As the UN climate talks in Paris are nearing completion, the implications for the energy sector are becoming clear. The 186 national action plans that will form the basis of an agreement really amount to clean energy investment plans, observers say. “A whole new economy will be created.” What this means for fossil fuels is uncertain. Although the term decarbonisation has been replaced by a much vaguer “emissions neutrality”, few believe that a 2 degrees target can be reached without a near-phase out of fossil fuels. Sonja van Renssen reports from Paris.
The positive atmosphere at the Paris climate talks had mellowed out somewhat by Thursday evening, as it felt like the brisk pace and forward momentum were finally bumping up into some real obstacles. A new draft text was postponed from afternoon to evening. When it finally did appear at 9pm however, it was greeted with excitement and enthusiasm. Experts gushed over “striking progress” as delegates prepared to regroup at 11:30 pm to work on the draft throughout the night. The expectation is that the French COP21 presidency will produce a final text to put to the UNFCCC plenary in the course of Friday, 11 December.
The most challenging issues to resolve are differentiation – how the agreement should distinguish between more and less developed countries – and transparency – the details of a legally binding monitoring, reporting and verification (MRV) system to ensure that countries deliver the climate action they have promised.
“A whole new economy is created between 4.8 and 2.7 degrees Celsius”
One issue which does appear to have been resolved is ambition. In the run-up to the Paris climate talks, over 180 countries representing over 95% of global greenhouse gas emissions, made individual commitments to combat climate change. Since they started, that number has risen to 186. These national climate action plans, or INDCs (Intended Nationally Determined Contributions) add up to enough to limit global warming to 2.7 degrees Celsius. What they really amount to is clean energy investment plans. “A whole new economy is created between 4.8 and 2.7 degrees Celsius,” said Edward Cameron, Managing Director of Business for Social Responsibility, in Paris on Thursday.
For the business community, the single most important aspect of the new agreement is the text on long-term ambition: “The clearer the signal, the more [finance] it could unlock,” Cameron explained. This is not just about unlocking money to reach the US$100bn pledges in climate finance to developing countries, but about “unlocking trillions” in capital for clean energy from for example pension funds.
Fossil fuel phase out?
The latest draft text adheres to the goal of limiting average global temperature change to 2 degrees Celsius, but also urges the pursuit of 1.5 degrees. This a major breakthrough compared to previous negotiating sessions. It also calls for “the peaking of greenhouse gas emissions as soon as possible” and “greenhouse gas emissions neutrality in the second half of the century”. Experts, NGOs and businesses are defending this as a sound formulation of ambition, despite the lack of dates and numbers. Cameron said the text “provides the certainty business needs to scale up low-carbon capital investment”.
“Addressing climate change will require a fundamental change in the way that we decide to power our planet,” US Secretary of State John Kerry said in a keynote speech in Paris on Wednesday. “The solution to climate change is energy policy.” On Wednesday, the US formally announced that it is part of a so-called High Ambition Coalition, which, exactly as its name suggests, aims to deliver a “truly ambitious” agreement in Paris. The EU claims credit for launching it.
“In the long term, carbon-intensive energy is one of the costliest investments any government could possibly make”
Kerry added: “Sure, we’re going to continue to pump gas and oil for years. We know that. But even nations whose economies depend largely on the production of oil are diversifying into renewable energy.” He cited Dubai in the oil-rich Middle East, which recently committed to establishing a $27 billion fund to reach the Emirates’ goal of installing solar panels on all buildings by 2030, and of retrofitting older buildings to become more energy-efficient.
“In the long term, carbon-intensive energy is one of the costliest investments any government could possibly make,” the US Secretary of State concluded. In the Paris talks, delegates nevertheless appear to have dropped the word “decarbonisation”, which was seen as code for a fossil fuel phase out. No one is clear on what its successor, “emissions neutrality”, exactly means. But few believe that 2 degrees, let alone 1.5 degrees, is possible without a substantial reduction if not phase out of fossil fuel use.
For defenders of ambition, a big win in the latest text is a strong review procedure for the INDCs. It is this, combined with a strong transparency framework, that gives business the long-term certainty it needs to make investments, they say. The latest draft proposes a first global stock-taking of INDCs in 2019, followed by a first resubmission in 2020. A next stock-take is planned for 2023 and since INDCs would have to be resubmitted every five years, the next lot would be due in 2025.
Going green together
“We need to be sure that this agreement facilitates the energy policy choice that will enable the transformation we need, but also recognising the capabilities and capacities and needs of different nations,” Kerry said.
“Differentiation” is the new term for the concept of “common but differentiated responsibilities”, which was written into the 1992 UN Framework Convention on Climate Change (UNFCCC) and which framed the Kyoto Protocol. It split countries into developed and developing and said the former should lead the fight against climate change. The EU and US are now leading a push for a more nuanced approach – in effect, they want a single approach for all countries that would nonetheless allow for differentiation within it to take account of different countries’ needs and capabilities.
