The Paris Climate Agreement: What it Says, and What it Means

“The World Starts from Tomorrow” says UN Secretary-General

In France, representatives from 195 nations approved the Paris Agreement on global, coordinated response framework for climate change. Acceptance of the Agreement arrived at the end of COP 21.

Paris: What it Says

The signatories aimed “to strengthen the global response to the threat of climate change, in the context of sustainable development and efforts to eradicate poverty” and contained three key provisions:

(a) Holding the increase in the global average temperature to well below 2 °C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 °C above pre-industrial levels, recognizing that this would significantly reduce the risks and impacts of climate change;

(b) Increasing the ability to adapt to the adverse impacts of climate change and foster climate resilience and low greenhouse gas emissions development, in a manner that does not threaten food production;

(c) Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.

Finance. The Agreement states that “ financial resources provided to developing countries would enhance the implementation” and establishes a new collective quantified goal from a floor of $100 billion per year. “The Green Climate Fund and the Global Environment Facility, the entities entrusted with the operation of the Financial Mechanism of the Convention, as well as the Least Developed Countries Fund and the Special Climate Change Fund,” will be the primary financial vehicles.

Ratification. The Agreement “shall enter into force on the thirtieth day after the date on which at least 55 Parties to the Convention accounting in total for at least an estimated 55 percent of the total global greenhouse gas emissions have deposited their instruments of ratification, acceptance, approval or accession.”

National Contributions. “Each Party shall prepare, communicate and maintain successive nationally determined contributions that it intends to achieve. Parties shall pursue domestic mitigation measures, with the aim of achieving the objectives of such contributions.” Meanwhile, the Agreement states that Developed country Parties should continue taking the lead by undertaking economy-wide absolute emission reduction targets. Developing country Parties should continue enhancing their mitigation efforts, and are encouraged to move over time towards economy-wide emission reduction or limitation targets in the light of different national circumstances.

Monitoring. The Conference of the Parties serving as the meeting of the Parties to the Paris Agreement shall undertake its first global stocktake in 2023 and every five years thereafter unless otherwise decided by the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement.

Revision: Countries are incentivized to review emissions goals and set more stringent reductions every five years.

Paris: What it Means

1. It’s a framework, don’t expect specifics on measures. That will come later.

2. It’s voluntary. That’s significant. It binds nations to set national targets but the targets are non-binding. Because it doesn’t have the force of a treaty, it’s not subject to ratification by hostile legislatures such as the United States’.

3. It has a financing mechanism.

4. All nations come under the Agreement, not just developed countries. That’s a first. And measures will be proposed on a national “contribution” level.

5. Not much on carbon pricing. Most nations (but not all) and most big businesses agree that not much will happen, ultimately, without a price on carbon. Not much mention of a pricing scheme or emissions credits trading, in the Paris Agreement. Delegates reported it was too tough to get all 195 nations on board for a) a market-based mechanism or b) something as binding as a carbon price. More on that here.

6. It’s ambitious – aiming for between 1.5 and 2.0 degrees Celsius global temperature impact. That’s below the “catastrophe” line.

7. There’s a big gap between the current national pledges and the temperature targets in the Agreement:

The Do-Nothing Scenario:4.5 degrees C
Current pledges:3.4 degrees C
Paris pledges to date:2.7 degrees C
Ultimate Paris target:1.5-2.0 degrees C

What they Said

World Bank President Jim Yong Kim: “[I’m] in a bit of a shock, a happy shock…[it’s] something far more ambitious than the highest hopes”.

President Barack Obama: “[it’s] the best chance to save the one planet we have.”

U.N. Secretary General Ban Ki-moon: “what was once unthinkable is now unstoppable …History will remember this day. The Paris agreement on climate change is a monumental success for the planet and its people. The world starts from tomorrow.”

The Bottom Line

Roll-back to 2009. Then, Europe was in the lead on emissions reduction. The US hadn’t signed Kyoto. India and China were exempted from it. And the Copenhagen Summit failed. Today, China’s taken the lead, committing to 8.6 GT of carbon reduction, with the US not far behind at 6.1 and India at 1.9 GT. Europe has so far committed to only 3.8 GT. So, the climate torch has definitely passed, and the outsiders of 2005-09 are now leaders. So, that’s interesting.

Also interesting — here’s a financing mechanism that has succeeded in bringing all nations into the plan, not just developed countries. However, vague aspirations regarding “innovation” are going to be tough without a carbon price. The good news is that revisions every five years are intended to allow innovation to drive the setting of more ambitious targets.

One more caveat? As the IEA observes, to make even existing pledges work, it will require 40% of all energy investment through 2030 to go into energy efficiency and low-carbon technologies, and renewable power will have to account for 60% of all power gen investment. And remember, that’s to get to the 2.7 degree target that current pledges will accomplish. Getting to 1.5 degrees is going to require the unleashing of a tremendous amount of capital — constraining what goes into other sectors.

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