With 2015 set to break global temperature records, this December ministers will convene at the UN meeting in Paris and the WTO meeting in Nairobi to continue climate negotiations.
Up until the launch of the Doha Round, the climate change and trade regimes evolved separately through stand-alone negotiations, and they remain separate, independent institutions. Linkages between climate and trade were not recognised explicitly in negotiations under the auspices of the United Nations Framework Convention on Climate Change (UNFCCC) until COP13, when ‘trade and finance’ became one of the four pillars of the 2007 ‘Bali road map’ (Martin 2007). Bali called for negotiation of the second Kyoto commitment period to be completed in Copenhagen in 2009 and launched negotiation of an agreement involving all countries. It thus signalled the possibility for evolution of the common but differentiated responsibilities (CBDRs). Instead, Copenhagen dealt a deathblow to the Kyoto Protocol top-down approach, with the emergence of the bottom-up approach that encourages participation by all nations that will be essential for long-term effort.
However, as argued in this column, just as the top-down approach cannot force effort on unwilling nations, so too voluntary contributions appear unlikely to produce aggregate outcomes aligned with ambitious long-term goals of keeping the increase in temperature to 2°C, especially if the climate and trade regimes are on a collision course. This is so because a well-functioning, open trade regime is an essential pillar for a successful climate regime, both to attenuate conflicts from carbon leakage (Fischer 2015) and to facilitate the development and diffusion of climate-friendly goods and technologies.
Time is running out for the 2°C goal
The UNFCCC (1994) contains as its ultimate objective stabilisation of atmospheric greenhouse gas (GHG) concentrations at a level that prevents dangerous human-induced climate change. As we now know, for carbon dioxide, stabilisation requires that net emissions must fall to zero, and the ultimate concentration depends on the cumulative release of CO2 since pre-industrial times. Recently, the G8 set the goal of zero net emissions by 2100.
For the past several years, the UNFCCC has focused attention on a goal to limit global temperature rise to less than 2°C. As reported in the IPCC Fifth Assessment Report, a 50% chance of meeting the UNFCCC target of limiting global temperature rise to 2°C would correspond to a cumulative release of roughly 1,000 gigatonnes of carbon (GtC) emitted as CO2 since 1850. Of this total, the world has already emitted more than 700 GtC and, today, emissions are growing at around 2% per year. If growth in CO2 emissions could be immediately halted and then emissions decreased at a constant rate, the 2°C goal could be reached with a yearly reduction of 4.4% per year. If the world waits to start until 2020 (2030), the effort would be 5.3% (25.5%) per annum (Stocker forthcoming). Such sustained rates are outside historical experience, even for individual nations.
Emphasis on budgets tends to focus political attention on the most difficult challenges – burden sharing, financial transfers and compliance – rather than on creating positive momentum through meaningful actions now. Hence, negotiators have not embraced carbon targets.
Towards a post-2020 climate agreement
With little time remaining, climate negotiators confront a disorganised text that is far too long and replete with proposals that cross red lines for major players. Nonetheless, political leaders express confidence that a deal is achievable. The post-2020 agreement covers (at least) six themes: mitigation for all nations, adaptation, finance, technology transfer, capacity building, and transparency. Overshadowing all remains the question of how the common but differentiated responsibilities principle will manifest throughout the agreement, e.g. from mitigation to reporting and review, and to finance.
A brief survey of major issues (Flannery 2015) follows.
Importantly, the Intended Nationally Determined Contributions (INDCs) shift the burden of defining the responsibilities for mitigation to nations themselves, asking them to self-declare why their INDC is appropriate and ambitious, according to their national circumstances. Submissions vary in scope, content and timing, making comparisons difficult (Aldy and Pizer 2015a, 2015b).
Adaptation, loss, and damage
Previous UNFCCC decisions place adaptation on an equal footing with mitigation. Process and procedures remain unclear both to raise and disburse funds with compensation for loss and damage now a major stumbling block; one with strong support from developing nations and resistance from developed nations. Nor have discussions addressed the thorny issue of the ‘attribution’ of specific natural events or incremental damages to human-induced climate change.
Negotiations include four areas where developing nations seek assistance. They request financial aid to support their actions to mitigate and adapt to climate risks, and compensation both for the impacts on them from mitigation measures in developed countries and for damages from climate change. Arguments have been made that claims in each of these areas already amount to hundreds of billions of dollars per year, and that they will grow in the future.1 While the public is aware of the debate surrounding finance for domestic action, they are largely unaware of the scale of aid under discussion. The pledge of $100 billion per year by 2020 seems both difficult to meet and, yet, far too little.
Negotiators are discussing a durable framework for future commitments based on periodic cycles, perhaps at intervals of five or ten years. There is a tension between providing credibility to plan and implement investments and other actions, favouring a longer cycle, or creating flexibility to ratchet up commitments more rapidly, which may favour shorter periods.
Legal form and compliance
Many nations call for an agreement that is legally binding in all aspects and with strong compliance provisions. For others, notably the US, legal form and obligations could pose an insurmountable barrier to participation. In the US view, nations have an obligation to submit proposals and report progress but not to achieve outcomes. Starkly, the critical choice is between commit and comply or pledge and report.
Towards a limited Environmental Goods Agreement (EGA)
The technology dissemination and cooperation required in the climate agreement for transformation to a low carbon society could be facilitated by an ambitious Environmental Goods Agreement (EGA). For example, comparing results from a number of modelling groups, McCollum et al. (2014) conclude that transition to a low-carbon economy globally could require approximately $1 trillion per year in additional investments in energy alone through 2050, which will require an open trading system.
