“With the US on its way out, a joint EU-China effort is needed to curb global warming.”
By Eduard Batash
A Shift in Global Climate Change Policy
In the subsequent weeks, the United States, the world’s 2nd largest emitter of Carbon Dioxide, will likely withdraw from the United Nations’ Paris Climate Agreement. While the direct effect on the climate agreement’s legitimacy is uncertain, China and the European Union (EU), the 1st and 3rd largest emitters of CO2, respectively, will now carry a heavier financial and political burden to implement measures to lower warming. Additionally, without the United States’ commitment to the 197-country deal, developing countries will lack additional financial support to fulfill their own carbon reduction pledges.
The Paris agreement itself relies too heavily on public energy funding and government subsidies for policy adaptation while excluding, to its detriment, political and private sector considerations. To effectively curb CO2 emissions, countries may need to step outside the Paris agreement’s boundaries, alter their emissions reduction targets, and integrate private sector finance for policy implementation and adaptation.
The Paris Agreement
On October the 5th, 2016, Barack Obama, the previous President of the United States, stated that the Paris agreement’s signing was “a historic day in the fight to protect our planet for future generations.” Mr. Obama’s statement was intended to demonstrate the United States’ commitment in spearheading the agreement’s new international climate change policy. Under the agreement, the United States was to finance emissions reduction programs for developing countries, while cooperating on a number of sustainability programs with other large emitters such as the EU and China. It should be noted that the United States had previously not ratified the Kyoto Protocol, the preceding U.N climate deal, in 1997.
However, Mr. Obama’s words, and the United States’ CO2 commitments under the Paris agreement, will not gain much traction due to the current Trump administration’s desire to pull the United States out of the deal. Further, the United States’ probable withdrawal is only one of the larger doubts that precede the Paris agreement. The Climate Action Tracker, an independent scientific analysis website, which tracks global climate change action, has questioned the plausibility of participating countries’ CO2 reduction pledges. Furthermore, it is unclear whether the EU and China, now the most influential and significant parties to the agreement, can effectively implement their pledged goals due to other political and economic instabilities.
The United Nations Framework Convention on Climate change, which included 197 countries, adopted the Paris agreement on December 12th, 2015. As of February 2017, 128 parties to the convention have ratified it. The agreement intends to lower the maximum warming by the end of the 21st century to 2 degrees Celsius, with an added effort to keep warming below 1.5 degrees Celsius. Participating countries must include “intended nationally determined contributions” in their yearly budgets, and increase their annual spending to reduce CO2 emissions and promote sustainable energy alternatives to fossil fuels such as solar, wind, hydro and nuclear power. Each participating country must periodically report on its progress, and on the amount of money they subsidize for alternative energy projects to the United Nations.
While the Paris agreement brings climate change to the forefront of global concerns, it actually does very little to mitigate the situation in terms of policy implementation and execution. First, between now and 2030, participating nations will begin their emission reduction projects and sustainable energy subsidies. To reach a maximum warming of 1.5 degrees Celsius by 2100, parties to the agreement must make significant cutbacks in fossil fuel usage by 2030. These setbacks would require the parties to the agreement to fully honor their subsidy pledges. Second, the clauses in the agreement “strongly urge” but do not require these parties to set aside any specific budget percentage to lower CO2 emissions. A “nationally determined contribution” will be determined at the country’s discretion, and without any oversight. And while the agreement does add a level of international transparency to climate change issues by requiring periodic reports, its success largely hinges on its two of its most volatile participants: The EU and China.
Climate Change Finance Under the Agreement
Climate change finance, in light of the Paris agreement, refers to either public or private capital flows that aim to “adapt” subject countries from heavy fossil-fuel usage toward low-carbon and climate-resilient developments and projects. Types of public financiers may include government agencies, ministries and national development banks. Private financiers may include private equity firms, financial institutions, corporate actors and project developers.
According to a study by the Stockholm Environment Institute, private climate change finance is not evenly distributed among world economies, but rather, more heavily concentrated in large and developed economies. As a result, developing and resource poor economies will require further public climate financing flows from the developed ones to assist their adaptation efforts. The negotiators of the Paris agreement took this issue into consideration, and presented countries such as the EU and China with recommended financing amounts. However, the World Resource Institute estimates that emerging markets’ commitments from base year 2013 will need to increase by 450%, or 140 billion dollars to satisfy the Paris agreement’s goals of limiting warming to 2 degrees celsius by 2100. The EU and China will likely have to finance this funding shortfall. But without any budgetary mandates under the agreement, they may not want to fund other countries’ shortages.
Private financiers are reluctant to directly involve themselves in climate change investments due to the concern of risk. According to a study by the Centre for Economic Change and Climate policy, potential climate change financiers fear that low-carbon investments tend to have higher risks due to longer time horizons (which delay expected returns on investments) high financing costs, and most importantly, worries about market adaptation and policy support. The Paris agreement does not effectively alter these perceived concerns among private investors because it does not provide a sustainable or effective financial model in mitigating CO2 emissions.
