The inherently global aspect of climate as a common good and the externalities associated with carbon emission requires government intervention and international collaboration to address climate change. The pledge by 195 nations to reduce carbon emission under the Paris Climate Agreement [from 2016] presented a major international initiative as member countries account for over 98% of the global greenhouse gas emissions. The U.S. withdrawal from the agreement is a huge setback from the progress made in Paris and cast uncertainty on the multilateral collaboration ahead. It has sparked intense debates on whether it will encourage other member countries to slacken their efforts in meeting current commitments or raising future targets, while on the other hand, the withdrawal is projected to open opportunities to make the accord more robust.
The trillion dollar question remains; how critical is the U.S. exit and what are the implications and challenges ahead?
Addressing climate change is one of the urgent global challenges as the world had already experienced 1.2°C of warming [e360.yale.edu] above the pre-industrial levels. With a remaining carbon budget of 940 gigatons, at the current global annual emission rate of 40 gigatons, global temperature is projected to rise above the 2°C target in less than two decades. The Paris Agreement aims to limit global warming to well below 2°C (and pursue to achieve 1.5°C), however, at the current level of NDCs (Nationally Determined Contributions), Climate Interactive estimates global temperature to rise above 3.3°C by the end of the century. The exit of the U.S. clearly makes the task harder as it is the second highest emitter of global greenhouse gas and accounts for 15% of the total global emissions.
Global greenhouse gas emissions and rise in temperature
Source: Climate Interactive, 2017
In the short-run, the adverse impact of U.S. withdrawal has been manifested in President Trump’s revocation of regulations promoting clean energy, emission standards and commitment to Climate Fund. The effect on long-term investment environment in clean technology is yet to be seen, as the formal exit from the Paris Agreement will not take place until November 2020. Though the withdrawal is a serious setback, on a positive note, the U.S. outside the agreement is likely to do less harm than slowing the process from within; had it stayed within the agreement and reneged on its commitment. The withdrawal has also led to a resurgence of bottom-up climate stewardship by federal states, cities and industry leaders. It offers a good opportunity to start a transparent and reasoned national conversation and political debate on climate change in the country.
For the international community, the exit of the U.S. opens an opportunity to galvanised climate leadership from other member states. Historically, the U.S., along with the EU, has so far played a major role in pushing the climate agenda forward from Rio to Paris. However, given the projected rapid increase in carbon emission from developing countries, climate leadership and action from these countries will be crucial in limiting global emission rate. Encouraging signs are seen from the two highest populated and greenhouse gas emitting countries — China and India. They are currently on track to overachieve their NDC pledges and further increase their targets. In the last few years, China has managed to transform its image from grudging bargainer to silent torchbearer in climate action. It has the highest installed capacity in wind and solar power, introduced the world’s largest carbon trading scheme and made credible commitments to strive for ecological civilisation. India, on the other hand, is on its way to overshoot its NDC target of 40% renewable energy capacity addition by 2022 and projected to reach 57% by 2027. It has initiated the International Solar Alliance (ISA) of more than 120 countries for harnessing solar energy and is projected to play a key role in global climate governance in the coming years. China is expected and has the potential to play a leading role, however, for sustained effective international action, EU and the BASIC countries (Brazil, South Africa, India and China) will need to work closely and lead the way forward.
NDC pledges and global temperature
Source: Climate Interactive, 2015
Given the time constraints in tackling climate change, there are specific challenges to be addressed urgently to ensure the success of the Paris Agreement. The 2018 deadline for finalising the rule book for operationalising the Agreement is closing in. The meeting of the parties by year-end in Bonn needs to build momentum for setting a transparency and accountability framework that will promote trust among member countries and discourage free riding. In particular, there is an urgent need to put in place an effective capacity building mechanism and to set up a clear roadmap for mobilising climate finance. Countries are currently in the early stage of crafting rules and policies to implement their NDCs and developing countries faces complex challenges as most lack the capacity to design and implement relevant domestic policies. Despite the various multilateral and bilateral efforts, the existing capacity building measures lack coordinated effort due to the fragmentation of international institutions. The task ahead for the Paris Committee on Capacity-building (PCCB) will be to put in place a mechanism that will enable coherent and coordinated efforts among relevant agencies and strengthen cooperation at the international, national, regional, and subnational level.
The challenge developing countries face without U.S. financing
The NDC implementations in most countries in the global south are contingent on international financial support from developed countries. Raising the targeted amount of USD100 billion by 2020 and channelling it for appropriate projects remains a challenge. With Trump’s cancellation of the USD2 billion contributions to Green Climate Fund, the effective amount of the total pledge stands at USD8.13 billion. Aside from the challenges of raising the required fund, more importantly, only 10% of global climate finance has so far been utilised by 2016 and very little has reached the poorest countries. The key task ahead is to bring clarity on how the required finance will be raised, ensure funds are channeled in the right direction and set a transparent distribution mechanism to avoid a legal and political tug-of-war in the distribution process.
Technology and market innovations are rapidly driving down the cost of clean technology and signal a promising sign for the transition towards a low-carbon economy. Renewable energy such as solar electricity supply from large-scale projects is already cheaper than conventional fossil fuel-based electricity in countries like India, United Arab Emirates and Chile. Technological innovation and cost reduction in renewable energies, smart energy solutions, batteries and electric vehicles offer huge potential for reducing carbon emission. However, ensuring a decarbonised global economy will require addressing market distortions as clean technology faces undue competitive disadvantage vis-à-vis investment in conventional energy sources. For instance, IMF estimates that the current global fossil fuel subsidy stands beyond USD5 trillion per year despite national governments rolling out policies and targets for promoting clean technology. Currently, the underlying reason for the failure of efforts to reduce carbon emission in most countries is mainly because national climate policies are often not aligned with inter-sectoral domestic policies. To ensure long-term success in emission reduction and to make policy instruments more effective, countries will need to make concerted effort to address market distortions and national climate policy initiatives will need to be aligned across various sectors such as transport, manufacturing, energy and urban planning.
The Paris Climate Agreement, though imperfect, offers the first international framework that can be built upon to address climate change. It has provided a platform for voluntary bottom-up flexible mechanism for countries to contribute to limit global warming. It is clear that the current level of NDC commitments are insufficient to meet the 2°C target and the success of the accord will depend on countries recognising the urgency of addressing climate change and collective action by member countries to progressively ratchet up their commitment over the years. The underlying truth is that climate stewardship and a nation’s commitment can change with the change in political leadership. U.S. withdrawal is a wakeup call; it can happen to any member country in the coming years. History has shown time and again how few organised groups can hijack the voice of the silent majority. It is uncertain how soon the U.S. will rejoin the agreement and too early to predict the long-term impact of the withdrawal. The way forward is to anchor it as a stepping stone to further engage political leaders, businesses, civil society organisations and the public for greater climate action. Investment decisions in climate friendly technologies are gradually driven by economics rather than policy support and addressing climate change will require smart and forward looking public policies. The world is in a race against time and efforts for leaving a better future for the coming generations will require not only working together within the broad framework of the UNFCCC but innovative efforts and actions by each nation.
Phungmayo Horam, Division of Resource Economics, Humboldt University Berlin
Dr. Phungmayo Horam is a resource economist with over six years of experience in policy research and project implementation in the renewable energy sector under the Future-Megacities project sponsored by the German Ministry of Education and Research (BMBF). He specialises in the application of economics and legal framework for evaluating policy design and transaction risks in the renewable energy sector and currently provides consulting services for climate mitigation projects in India.