Big strides were made in the effort to combat climate change at last week’s United Nations Climate Change Conference in Paris. The 195 nations that gathered at the summit bridged the gap between developed and developing countries on the subject. The business community and investors threw in their support — with checkbooks — for the first time, pledging to back climate friendly technologies.
The political and business leaders at the conference agreed that the threats highlighted by climate science were real. Next, they agreed that they need to collectively chip in by curbing emissions with specific targets and performance monitoring. In particular, they agreed that they need to make fossil fuels unviable with a carbon tax and by developing cheaper energy alternatives.
The agreement hammered out by the delegates aims to contain the global temperature rise this century to well below 2 degrees Celsius, and to drive efforts to limit the temperature increase even further to 1.5 degrees Celsius above pre-industrial levels. “The 1.5 degree Celsius limit is a significantly safer defense line against the worst impacts of a changing climate,” said a press note from the U.N. Climate Change newsroom.
Instead of mandating emissions limits, the agreement pursues a “bottom-up approach,” where individual countries will determine how best they can pull their weight in achieving the overall goals, said Eric Orts, faculty director of Wharton’s Initiative for Global Environmental Leadership (IGEL) and a professor of legal studies and business ethics.
“Each country or region comes forward with its plan; it’s not the U.N. [acting] in a top-down way, telling everybody what to do,” said Orts. In fact, Orts and other climate change experts had suggested such an approach after the U.N. climate change conference in Copenhagen in 2009 failed to reach an agreement. “The international agreement [specifies] what [can be done]. Solving the problem depends on everybody else,” he added.
“A surprising and positive signal was you saw political will across the spectrums, across different countries and across different political orientations for doing something about climate change, and in conjunction with world [political] leaders and business leaders,” said Sanjay Patnaik, professor of strategic management and public policy at The George Washington University’s school of business and a senior fellow at IGEL.
“Each country or region comes forward with its plan; it’s not the U.N. [acting] in a top-down way, telling everybody what to do.”–Eric Orts
The signs on climate change are already ominous, and it will get more and more difficult to be in denial, especially when so many big and small countries agree on it, said Orts. He noted that 2015 will draw to a close as the hottest year on record since temperatures began to be measured in the modern era; last year was the second-hottest. “There is a general trend. The Arctic ice melted faster than we thought it would; Greenland and Antarctic ice are under threat; glaciers are retreating in places; and there is more drought,” he said. “At some point, people have to say, ‘There is something happening here.’”
Business to the Fore
The agreement will pave the way for many business opportunities in developing technology for both energy production and energy efficiency, said Orts. He noted that big oil companies have already publicly called for a carbon tax. “If you increase the cost of fossil fuel production then you will drive other innovations.” It helps that the price of solar and wind energy has steadily decreased, while new technological possibilities have emerged with nuclear energy, which is climate friendly. “If you make renewable energy cheaper, that eliminates the problem right there,” he said.
Orts added that the key question is whether the agreement eventually results in business innovation and technology breakthroughs. He noted that it brought businesses and governments to a common platform where they pledged to jointly find solutions to climate change.
One highlight of the involvement of business interests was the unveiling by Microsoft founder Bill Gates of the “Breakthrough Energy Coalition,” a collective of 28 high-net-worth investors from 10 countries that committed to supporting clean energy technologies, especially in wind and solar. Gates has pledged $1 billion of his own money to invest in the cause, as an earlier Knowledge@Wharton reportnoted.
Patnaik, who attended the conference, said there was a strong presence of CEOs and business managers — unlike at earlier climate-change conferences — who talked about the importance of innovation and of carbon pricing.
“Politics is the art of the possible, and it is a major achievement.”–Eric Orts
On carbon pricing, Patnaik said German Chancellor Angela Merkel and other world leaders stressed the need to price carbon and send a political signal to the business community that can provide security for investments and innovation. “The deal … provides an institutional basis and a framework to guide investments and provide firms with more certainty that this is a topic that will not go away and that this is something world leaders care about,” he added.
Another big achievement of the conference was the bridging of the previously held deep divides on the subject between the developed world and developing countries, notably India and China, said Patnaik. Here, French president Francois Hollande played a big role in getting India and China to forge a common front against climate change, he added. “You had a convergence of political will among players” that may not have been previously achievable.
China had already announced that it will launch a cap-and-trade program in the next two-three years. India won some concessions, such as the right to use fossil fuels for some more time, while it emphasizes technologies such as solar and trying to become a model for other developing countries, Patnaik noted.
The fact that the U.S. and China already had a climate change agreement in place helped in no small measure, said Orts. “With China and the U.S., the two leading greenhouse gas emitters, having an alliance on this issue made [things] a lot easier politically.”
Implementing the Agreement
While each country will decide how it could achieve its emissions reductions targets, they could learn from the experience of some early adopters, said Orts. He pointed to regional agreements in Europe, California and some provinces in Canada that already have experience in implementing some of these programs.
For example, Europe has a cap-and-trade program; World Bank experts are sharing their expertise on developing regulations with policy makers in various countries; and China is in talks with European regulators, Orts noted. “You will see more and more countries talking to each other, discovering what makes sense within their own jurisdiction, learning lessons from other programs and then building in place regulatory mechanisms that can put a price on carbon.”
Orts saw the emerging process of implementation as “potentially game changing.” After various countries submit their emissions reduction proposals within a defined time frame, those targets could be revised continually to stay in line with the overall goals, while a standard methodology for measuring performance is also created.
“Periodically you have to do a global stock take to see if we are moving towards the 1.5 degree Celsius goal,” Orts said. He noted that while all the plans submitted thus far do not add up to that goal, a certain momentum has been created. “The idea is, going forward, you can have a ratcheting effect as you take stock of where you are.”
Achieving Peak Emissions
Referring to the long-run goal of containing global warming to 1.5 degrees Celsuis, Orts said there isn’t one magic number. “You’re already probably running some degree of risk that will have very severe consequences,” he said.
“The deal [creates] an institutional basis and a framework to guide investments and provide firms with more certainty that this is a topic that will not go away and that this is something world leaders care about.”–Sanjay Patnaik
In order to deal with those effects, the agreement has provisions to explore adaptation and mitigation measures, Orts noted. “The question is how much risk you are taking. The more fossil fuel emissions you put in the atmosphere, the greater the risk that you will have very severe climate change that is going to start to ‘desertify’ more parts of the world, decrease food production, melt the ice caps, raise sea levels and all the horror stories we hear about.”
According to Patnaik, the 1.5 degree Celsius target is testimony to the power wielded by some of the smaller countries. “A lot of the island nations that are already facing the impact of climate change directly pushed very hard for 1.5 degrees. It is a good sign that they were able to have their voice heard.”
Against that backdrop, one clearly identified goal is to achieve a peaking of carbon emissions as soon as possible, said Orts. After reaching that peak level, it is imperative to steadily bring emissions down. “If you keep having agreements setting a target and the curve [of emissions] continues to rise, you are in trouble.”
A wider consensus is also emerging on climate change, as Orts pointed out. He said the Paris summit follows Pope Francis’s U.S. visit in September, when he talked about the urgent need to address climate change and hisencyclical on the subject in June. “This [call by the Pope] is aimed more broadly to look at your own behavior,” Orts said in a Knowledge@Whartonreport at the time.
“At some point you will have a tipping point,” Orts said. “Younger generations will consume in a certain way or [prefer] working for companies that take this issue seriously. It may be that we can move faster than the politicians if business and consumers start to press this revolution forward.”