We’ll Always Have the Paris Agreement

Eiffel tower

The chief danger about Paris is that it is such a strong stimulant.      ~ T.S. Eliot
Efforts to reverse the ever-rising trajectory of global carbon emissions have gone so poorly for so long that the accord punched out in Paris last December is wondrous for simply existing. It is an aspirational document, committing 196 nations to meet voluntary reduction targets but containing no enforcement mechanism or legal penalties for falling short of them. In lieu of establishing a global price on carbon via a cap-and-trade system or a tax, a politically impossible achievement, the Paris Agreement grants its signatories wide berth to determine how to meet their goals. Wealthy nations also agreed to mobilize at least $100 billion per year to support the adaptation and mitigation efforts of poorer nations and small island countries threatened by sea level rise (“enough financing to keep poor countries from walking out of the talks,” wrote Bill McKibben, “but not enough to really push the renewables revolution into high gear”).
The Paris signatories agreed to take steps to keep warming under 2 degrees, with best efforts to keep it to 1.5° C, and work toward a global net-zero carbon economy in the second half of this century. The agreement’s reach greatly exceeds its grasp. The collective impact of the pledges countries have made to reduce emissions will only cap temperature rise at 2.7 degrees. To close the gap, the signatories are called upon to ratchet up their commitments over time and to keep themselves honest by participating in a five-year public self-reporting scheme. The first reports are due seven years from now.
How much celebration is called for is determined by an inclination toward optimism or pessimism. Most observers seem to feel that while Sisyphus’s task has not exactly been made easier, the prospects that Sisyphus’s task will get easier have greatly improved. In the view of Sustainalytics, which provides corporate ESG (environmental, social, and governance) research to investors: “[T]he deal signals a fundamental change in the way the international community manages climate change, and provides a positive long-term signal for low-carbon technologies.” Ceres president Mindy Lubber predicted, “Given the global reach of the agreement and the follow-up mechanisms behind it, I’m confident we could see trillions – not just billions – pouring into the low-carbon economy worldwide every year,” adding, “But, of course, far more work is needed by governments, the private sector, and other parties to turn this document into on-the-ground action. We must all collectively hold ourselves accountable for bringing this agreement to life.”
Politics, Activism, and Finance
Speaking at an investor summit organized by Ceres one month after the accord was signed, United Nations secretary general Ban-ki Moon called on business leaders to nearly double investment in wind and solar from current levels to reach $600 billion by 2020. Looking further out, a new report by Ceres and Bloomberg New Energy Finance estimates that a total of $12.1 trillion in non-fossil energy generation will be needed in the next 25 years to hold the coming temperature rise to just 2° C. The gap between meeting this challenge and investment already forecast to occur anyway is $5.2 trillion, or $208 billion per year. That is considerable money, but the authors point out that in the context of world financial markets, it’s highly doable. “Americans alone borrow more to buy cars in a single year than the annual capital required worldwide for clean-energy power generation, to name but one example.” Further, they are optimistic that clean-energy financing will evolve in sophistication to meet the demand.

These new finance vehicles will present massive new opportunities for capital deployment, not least for institutional investors who to date have actually been offered limited options in the developing clean-energy arena. Indeed, it is safe to assume that as clean energy permanently sheds the “alternative” moniker and moves firmly into the mainstream, it will inevitably account for expanding and significant shares of infrastructure investors’ portfolios. (Mapping The Gap: The Road From Paris, Ceres & Bloomberg New Energy Finance, p. 34)

With that problem solved (!), we turn our attention to the greatest threat to the Paris agreement, the American body politic. Two months after the Paris declaration, the U.S.’s ability to fulfill its Paris pledge to cut emissions 26-28% below 2005 levels by 2025 is facing judicial challenge. Just days before Justice Antonin Scalia’s death in February, the U.S. Supreme Court delayed enforcement of the Obama Administration’s Clean Power Plan while it is being challenged before the D.C. Circuit Court of Appeals. Although the plan’s opponents appear likely to lose before the D.C. court, they will likely appeal, which could leave its fate in the hands of a Supreme Court hostile to climate regulation if the Senate succeeds in blocking a successor to Scalia. Under the Clean Power Plan (CPP), states are required to reduce overall carbon emissions to 32% below 2005 levels by 2030, fulfilling our Paris pledge; should it be overturned, implementing a Plan B gets much trickier. And whatever the fate of the CPP, any Republican president could also unravel the Paris agreement by formally withdrawing the U.S. or by undermining the agreement in innumerable ways. If the U.S. wavers, all bets are off on China. But, in the words of Sierra Club executive director Michael Brune, “Anyone in Washington or in the board rooms of fossil fuel companies around the world who attempts to stand in the way will have the full weight of the international community, global markets, scientific consensus, the climate movement, and public opinion firmly pushing back against them.”

“Anyone in Washington or in the board rooms of fossil fuel companies around the world who attempts to stand in the way will have the full weight of the international community, global markets, scientific consensus, the climate movement, and public opinion firmly pushing back against them.”

A hostile Republican Party is nothing new, nor is our appreciation of the scale of the work yet to be done at the national level. Clean Yield’s takeaways from Paris are the affirmation of our fossil fuel divestment thesis and a renewed commitment to pressing corporations to set aggressive carbon reduction targets, and to keep investing in renewable energy and the clean technologies of the future. Paris was worth a momentary sigh of relief, but we must continue to ramp up.