“Carbon pricing is not in play [here] but it’s very much alive”
This would align the agreement with modern reality and make it fit for the rest of the century too, the EU and US argue. It would be the start of a real global level playing for climate policy that energy-intensive businesses in Europe have been asking for, for years. But this is a very sensitive issue. Earlier in the week – notably after the EU and the US pushed for a broader donor base for climate finance – Brazil, South Africa, China and India (the BASIC group) made clear that “we are not here to re-write the convention”. India’s environment minister said that the Paris agreement “must fully respect CBDR” (common but differentiated responsibility).
Nevertheless, the latest text shows progress away from a binary split of the world into developed and developing. Even on financing, while it is clear that developed countries must lead, it now says “from a shared effort by all parties”.
Kerry also argued on Wednesday that despite a clear need for differentiation, “we need to require regular reporting from all countries on what they’re doing and how much progress they’re making.” He emphasised that this is “the only way we’re going to give both the private and public sectors the confidence that the promises we are making have actual weight behind them”. This idea of a single MRV system for all remains one of the most contested parts of the new text.
Carbon markets on the sidelines
It is unclear at this stage what the final text will say on carbon markets. “Carbon pricing is not in play [here] but it’s very much alive,” said Cameron on Thursday. A similar message was sent out by the International Emission Trading Association (IETA) on the same day: carbon markets are a bottom-up phenomenon that are not about to go away – just look at China. In sum, the Paris deal cannot stop them. It could encourage them, but doing so is not a priority for negotiators here. They have bigger fish to fry.
Nicolette Bartlett from the Prince of Wales Corporate Leaders Group on Climate Change noted that “internal carbon pricing is a management tool” and suggested that businesses will get the signal they need from the Paris deal as a whole and integrate that into their management practices.
“There is nothing in this agreement that I expect will allow individuals or organisations to bring a lawsuit on loss and damage, outside of the US domestic system”
There is draft text on carbon markets in play (it does not refer to them as such). Most controversial is a proposed offset mechanism comparable to the Clean Development Mechanism under the Kyoto Protocol. NGO Carbon Market Watch attacked the idea, arguing that there is a big question mark over the need for carbon offsets in future, the inclusion of land use offsets could open a giant new loophole, and developed countries should not be allowed to compete with developing countries to generate offsets. Separately, there is text paving the way to link up existing carbon markets.
The carbon markets discussion has become more complicated since the introduction of the more nuanced concept of “differentiation” makes it less clear who is doing what and who should be allowed to offset where.
Head of the European Parliament’s delegation in Paris, Giovanni La Via, defended carbon markets at an EU press conference in Paris on Thursday: “Carbon markets can present a direct source of climate finance,” he said. On that note, what has been missing entirely from the last two draft texts is any mention at all of aviation and shipping. The EU called for them to be put back in on Thursday, with EU Climate and Energy Commissioner Miguel Arias Cañete saying Paris “must set a clear mandate for both”. If left untouched, they could account for up to one third of global emissions in 2050, he added.
Loss and damage
Energy companies might worry that any text on liability and compensation for climate change might one day find its way back to them. But so far, no such text is in the making. Nor is it likely to be, since the US actively opposes it (and with such text, the Paris agreement would never survive Congress). “Loss and damage” however, when permanent and irreversibly caused by climate change, is in the latest draft text, along with a list of what the term might cover.
Jake Schmidt, Executive Director at the US-based National Resources Defense Council (NRDC), gave reassurances on the liability front: “There is nothing in this agreement that I expect will allow individuals or organisations to bring a lawsuit on loss and damage, outside of the US domestic system.”
South Africa’s lead negotiator explained to journalists on Thursday that liability and compensation is “a much broader issue than just climate change”. It also relates to natural disasters, cross-border water pollution and so forth, he said. International liability and any consequences under international law is a much broader legal question that “must be dealt with under the UN general assembly” he said.
Nevertheless, on Thursday morning, at a press conference by divestment movement 350.org, Kumi Naidoo from Greenpeace announced an investigation launched by the Philippines last week into 50 big fossil fuel polluters that he said he “hopes will lead to litigation”. Naidoo added: “Increasingly we are going to go after the people that take the decisions to lend money to these companies.”
Earlier in the week, lawyers from Canada and Vanautu also presented a model “climate compensation act” that they describe as a simple proposal under international private law that would let countries sue a private enterprise for climate damage. The barriers to these kinds of cases are primarily political, not legal, said one of the authors.
After a dip in momentum on Thursday, the push is back on for a final deal by the end of the week. The mood remains confident. The EU and the US are largely aligned. China’s domestic policies suggest it could live with much of what it objects to, for example on MRV (it is already doing this for its own carbon markets), financing (it is already engaging in South-South aid), and the INDC reviews (it already has 5-year plans).
India is in a trickier position – it really does not want to be under pressure to raise its climate action ambition over the next 5-10 years – but observers do not consider it an insurmountable obstacle. Russia President Vladimir Putin has apparently promised he will not stir up trouble. Brazil and South Africa want a binding long-term agreement. Traditional blockers from South America such as Venezuela have changed government recently.
It is not a done deal yet and for the first time on Thursday delegates were talking about a Saturday finish. But whichever day COP21 ends, the real work will only begin in January, when delegates are back in their capitals and starting to think about how to implement their INDCs.