation that developed countries will continue to “take the lead”, especially in financing, but the fact that all the globes’  economies have committed to take actions that will, in one form on another, work to put a price on carbon is an enormous step forward (even a strictly regulatory approach has the impact of putting a cost on GHG emissions).

What was most remarkable about this ‘tectonic shift’ in the negotiations’ architecture is its voluntary, ‘bottom up’ character: over 170 countries willingly submitted plans prior to Paris (Intended Nationally Determined Contributions or INDCs) exceeding all expectations.   Despite the continued rhetoric of ‘differentiation’ throughout the two weeks, it was clear that the concept was only sacrosanct to a hard core few (led by Malaysia and Venezuela in the Like Minded Developing Country negotiating group).  So, we can now safely say that the narrative coming out of Paris is that all major economies are now in the ‘mitigation’ train and the train has left the station.

Which, of course, begs the question: where is it headed? The ultimate destination is clear : holding the increase in the global average temperature to “well below 2 °C above preindustrial levels and pursuing efforts to limit the temperature increase to 1.5 °C above preindustrial levels”.  What is not clear, is how countries are expected to get there. In a most informative blog by PWC’s Jonathan Grant, we are looking at decreasing the globe’s current carbon intensity rate of 1.3% per annum (2000 – 2014) to 6.3% every year until 2100 – five times our current rate – if we are to not exceed the 2° C.  And while the science on the impacts of 1.5 °C is particularly ominous for small island states and coastal cities, the prospects of not exceeding that mark is extremely slim: as the IPCC has confirmed with a current annual output of 50 Gigatonnes of GHG emissions per year, and with 500 Gt representing the total amount of GHG emissions that can be emitted before 1.5 is breached (thanks to Axel Michaelowa for reprising IPCC’s work on this), there simply is no room for reaching the lower global temperature mark, particularly given that major developing countries only intend to peak their emissions by 2030, at the earliest.

The only way in which the world’s economies are able to ‘turn on a dime’ to meet such ambitious global temperature targets is via the market place and private financing.  Was the signal provided at Paris strong enough to significantly change mainstream investment decisions?  It is one thing for the Sustainable Development unit in each of the investment houses to mouth the appropriate ‘green’ signals; for investment to truly turn the corner, it must provide venture funds in new technologies and practices the likes of which have never been seen before.

Mission Innovation, the industry-major economies initiative to promote and support breakthrough energy technologies is one such important step.  But infinitely more critical will be the behaviour and financing decisions that take place in domestic banks in each country: the mobilization of private domestic resources will be THE indicator in signalling a sea change in financing development.  With respect to extractive industries, this will not mean closing down operations tomorrow: however, what it should mean are sufficiently robust carbon prices that will work to finance low GHG emissions solutions, including of course, carbon capture and storage.  And it should also mean a strategic examination of how and which resources and technologies will be required to supply the net carbon zero future.

The other important consideration is the extent to which the comprehensive Paris agreement works to allay competitiveness concerns, commonly referred to as ‘carbon leakage’ where investments will naturally flow to those jurisdictions without regulatory/GHG pricing policies in place.  While all major economies have submitted INDCs, it is also evident that the relative aspiration of country’s mitigation plans vary considerably – China is committing to peak its emissions not before 2030, while India has not indicated any plans to peak their emissions at this point.  Is the Paris Agreement an effective ‘first step’ in equaling the playing field or a mere ruse by continuing to provide some economies with decided competitiveness advantages?

Finally, there are at least 3 areas of the global economy that remain curiously overlooked in the climate change negotiations: international airline travel, international shipping and agriculture.  Regarding the first two areas, very tentative progress is being made in their multilateral homes – IMO and ICAO – and one would expect that the issue of whether sufficient progress is being made would be a topic for discussion in future UNFCCC sessions.

Agriculture is an entirely different matter – the issue of overlooking agriculture’s contribution in addressing climate change has gone on far too long in the climate negotiations.  With over 100 INDCs including agriculture and their relevant GHG emissions as part of their mitigation plans, the multilateral climate community can no longer ignore developing appropriate guidelines and methodologies for this critical sector.

At the end of the day, while Paris represents a significant success in fundamentally changing the architecture of the negotiations, one can only be humbled by the challenge that faces us all.  Certainly, there would have been virtually no prospect of success without the kind of agreement that was reached December 12.  However, there is every right to wonder whether it will be enough: despite this having taken over 20 years, we have only passed the easy part.  I’ll leave it to the reader to decide whether that represents a ‘magnificent failure’ or a ‘brave beginning’.

An ensuing piece will follow, examining some of the critical articles that make up the Paris Agreement.

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