Germany Leads the Way
The EU has pledged a 40% reduction in CO2 emissions by 2030 relative to the year 1990. While the EU has had a 27% drop in CO2 emissions since 1990 and continues to project a downward trend in the coming years, the Climate Action Tracker projects it will still fall short of its 2030 reduction goals. The EU’s governing board has showed consistent intent in its public policy but, to reduce emissions, many of its goals hinge on its de facto leader, Germany.
The U.S Energy Information Agency index ranks Germany sixth in the world in terms of aggregate CO2 emissions. However, it has decreased its CO2 metric tons per capita emissions from 11.6 in 1991 to 9.2 by 2013, according to data from the World Bank. In line with the Paris agreement, Germany has introduced energy efficiency goals that aim to develop alternative forms of sustainable energy. Among these is the reduction of energy consumption by 50 % by 2050, while also increasing energy productivity and efficiency by 2.1 %. But Germany’s commitment to these goals and projections is also affected by its influential automobile industry and its uncertain future in a volatile political union.
The German upper house of parliament passed a resolution that would ban all internal combustion engines in cars by 2030 in direct response to the Paris agreement. This resolution led to a 5% market value drop in diesel in Germany and was followed by much criticism from German automakers who claimed that the plan was far too ambitious, and even surpassed the EU’s reduction models. German automakers’ resistance to changing energy standards is nothing new. During the Volkswagen diesel scandal between 2008 and 2015, the German automaker deliberately cheated pollutant emission tests to sell more diesel cars. As mentioned previously, the period between now and 2030 is vital in order to reach the agreement’s emissions’ reduction goals. Yet, internal conflict between policy makers and the German automobile industry only creates more obstacles and decreases cooperation between public and private spheres in finding energy-sustainable solutions.
Germany’s role in the EU has increased dramatically since the beginning of the 21st century, and, with Britain exiting the union, its power will only grow. Germany has a vested interest in remaining in the union because it allows it to keep its exports artificially cheap, and increase demand for its goods. Angela Merkel stated on January 12, 2017 that “we are absolutely in agreement that we cannot let ourselves be divided” in response to ongoing Brexit negotiations. To achieve the optimal Paris agreement targets, Germany will need to fully honor its CO2 emission goals by 2030. However, its focus on remaining in the EU and the economic stability of its people, might outweigh its focus on lowering CO2 emissions over the next thirteen years.
China Still Lags Behind
In the same U.S Energy Information Agency index, China ranked number one in terms of aggregate CO2 emissions. However, its CO2 metric ton per capita of 7.5, according to data from the World Bank, is lower than that of Germany’s. More so than other countries, China has experienced an exponential growth in its CO2 emissions since 1960 and is infamous for dense fogs sweeping its major cities. Specifically, its largest CO2 metric ton per capita growth period was between 2002 and 2013, when it experienced growth from 2.8 to 7.5 tons per capita. Its largest GDP growth was also between 2002 and 2013, when its GDP grew from 1.4 to 9.6 trillion dollars. These trends demonstrate the direct correlation between China’s fossil fuel outputs and its economic growth.
China has clearly stated that it believes climate warming and CO2 emissions are a major concern and has taken much action to alleviate the issue. It has allocated 361 billion dollars to renewable energy projects by 2020 and has reduced its coal usage for the third consecutive year.
Even with these vast improvements, the Climate Action Tracker estimates that China’s aggregate carbon emissions will peak at approximately 12,000 metric tons by 2030 under the Paris agreement, approximately 4,000 metric tons greater than its output in the U.S Energy Information Index. But, China’s own commitment must be compounded with greater cutback measures from other countries to achieve the 2 degree peak by 2100. Given that China will likely need to provide financing flows to developing countries under the Paris agreement, its own massive spending on domestic programs, and its heavy economic reliance on fossil fuels, there remains a great deal of doubt on whether or not it will meet its goals.
The Future of Global Climate Policy
Rising CO2 emissions are a monetary issue that also impact social, environmental and humanitarian efforts. They are expensive to mitigate, but become even more expensive to combat as they progress. According to the Stern Review, action taken to curb CO2 emissions will cost 1% of GDP, while inaction will cost 5% of global GDP in the short term, and 20% of global GDP in the long term. If countries do not immediately decrease their emissions, extreme weather events, food and fresh water shortages, rising sea levels and severe heat waves will become apparent much sooner.
Countries with high-income economies may allow their firms to invest directly in sustainable energy and climate-resilient projects in poorer countries with developing economies. High-income economies may also raise funds through the capital and debt markets and assign a development bank to redirect the capital raised. Relying on private investors who are motivated by financial returns might prove more fruitful in combatting carbon emissions than relying on policymakers’ fickleness. An integration of the public and private spheres, and policies aimed at increasing each individual country’s energy-self sufficiency will provide a more efficient model to curb climate change’s consequences than the Paris agreement’s model.
The main flaws in the Paris agreement lie not in its cooperative intent, but rather its public funding and subsidy prerogatives. It offers no monetary incentive to the participating countries, fails to mandate the use of monetary resources, relies too heavily on public financing and sets CO2 reduction goals that are implausible and expensive. Given both the EU’s and China’s predicaments in terms of economic obstacles and insufficient emissions reduction goals, parties to the agreement will need to rollback their targets and integrate private financing.
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