Most companies pay little attention to the complex processes going on within the UN climate negotiations. There are, however, good reasons why companies should follow the Paris process, write Maarten Neelis and Rolf de Vos of energy consultancy Ecofys, and especially the “intended nationally determined contributions” (INDCs). These provide companies with vital information on how climate policies will develop in different countries and what opportunities there may be in new markets in the low-carbon sector.
Gradually, the intended nationally determined contributions (INDCs) to the overarching climate agreement to be concluded in Paris later this year are starting to come in. The Climate Action Tracker largely confirms what could be expected: the INDCs differ widely in many respects.
They differ in scope, from a mitigation focus only, to a focus on adaptation as well. They differ in ambition, from well-defined with transparent absolute targets to much more loosely defined. They differ in terms of the policies proposed, from carbon pricing referred to as the backbone of climate change, to no policies at all.
The INDCs remain key to understanding how climate change policy will influence the competitive position of industry in various parts of the world
The EU INDC, for example, is well founded in a longer term ambition of an 80% – 95% reduction by 2050, and is supported by the 2030 energy and climate policy package that is currently further detailed, although some criticise the EU for not yet taking a decision on land use and forestry emissions. On the other side, for example the Russian INDC is not very transparent on the exact accounting rules for certain emission sources and misses a clear link to a policy framework.
It is impossible to predict the exact numbers that will emerge from this myriad of national ambitions and actions, and even more so what an agreement in Paris may look like. Success is certainly not guaranteed but ‘Paris’ has already triggered a great many new initiatives.
In addition to the negotiation process going on at the country level, non-state climate actions are finally getting some momentum. A recent Ecofys report for UNEP estimates that existing non-state initiatives could already deliver savings of 2.9 gigatons of CO2 equivalent by 2020, in additional to existing national or regional policies and measures. Total worldwide emissions are around 49 Gt at present. The additional contribution from non-state initiatives could bridge a considerable part (30 to 45%) of the gap between the national pledges and what would be needed to stay on track for not exceeding the 2° C temperature increase.
These non-state actions deserve a broad acknowledgement in the Paris process. With the turnover and emissions of many multinational companies surpassing the GDP and emissions of many of the countries present in Paris later this year, climate action by the business community is key to achieve any global ambition.
But does this mean businesses need to follow the Paris process? Or can they simply go their own way, without bothering about the INDC process?
For several reasons, it makes much sense for business to follow the process and in particular the INDC submissions.
Proper analysis of INDCs can help companies find new and emerging markets, especially for those industries developing innovative low-carbon products
Firstly, the INDCs remain key to understand how climate change policy will influence the competitive position of industry in various parts of the world. For example, China is preparing to launch a nationwide emission trading market next year. It is advisable to understand the details before making a new investment in China right now.
Secondly, the INDCs and underlying information, although often general, are an excellent starting point for understanding climate change policy dynamics in the decade to come. Which countries are likely to take action and which are not? Will carbon pricing be part of the policy mix or will the country rely on different mechanisms? A proper analysis is key to understand the effects of climate change policies on competitiveness
Thirdly, the INDCs are a good starting point for uniting sectors around ambitious sector initiatives and coordinating public advocacy for strong policies, such as the recent call by international oil companies for carbon pricing. The INDCs will show an increasingly diverse array of national policies, measures and initiatives. A proper analysis helps to select best practices and unite leading companies in the various sectors in their pleas for consistent, long-lasting and globally comparable polices
Lastly, a proper analysis of INDCs can help companies find new and emerging markets, especially for those industries developing innovative low-carbon products. It can also help them to find out what kind of climate finance might be possible, although climate finance is a notoriously non-transparent sector. The same goes for more ‘exotic’ elements in the negotiations, like upcoming domestic offset schemes in national and sub-national carbon pricing schemes or initiatives for “NAMA” development (ie the NAMA Facility).” Understanding these climate finance dynamics might be valuable for a company developing and selling low-carbon applications and the INDCs and underlying documentation are key sources of information for this.
In short, the INDC and Paris processes are too important to neglect for business.
Maarten Neelis is managing consultant at Ecofys, specialised in carbon markets and industrial energy and climate policies. He is currently also Ecofys’ regional manager in China.
Rolf de Vos (@qqmulti) is senior consultant and journalist working with @Ecofys. He is editor of the new Paris Ecofys Climate Blog which focuses on bridging the information and negotiation gap between business and policymakers. The Paris Ecofys Climate Blog will be featured on the website of Energy Post and the Ecofys website.