Paris Agreement

In brief

195 nations at the United Nations climate change conference in Paris (COP21) have reached an agreement on action to avoid and address climate change, known as the Paris Agreement.

Key implications:

• A global first: The Paris Agreement is the first-ever universal, comprehensive global climate deal..
• Reducing fossil fuels: To reduce greenhouse gas emissions it is generally assumed that absent large scale carbon capture and storage or other new technology for abatement of carbon emissions there must be a reduction in fossil fuel use over time.
• Finance: There will be considerable funding flowing from developed to developing countries, to reach US$100 billion per annum from 2020.
• Transparency: The Paris Agreement provides for a framework for monitoring, measuring and verifying emissions reductions, giving additional transparency.

Key details:

• Maximum warming target: the Paris Agreement targets holding global average temperature increase to well below 2ºC above pre-industrial levels and pursuing efforts to limit the increase to 1.5ºC (a more ambitious target than past agreements).
• Emissions reductions: The Paris Agreement aims for global emissions to peak as soon as possible and then rapidly reduce to achieve a balance between human caused emissions and natural absorption in the second half of this century. The Agreement relies on nations achieving voluntary emissions reduction targets. It is not a legal requirement of the Agreement that these national targets are achieved. But the Agreement does require nations to pursue domestic mitigation measures with the objective of achieving them. Whilst there is no formal enforcement mechanism, obligations for nations to report their progress  are intended to create international ‘peer pressure’. National targets are to be updated every five years. The first such assessment, or 'global stocktake', will take place in 2023.
• Emissions reduction targets: The national targets include:
  • Australia’s target is a 26-28% reduction compared to 2005 by 2030.
  • China’s target is a reduction of carbon intensity by 60 to 65% compared to 2005 by 2030, with emissions peaking around 2030 (aiming for sooner) and 20% non-fossil fuel energy by 2030.
  • The EU Member States have a collective reduction target of at least 40% compared to 1990 by 2030.
  • Japan targets a 26% reduction below 2013 levels by 2030.
  • South Korea targets a 37% reduction below business-as-usual by 2030.
  • The US targets a reduction of 26 – 28% by 2025 compared to 2005 (noting it will make 'best efforts' to achieve 28%).
  • Solidarity: Developed countries will continue to support action to reduce emissions and to build resilience to climate change impacts in developing countries. Developed countries will mobilise significant funds, reaching a minimum of  USD$100 billion per year from 2020, with a new collective goal to be set in 2025. 

The Paris Conference

The Paris Conference was the 2015 annual United Nations meeting to discuss climate change issues. Its focus was developing an agreement for action beyond 2020 (when the Kyoto Protocol expires) to address climate change by accelerating reduction of global greenhouse gas emissions.

The Paris Agreement¹ documents the agreement of the nations at the Paris Conference.

Details of the Paris Agreement

The published document is split into two parts:

• the first is the 'Decision text' (a non-legally-binding text that sets out more detailed information on targets); and
• the Agreement itself, containing binding Articles (which are much narrower in scope). The key commitment to a reduction in carbon emissions is set out in Article 2 of the Agreement.

Temperature increase objective

The Paris Agreement has the objective of holding the increase in the global average temperature to ‘well below’ 2ºC above pre-industrial levels and to ‘pursue efforts’ to limit the temperature increase to 1.5ºC.

A 2ºC increase has generally been considered the maximum to avoid dangerous and irreversible climate change. The more ambitious 1.5ºC was pushed by vulnerable nations and environmental groups. It has been heralded as a significant increase in ambition.

Despite these stated objectives, the sum of the announced national emissions reductions contributions, considered further below, has been assessed to only achieve a limit of a 2.7ºC increase.² More aggressive emission reduction targets will be required in order to limit the increase to 2ºC or 1.5ºC.

Emissions reductions (mitigation)

Overall aim

The Paris Agreement aims to reach global peaking of greenhouse gas emissions as soon as possible, recognising that peaking will take longer for developing countries, and rapid reductions of emissions thereafter so as to achieve a balance between human caused emissions and natural absorption (for example by trees and the oceans) in the second half of this century.

Intended Nationally Determined Contributions (INDCs)

To achieve these aims, the Paris Agreement relies on nations to achieve ‘intended’ (i.e. voluntary) ‘nationally determined contributions’ to reduce their emissions, known as INDCs. Nations are to submit these INDCs and review them every 5 years, but will not be legally bound to achieve the targets. They are legally bound however to pursue domestic mitigation measures designed to achieve them. Whilst the Conference of the Parties will have no formal power to sanction nations for non-compliance, it is intended that nations will feel compelled by international ‘peer pressure’. This flexibility was necessary to achieve the Paris Agreement, but is also a significant potential shortcoming.

In the lead up to the conference, nations nominated their own INDCs. Details of the nominated contributions are available here.³  

INDCs apply to both developed and developing nations, whereas the Kyoto Protocol only imposed emission reduction obligations on developed nations. The Paris Agreement recognises that:

• developed countries are required to pursue emissions reduction targets, and
• developing countries should continue enhancing their mitigation efforts, and are encouraged to move over time towards emission reduction or limitation targets.

Nations that have not yet nominated a contribution are invited to do so before the next United Nations climate change conference in November 2016 and no later than the point at which they formally become a party to the Agreement.

