Implications of Global Climate Change Agreements: A Policy Brief

Executive Summary

The harmonization of global climate policy legislation, such as connecting systems of tradable emissions allowances, can considerably lower the cost to all participants of reducing climate change. This brief examines three key policy legislation aimed at mitigating climate change and adapting to its effects. pledges. More specifically, the brief estimates the costs and benefits of each climate change agreements via a vis the major stakeholders and actors in the participating countries and evaluated the importance of policy implementation, reduction in emission leakages, cost effectiveness, climate resilience activities and other additionality such as the transfer of technology from developed to developing to low-income countries.

Background

Governments across several countries recognized the challenges posed by climate change. At all levels, many governments have implemented policies developed to limit the impact of climate change and adjust to its expected impacts. As a result, clearer understanding of climate agreements is essential to inform decisions regarding climate change at local and international levels. There has been over 200% increase in the number of global climate change agreements since 1997, according to the most comprehensive database of climate change legislation and policies.[1]

Brief Analysis

The Kyoto Protocol, which came into force in 2005, operationalized the United Nations Framework Convention on Climate Change (UNFCC)[2] required industrialized countries to limit and reduce greenhouse gases emissions in line with established individual targets.[3] The Kyoto Protocol’s Clean Development Mechanism (CDM) is the first, global investment and credit scheme, supporting a regulated emission offset instrument, CERs.[4] A rural electrification project reliant on solar panels is an example of a CDM activity.

In December 2015, The Paris Agreement[5] which builds upon the United Nations Framework Convention on Climate Change brought governments across all countries into a unified cause to embark on bold efforts to tackle climate change (mitigation) and adapt to its effects (adaptation).

These agreements and legislation continue to drive impetus to reform and clean up economies. Renewable energy in the power industry, which already surpassed investments in fossil fuels has become the foremost source of electricity globally.[6] In recent years, many nations have made efforts to reduce pollution and develop new clean industries, with more investors starting to recognize and account for climate-generated financial risk.[7]

Implications of Climate Change Agreements

1.      United Nations Framework Convention on Climate Change & Kyoto Protocol

According to data by the UNFCC, aggregate GHG emissions in Annex I countries reduced by 9% from 1990 – 2000 (including forestry and land use; or by 6% if excluded).[8] The Kyoto Protocol effected the first binding and quantifiable mitigation commitments for developed countries, which also included a number of new mechanisms, including the CDM, that aimed to help reduce GHG emissions cost-effectively (UNFCC, n.d. Kyoto Protocol). The 38 countries recorded in its Annex B made aggregate commitments to collectively reduce their GHG emissions by 4% relative to 1990 levels by the Protocol’s first commitment period, 2008 – 2012.[9] Although emissions have reduced since the adoption of the Protocol, some countries did not participate. The United States, the country with the greatest share of global emissions did not ratify the Protocol. In addition, Canada withdrew in December 2011 while Russia, Japan, and New Zealand opted not to participate after the first commitment period.[10]

The Kyoto Protocol also promoted reporting and monitoring of emissions, and capacity building in emerging markets, which may accelerate further cost-effective actions in the future.[11] The market performance of International Emissions Trading is hinged on who is executing the trades. National governments do the trades and states are not known to be efficient. Increasing percentage of trades have been made by private sector firms, which could increase cost-effectiveness.[12] Joint execution also has the possibility of improving the cost-effectiveness of countries’ activities under the Protocol.[13] Despite the Protocol’s compliance system, enforcing the Protocol’s objectives has proven challenging because of a lack of a legal enforcement body and the fragility of possible sanctions as a comparison of costs of compliance. (Hare B., 2012)

2.      The Clean Development Mechanism (CDM)

The success of the CDM is dependent on three key parameters: additionality, the strength of the baseline from which the reductions in emissions are derived from; and the effects of indirect emissions impacts caused by the projects. (UNFCC, n.d. CDM). The issue of additionality remains a critical challenge despite an increasing expansion of additionality tests by CDM regulators.[14] CDM projects in transport, energy efficiency, and buildings have faced challenges in monitoring, transaction costs and baseline determination.[15]

Voluntary selection between standardized and project-specific baselines as well as “simple, highly aggregated performance standards” could reduce environmental effectiveness.[16] Emission leaks due to impacts of market pricing is inevitable. Irrespective of the baseline used, the CDM will lower carbon leaks through the cut in the difference in costs of mitigation between countries.[17] Furthermore, the huge volume of credits and projects in the CDM provides the opportunity for cost savings where mitigation costs are lower in emerging market countries. However, many low-cost opportunities had not been taken up by CDM projects.[18] The sustainability of the CDM depends partly on its ability to supporting technological change in developing countries either through promotion of innovation or through technology transfer from developed to developing countries.[19]

3.      The Paris Agreement

The agreement involves a stronger than expected warming objectives; effectively, a net zero emissions goal; regular five yearly reviews; and pledges to scale up and review climate finance investments. This implies that there are clear signals to industry and investors that national policies will need to be strengthened over time. As a result, this will more than boost pre-existing momentum and can help stimulate the climate action needed. Transformation is already occurring, and Paris is leading the way in the shift from traditional fossil fuels and into clean energy sources.