In July 2014, a group of 14 countries (now 17) launched negotiations for a Plurilateral Agreement (PA) under the ambit of the WTO, implying that, like the Information Technology Agreement (ITA), all negotiated reductions in trade barriers would be extended to other WTO members should a ‘critical mass’ be reached (i.e. an agreement among negotiating members). Initially, the EGA aimed for free trade in ‘green goods and services’. However, from the start of the negotiations, it was decided only to cover reductions in tariffs on goods, with non-tariff barriers and environmental services off the negotiating agenda. This was regrettable as trade in environmental services and trade in environmental goods are complementary. Moreover, estimates of trade barriers in services are much higher than those for goods and only two countries, China (11.5%) and Korea (5.8%), have average uniform tariff equivalents above 4% (Melo and Vijil forthcoming).2
In the end, even though the negotiation agenda has remained narrow, as for the ITA, this PA could well lead to a global treaty. Also it satisfies the Monitoring, Reporting and Verification (MRV) criterion since pledges are easily measured and will be fulfilled through the National Treatment and Non-discrimination that applies to all WTO members. An EGA that extends to a multilateral agreement would also give support to those who argue that an issue-specific ‘club approach’ to climate negotiations is the more promising route to build the climate architecture, although others, including many developing nations and businesses, are concerned that such clubs will heighten tensions across the board on fragile trade negotiations.
The feasible deal in Paris reflects our current ‘mosaic world’ (Flannery 2014). It appears to be modest, not consistent with the long-established narrative to avoid climate catastrophe by putting the world ‘on track’ to limit warming to less than 2°C (or 1.5°C) (Jacoby and Chen 2014). Only recently have political leaders sought to lower expectations, but it may be too late as forces calling for a far more ambitious deal might result in the achievable deal being unsatisfactory to many nations, advocacy groups, the media, and the public.
To sum up, even with anticipated progress in the EGA and a post-2020 agreement, enormous challenges remain. Effective and efficient processes and policies will be essential to achieve the transformational change that is required. Even though putting a man on the moon did not require cooperation among nations, perhaps calling for a Global Apollo programme (Layard et al. 2015) to limit climate change is one way to convey the urgency still facing us. Yet, even here differences of view exist on the best ways to proceed – via government-directed programmes of international cooperation with specific objectives, or by encouraging academic and private-sector entrepreneurship and innovation across a broad portfolio of initiatives and disciplines.
Aldy, J and W A Pizer (2015), “The Road to Paris and Beyond: Comparing Emissions Mitigation Efforts”, Resources Magazine 189: 19-25.
Barrett, S, C Carraro and J de Melo eds. (forthcoming), Towards a Workable and Effective Climate Regime , VoxEU.org eBook, CEPR and FERDI
Fischer, C (2015) “Options for avoid carbon leakage” in Barrett et al. eds.
Flannery, B P (2014), “Negotiating a post-2020 climate agreement in a mosaic world”, Resources Magazine 185: 26–31.
Flannery, B (2015) “The State of Climate Negotiations”, Ferdi WP #134 http://www.ferdi.fr/en/publication/p134-state-climate-negotiations
Jacoby, H D, M H Babiker, S Paltsev and J M Reilly (2010), “Sharing the Burden of GHG Reductions”, in J E Aldy and R N Stavins (eds), Post-Kyoto International Climate Policy: Implementing Architectures for Agreement, Cambridge, UK: Cambridge University Press.
Jacoby, H D and Y-H H Chen (2014), “Expectations for a new climate agreement”, MIT Joint Program Report No. 264, Cambridge, MA.
Layard, R, G O’Donnell, N Stern, A Turner (2015), “The case for a Global Apollo Programme to limit climate change” VoxEU.org , 8 June.
Martin, R (2007), “Climate change negotiations PLC?”, VoxEU.org, 12 December.
McCollum, D, Y Nagai, K Riahi, G Marangoni, K Calvin, R Pietzcker, J Van Vliet, Van Der Zwaan, B (2013), “Energy investments under climate policy: a comparison of global models”, Climate Change Economics 4, 1–37.
Melo, J de and M Vijil (forthcoming), “The Critical Mass Approach to Achieve a Deal on Green Goods and Services: What is on the Table? How Much to Expect?”, Environment and Development Economics.
Stocker, T (forthcoming), “Implications of Climate Science for Negotiators”, in Barrett et al. eds. , CEPR and Ferdi.
Sugathan, M (2015), “Addressing Energy Efficiency Products in the Environmental Goods Agreement: Issues, challenges and the Way Forward”, ICTSD, Issue Paper No.20.
 For mitigation alone, Jacoby et al. (2010) found that achieving the G8 goal to halve emissions by 2050 could require wealth transfers to developing nations of over 400 billion US$ per year by 2020, rising to 3,000 billion US$ per year by 2050.
 Nor have the negotiations tackled the issue of product classification to distinguish between energy efficient products and energy savings products, even though the International Energy Agency estimates that up until 2050, both types of energy efficient products will account for 38% of the cumulative emission reductions required to limit global warming to 2 degrees Celsius (Sugathan 2015).
Article courtesty of VOXEU
Jaime de Melo – Senior Fellow, FERDI; Professor, University of Geneva; CEPR Research Fellow
Brian Flannery – Center Fellow, Resources for the Future