Terribly slow but still a very slight step forward in Paris

A few weeks can pass quickly in politics. A moment ago Francois Hollande sat and discussed climate science at the College de France.

Then came massacre of partying youngsters, terrorism, state of emergency, strikes against Syria and round 1 of the regional elections that gave the Front National a third of the votes – biggest party in France. One big weekly paper featured a foto of Marine Le Pen as President of France with a heading: Just one year to stop this. Last week, the seemingly indefatigable Hollande spoke triumphantly at the COP21 that celebrated with hugs and dancing: Finally a climate deal that saves the World.

This morning he went early to cast his vote and this evening came the verdict of the final round 2: Marine Le Pen did not win a single one of France 13 regions – but she still got 30% - enough to chill the bones and no-one dared use the word victory.   

Watching the closing ceremony from Le Bourget gave me a somewhat bizarre feeling to see all the hugging and hurrahs. Hollandes speech was fantastic:  I just remember fragments: “You will remember for a long time that it was in Paris…  people ask us about the meaning of our lives.. 12th 2015 we agreed in Dec in Paris…you can be proud in front of your grandchildren. ..Paris has had its share of revoloutions .. but this was the most pacific and important of all”.

As speaker after speaker from rich countries but also – and more importantly developing ones - speak with enthusiasm one cannot help but be shaken and moved. I felt an almost Orwellian longing – maybe I am wrong and the wise leaders have this figured out. Now they fixed everything. But I am afraid it is not that simple – let us go back to the roots of the problem: issues like “legal status” and perceived fairness in the distribution of costs.

In Copenhagen we tried or at least hoped for a global, legally binding (top down) agreement with emission reductions calculated to allow us to stay within the 2 C goal. “Legally binding” is unacceptable to a federal country like the USA so actually Kerry had to use all his authority to take such words out of the agreement even now. But the Copenhagen approach failed largely due to a disagreement over what would be a fair allocation of reduction obligations (or emission permits). At one end of the spectrum the grandfathering principle takes a (roughly) equal percentage reduction as its starting point and at the other end we have equal per capita emissions. The former would give India 5% of global emissions and the latter over 15%. The figures are roughly the opposite for the USA and so naturally the US tends to support grandfathering while India and other low emitters support equal per capita. The difference in allocation principle could imply a lot of money for many nations (but not for China which has average numbers and gets roughly the same allocation either way). When there is a lot of money on the table, negotiations take a long time or even break down totally.

Moving from Copenhagen via Durban to Paris we have another process: the INDCs – the intended, nationally, determined contributions that each country decides on its own. It looks like a very weak treaty. The INDCs are in many cases too vague to say exactly but maybe the agreement steers away from a 4-5C World towards 3 or 3.5C instead. This is far from useless. There is a lot of uncertainty about exact outcomes and already 2C implies big dangers – 3C is likely to imply enormous costs to humanity but 4C would no doubt be very much worse. The agreement is not only vague but also not legally binding since those words are unacceptable to many countries including the US where Congress would never ratify anything that limits US sovereignity in that way. So the treaty does not assure us of anything but it would again be a serious mistake to think nothing was achieved.

One part of me is very frustrated over the idea of INDCs. It feels like the World thinks we can finance a global public good by asking each citizen how much he would like to contribute (or intends to contribute – it would not be friendly to check and control whether he follows up on his intention). But of course states are sovereign and cannot be forced (at least not the big ones).

It may seem contradictory that the same heads of state who failed to give us a treaty that assures 2C are now at the same time discussing mechanisms for maybe reaching 1,5C. I think the interpretation is that the Paris agreement is just one small temporary step. If the World moves in a sensible direction (and I will not discuss the alternative) then costs for mitigation will come down as renewable and other technologies improve and the understanding of future damage costs will increase. In the mean time we build mechanisms for verification and other institutions. When, in a few years, enough people understand that much more needs to be done to reach sensible climate goals then the World’s countries will be in a much better place to renegotiate a real climate treaty that implies significant reductions.

In that situation the discussion about how to allocate emission reductions will be easier for a series of reasons: because renewables will hopefully be cheaper and the renewables lobby stronger while the fossil lobby is hopefully weakened. But also because we have Paris. The UNFCCC will be able to say to countries: “Back in Paris 2015 you deposed this INDC. When there was hardly any pressure you promised to do these reductions – so this will be your BAU (Business as Usual) baseline”. If we need global reductions of 25% compared to the sum of emissions in Paris then each country can calculate their emissions or their reduction obligations from the Paris INDC. There will still be long and hard discussions but the parties will have a point of reference that brings them much closer to each other and thus it will be more possible to negotiate than in Copenhagen when some countries wanted grandfathering and others wanted per capita allocations. Equal reductions from the INDCs would not be grossly unfair in the same way as equal reductions from current emissions.

Naturally it is easy to find fault with the treaty but it is a masterpiece as a balancing act. Read it and read also Rob Stavins Blog http://www.robertstavinsblog.org/ to see a coherent and well written view from the USA. Bob is grateful that we got away from Kyoto with its Annexes that only put burdens on industrialised countries but not on China or India. He is relieved that the treaty does not try to be legally binding and he is glad that the loss and damage section includes language stating clearly that it does not provide the legal basis for liability – ie the does not open up for future law suits against for instance the USA. I imagine that some of us would be less clear about whether these are good or fair clauses or not. However there is no doubt that Obama is keen to sign but knows that if any of those pieces hadn’t been there he could not – there would be no point with a Republican Senate just waiting to attack and deny ratification. Saudiarabia praised the agreement as being balanced and that made me slightly worried. What did they stop – well probably they helped stop many details about how fast to phase out fossil fuels. Then again – there is a price for unity. One might have looked for a treaty without S Arabia – but then what would the rest of OPEC have done – and many of the small countries in the group of 77 that are funded by oil money? And the coal producers… Achieving true unanimity was no small feat.

