The United States played a leading role in shaping the Paris Climate Agreement, in particular building strong links with emerging economies such as China and India in the run-up to the summit. For American policymakers, the key takeaway should be that the world is moving forward. New technologies and a shift in investment towards renewables are changing the energy mix. In order to stay both competitive and at the forefront of international diplomacy, the United States needs to make long-term adjustments to its environment and energy role.
The United States pledged significant climate actions at Paris (Intended Nationally Determined Contributions [INDCs], in the language of the U.N.), on which the international community will be looking for follow-through. This means achieving a 26-28 percent reduction in net greenhouse gas emissions by 2025 compared to 2005 levels. The President's Climate Change Action Plan and the Clean Power Plan provide a basis to deliver this target, but legal challenges from individual states, if successful, could undermine the delivery of such programs.
In addition to the INDCs, the Paris agreement established a long-term goal to limit temperatures well below 2 degrees Celsius above pre-industrial levels, and pursue efforts to limit global temperature increases to 1.5 degrees Celsius. The United States was part of the so-called high ambition coalition, a group of more than 100 developed and developing countries that pushed for augmenting the 2 degrees Celsius goal language with a reference to 1.5 degrees Celsius. Civil society will now mobilise to hold it accountable for these statements.
In the United States, debate still rages about the human role in climate change, and the country has been resistant to taking actions which would, in its view, put it at a relative disadvantage to other competitor countries. Such concerns previously formed part of the rationale for the Senate's rejection of the Kyoto Protocol. However, the Paris agreement calls for contributions from countries all around the world and sets a new standard for multilateral cooperation on climate issues.
The Paris agreement also urges developed countries to mobilise additional climate finance and set out a roadmap to jointly provide $100 billion annually by 2020 to support developing countries in adapting to and mitigating climate change. While the question of how much of the $100 billion is public money and how much is private money is left open, the United States will be expected to at least deliver the $800 million per year by 2020 of grant-based adaptation support that Secretary of State John Kerry announced in Paris.
However, there is a significant gap between the aggregate climate actions currently on the table, which are more consistent with a trajectory of keeping climate change below 3 degrees Celsius, and what would be necessary to keep warming below 1.5 degrees Celsius. The recent U.N. Environment Programme emissions gap report is clear that the world cannot wait until 2030 to increase action and have any hope of holding any change below 2 degrees Celsius, let alone 1.5 degrees Celsius.
In order to bridge the gap between promises and reality, the Paris outcome includes a mechanism to increase ambition over time, with a review of country contributions every five years and a facilitative dialogue starting in 2018. As such, the United States should be prepared to revisit its current level of action and, in the context of other major economies also acting, look to strengthen its domestic climate and energy targets over time. In particular, this is likely to put the possibility of establishing a federal carbon pricing mechanism (as exists in individual states such as California) at least back on the table for discussion in the coming years.
However, perhaps the biggest achievement of the Paris outcome will be the signal it sends to investors, and the impact of this dynamic on the role of renewables in the energy mix. Global banks such as Goldman Sachs and Barclays have already signalled that they think the Paris agreement will boost the fundamentals of the low-carbon energy industry, and weaken the fundamentals of fossil fuels. For the U.S. clean tech sector - which has already seen major growth over the last decade, with $38.3 billion invested in renewables in 2014 - this is likely to provide a significant boost, not just in terms of the domestic economy but also by building a strong international market for future exports. It is also likely to accelerate the already declining share of coal in the energy mix. With cost-effective carbon capture and storage still some way off, the Paris ambition mechanism is likely to squeeze coal in many countries around the world, including the United States.
The picture for oil and gas is more complex. Gas is seen as a transition fuel and will be important to balance the intermittency of renewables, and to replace coal in the short term. However, investments in battery storage technology and the rapidly falling cost of renewables could alter these dynamics over the next decade. Solar photovoltaics are approaching grid parity in the sunny parts of the United States, and could become even more competitive in the future. The falling price of battery technology could also accelerate the deployment of electric and hybrid vehicles and hence reduce demand for oil. This will not happen overnight, but considered over a 15-year horizon, which is typical for the development of major new oil wells, Paris could catalyse the development of a very different energy landscape by 2030.
What the Paris agreement demonstrates, then, is that the world is moving towards a new business-as-usual: a near future where low-carbon investments are valued above traditional, higher-emissions ones. The United States, having helped bring about this state of affairs, now faces a long-term choice. It can adapt to and ultimately profit from the new normal, or it can turn its back on it and find itself increasingly out of step and facing the real and growing impacts of climate change.
(AP photo)