Some nations’ nominated contributions are focused on reductions by 2025 and some for 2030. Nations that nominated contributions for 2025 have been urged to communicate by 2020 a new contribution for 2030. Nations that nominated contributions for 2030 have been requested to update this contribution by 2020.

A key provision of the Paris Agreement is that national contributions are to be reviewed every five years, with the first review taking place in 2023.

It is up to each nation to determine how it implements its contribution; in Europe, the EU will continue to take collective action.

Market Mechanism

The Paris Agreement establishes a “mechanism to contribute to the mitigation of greenhouse gas emissions and support sustainable development” and paves the way for voluntary cooperation between countries in meeting their pollution goals. Detailed rules for the market mechanism will be established at a later date. We expect this will be some form of successor to the Clean Development Mechanism and other mechanisms established under the Kyoto Protocol whereby parties can gain credit in achieving their own emissions reductions targets by funding emissions reductions projects in other countries, providing there is no double counting.

Responding to climate change impacts (adaptation)

An important issue in negotiations at COP21 was the way the Paris Agreement would address loss and damage caused through climate change impacts or as a result of mitigation and adaptation measures.

The Paris Agreement recognises the importance of averting, minimising and addressing loss and damage. However, it stops short of an obligation on developed nations to pay compensation to nations impacted by climate change. For the time being, the Warsaw Loss and Damage Mechanism established by COP19 will continue to apply but be subject to a review in 2016.

At COP19 (November 2013) in Warsaw, Poland, the COP established the Warsaw International Mechanism for Loss and Damage associated with Climate Change Impacts (Loss and Damage Mechanism) to address loss and damage associated with impacts of climate change, including extreme events and slow onset events, in developing countries that are particularly vulnerable to the adverse effects of climate change.

Assistance for developing nations

The Paris Agreement requires developed nations to provide developing nations with financial resources to assist developing nations with mitigation and adaptation. The goal is a ‘floor’ of US$100 billion per annum from 2020, with a new collective goal to be set in 2025.

The Agreement also emphasises the need for technology development and transfer and capacity building.

Capacity Building

The Agreement also decides to establish a capacity building committee to develop further the efforts already undertaken in developing countries. A work plan for 2016 – 2020 will be launched, covering various aspects of this task.

Nations are asked to submit suggestions as to the membership of the committee by 9 March 2016. The goals and targets related to capacity-building will be supported through the capacity-building Initiative for Transparency.

Enhanced Action Prior to 2020

In addition to INDCs, the Paris Agreement is designed to ensure maximum efforts in the pre-2020 period. It does this by 'urging' all parties to the Kyoto Protocol to ratify, if they have not already done so, the Doha Amendment to the Kyoto Protocol which extends the latter until 2020 by introducing a commitment period from 2013 to 2020.

Implications of the Paris Agreement

Several matters still to be determined

The Paris Agreement leaves a number of topics to be negotiated further or for future determination, such as certain implementation mechanisms and the review of the Warsaw Loss and Damage Mechanism. This means the impacts of the Agreement are not likely to be fully felt for some time.

In the meantime, it is likely that there will continue to be a disparity in efforts even amongst developed nations in implementing INDCs and efforts to reduce carbon emissions. Some nations have focused on the reduction of carbon dioxide emissions, whereas other INDC submissions, such as the EU's submissions, are more comprehensive.

INDC targets are not binding

A central criticism of the Paris Agreement is that INDC targets are not binding and there are no discernible sanctions or enforcement regime within the Paris Agreement: Whereas countries are under a legally binding obligation to submit emissions targets, pursue domestic mitigation measures and submit progress reports, the actual targets themselves remain 'intended' or voluntary.

Cost-sharing

The most heated future discussions are likely to focus on cost-sharing, and how developing countries will be financially supported in their efforts to reduce their greenhouse gas emissions. Certain voices from developing countries maintain that the pledge of US$100 billion per annum is not enough, and that developed nations have not in fact met the total pledge to date (under the Kyoto Protocol). In addition to this, the 'floor' pledge in COP21 is inserted as a non-legally binding clause in the 'decision text'.

However, the Paris Agreement does recognise the significant funding that will flow from developed to developing countries for climate change mitigation and adaptation. In our view this may lead to significant business opportunities.

Fossil fuel reductions

Whilst the Paris Agreement provides a clear framework to establish a global climate regime over the next few years, it will also trigger discussions as to how global transition to cleaner energy will be managed.

The biggest implications over time of the Paris Agreement will be for the use of fossil fuels in power generation, as countries seek to adopt low-carbon energy policies in order to meet their targets. 

In particular there is discussion of the future of coal as well as carbon capture and storage. In many parts of the world, gas is positioned as an important transitional fuel, along with the increasing uptake of renewable and clean technologies.

A global first

Regardless of its potential flaws, the Paris Agreement is notable.

The Paris Agreement is the first-ever universal, comprehensive global climate deal. Previous agreements did not have its same breadth, in particular the application to developing countries. It is also notable that industrialised countries that were not parties to the Kyoto Protocol have signed up to the Paris Agreement, notably the USA.

However, more work is required before the full impact of the Paris Agreement will be felt and before there can be a comprehensive assesment of its success.

Endnotes

1. Adoption of the Paris Agreement.
2. UN Climate Change newsroom.
3. Synthesis report on the aggregate effect of INDCs.

More information

For information regarding possible implications for your business, contact Michael Voros, John Taberner or Silke Goldberg.