It might seem we have achieved very little then but again I am not sure I agree. It took about half a century to negotiate the Law of the Seas convention that gave us the 200 mile jurisdictions. Elinor Ostrom the Nobel laureate who worked on common property resource mechanisms often emphasized how long such negotiation take and how important the step is where each participant declares his own individual interest much as we have done with INDCs in Paris now. Still the pace is frustrating slow considering the urgency at the global level of reducing overall emissions. So the question arises what we can do now? I would suggest we see the Paris accord as a starting point and framework. It is a small step forward – some will say that it is the creation of a new path. Either way a lot more work is needed to actually get us to something like climate stabilization. I must say I have mixed feelings about the 1.5 C goal. I understand this gave the small island states and the poor countries that will suffer immense damage something to be glad for. One cannot just please the US, China and Saudi Arabia. But have we fooled them?

I was wondering what rabbit Hollande would pull out of his hat to create enthusiasm among the radicals? I did expect him to promise more funding – which he did, I did not expect 1.5 degrees – is that even possible – is this 350.org??

I know already 2 C is hard to reach now and some say impossible. I used the Chalmers Climate Calculator – which of course is just a rough tool – but still very useful to calculate whether it would be possible to reach something like 1.5 degrees starting after a delay – lets say in 2020. Well the truth is that to really always stay below is very hard: It would take annual reductions of 5-6% from 2020 (and then there would still be an overshoot but at least we would be between 1.5 and 2 C. However 5% reduction per year – when India and Africa are still increasing their emissions (as they should – their per capita emissions are still so low compared to ours) – means reducing by 10% in the richest, most carbon intense countries – and that is probably pushing credibility even for an enthusiast. Still I ask myself – if I were a delegate a few days ago and someone asked me do you want to mention the 1.5 C goal – I can understand those who say yes! Clearly intent and intention are crucial motivators.

So combing back to what we can do now to use the new agreement I have three priorities that will allow us to build on Paris and quickly move on to press for a more rapid climate stabilization.

1. As my first priority I would today put the advancement of the technical progress that allows us to lower the cost of emission reductions. There are thousands of technologies that may do this and of course that is why we economists want a global price of carbon. If we are not getting that immediately we still need to make people believe we will soon have a price on carbon and in the meantime we also need to continue to find ways to support new technologies. We need to remove fossil fuel subsidies but we also need strong continued support for renewables. Renewables are quickly becoming cheaper – but fossil fuels can also become cheaper (as the fracking revolution shows). We need to make sure to get rid of barriers to the penetration of renewables in the electricity sector. We must see that we are speaking of a large shift from the fossil to the renewable sectors and we need to deal with many institutional barriers in the power sector and yes we need to deal with intermittency, storage, time of use pricing and many other aspects.

We need to build support for those initiatives that are today up and running – the pioneers. This includes the technology forcing of the German Energiewende, the carbon trading schemes from California to China but also the Carbon taxes which are highest in Sweden but where recently for instance France has new legislation.

We need more work on how to find mechanisms for private capital to flow to renewables. Solar power in developing countries ought to be the perfect hedge for stranded fossil assets – but institutional learning and development is needed before Ethiopia can easily emit green solar bonds that will be recognized on Wall Street.

2. We need to create a deeper understanding of the damages that climate change will create. We need more research on the damage function and also we need to get detailed about adaptation, about rights for climate refugees – and maybe even compensation.

3. Capacity building – we need to build knowledge when it comes to accounting and verification of emissions everywhere but we also and in particular need to build a capacity to analyse and deal with climate issues in the developing countries. It is upsetting to see that while the rich countries send large delegations of PhDs and good lawyers to the COP, the enormous and populous countries that will me most effected cannot afford such representation – and sometimes do not have that many climate scientists.

Finally a reflection on economists. I don’t think so many economists played an important part in the negotiations. The prominent members of our profession are content to be critical and say (like Tyrol, Weitzman, Nordhaus) that the World leaders ought instead to negotiate a carbon price. I have been asking myself are we putting the cart before the horse? Just talking about our favourite instruments instead of helping with the real negotiation issues? Does it matter – I mean the idea of a carbon price is to reduce costs of abatement – but we are not doing much abatement yet – and we are way down on the MC curve anyway? Most likely it will be important – when we get serious about abatement. If we tried to reduce global emissions 5% per year – then a carbon price would become very important – and it would be high! President Hollande has impressed me. He seemed to have something for everyone and in fact – although it is not in the agreement – he did in his speech say that he thought we should form clubs of countries that forge ahead with domestic carbon prices. He seems to have listened to the economists after all! And France finally managed to get its carbon tax in place this year (after several failed attempts in the past). It is now 14,5 €/ton and will rise quite fast. I am glad Sweden can join the club easily with its 100 € tax and maybe the European Union will stop trying to get in the way of our policy in this area.

Thomas Sterner

Professor of Environmental economics Univ of Gothenburg, Sweden

Guest Professor Collège de France, Paris

Blog post | 14 December 2015