The global politics of climate change are catching up with the world, where we have seen considerable changes in domestic policies, investment alternatives, and community opinion over recent years. The agreement will further stimulate investors and industry around the increasing opportunities of a clean economy.[20]

Recommendation

Developed and industrialized countries should display leadership in implementing policies and connecting climate mitigation and adaptation policies and systems to realize significant economic benefits in the implementation of the Paris Climate Agreement.

ENDNOTES

[1] Grantham Research Institute at the LSE et al (n.d.) Climate Change Laws of the World, Accessed at https://climate-laws.org/

[2] UNFCC (n.d.) What is the United Nations Framework Convention on Climate Change? Accessed at https://unfccc.int/process-and-meetings/the-convention/what-is-the-united-nations-framework-convention-on-climate-change

[3] UNFCC (n.d.) The Kyoto Protocol. Accessed at https://unfccc.int/kyoto_protocol

[4] UNFCC (n.d.) The Clean Development Mechanism. Accessed at https://unfccc.int/process-and-meetings/the-kyoto-protocol/mechanisms-under-the-kyoto-protocol/the-clean-development-mechanism

[5] UNFCC (n.d.) What is the Paris Agreement? https://unfccc.int/process-and-meetings/the-paris-agreement/what-is-the-paris-agreement

[6] Gabbatiss, Josh (2018) “World invested more in solar energy than coal, gas and nuclear combined in 2017, UN report reveals” Independent. 5 April 2018. https://www.independent.co.uk/environment/solar-energy-world-investment-higher-coal-gas-nuclear-combined-2017-un-report-a8290051.html

[7] International Monetary Fund (2019) “The Economics of Climate Change”, IMF Finance & Development, pp 26 – 29 Volume 56 No 4, December 2019. Accessed at https://www.imf.org/external/pubs/ft/fandd/2019/12/pdf/fd1219.pdf

[8] UNFCCC (2013) Compilation of Information on Nationally Appropriate Mitigation Actions to Be Implemented by Developing Country Parties. UNFCC, Bonn, Germany, Accessed at https://unfccc.int/resource/docs/2013/sbi/eng/inf12r02.pdf

[9] UNFCCC (1998) Kyoto Protocol to the United Nations Framework Convention on Climate Change. United Nations Framework Convention on Climate Change, Bonn, Germany, Accessed at https://unfccc.int/resource/docs/convkp/kpeng.pdf

[10] UNFCCC (2012) Time series— Annex I. https://unfccc.int/ghg_data/ghg_data_unfccc/time_series_annex_i/items/3814.php

[11] Hare B. et al (2012) Climate Action Tracker. Climate Action Tracker. Accessed at http:/ /www.climateactiontracker.org/.

[12] Aldrich E. L., and C. L. Koerner (2012) Unveiling Assigned Amount Unit (AAU) trades: Current market impacts and prospects for the future. Atmosphere 3, 229–245. Accessed at https://www.mdpi.com/2073-4433/3/1/229/pdf

[13] Vlachou A. and Konstantinidis C. (2010) “Climate change: The political economy of Kyoto flexible mechanisms”, Review of Radical Political Economics 42, 32–49. Accessed at https://journals.sagepub.com/doi/pdf/10.1177/0486613409357179

[14] IPCC (2007) “Climate Change 2007: Mitigation of Climate Change: Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change”, Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA. Accessed at http:/ /ipcc.ch/publications_and_data/publications_and_data_reports.shtm

[15] Michaelowa A. and Hayashi D. (2009). Challenges for energy efficiency improvement under the CDM—The case of energy-efficient lighting. Energy Efficiency 2, 353–367. Accessed at https://core.ac.uk/reader/159148080

[16] Hayashi D., and A. Michaelowa (2013) Standardization of baseline and additionality determination under the CDM. Climate Policy 2, 191–209. Accessed at https://www.tandfonline.com/doi/full/10.1080/14693062.2013.745114

[17] Kallbekken S. et al (2007) CDM baseline approaches and carbon leakage. Energy Policy 35, 4154–4163. Accessed at https://www.researchgate.net/publication/251316130_CDM_baseline_methodologies_and_carbon_leakage

[18] Castro P. (2012) Does the CDM discourage emission reduction targets in advanced developing countries? Climate Policy 12, 198–218. Accessed at https://www.tandfonline.com/doi/full/10.1080/14693062.2011.592658

[19] Reichman J. et al (2008). Intellectual Property and Alternatives: Strategies for Green Innovation. Chatham House, London, https://www.chathamhouse.org/sites/default/files/public/Research/Energy,%20Environment%20and%20Development/1208eedp_duke.pdf

[20] Rose A. et al (2018) “Policy Brief—Achieving Paris Climate Agreement Pledges: Alternative Designs for Linking Emissions Trading Systems”, Review of Environmental Economics and Policy, Volume 12, Issue 1, 10 February 2018, pp 170 –182. Accessed at https://academic.oup.com/reep/article/12/1/170/4850686