Gap persists between collective climate ambition and individual actions

Policy Pulse – 21 October 2021 – George Anjaparidze

Photo by Markus Spiske on Unsplash

Key messages:

• Updated nationally determined contributions are insufficient to achieve an emission trajectory consistent with Paris Agreement temperature goals.

• We estimate the emission trajectory from updated NDCs is most consistent with about a 3°C warming.

• Making good on climate finance commitments of developed countries can help crowd-in much needed capital for scaling-up climate action in developing countries.

Updated climate action plans, known as Nationally Determined Contributions (NDCs), fall significantly short of what is needed to achieve the collective temperature goals of the Paris Agreement. The gap between collective ambition and individual national actions persists according to the latest synthesis report by the UNFCCC Secretariat, which reflects the information from 191 countries, including updated NDCs covering 113 countries.

The gap between updated NDCs and the needed emission levels under the least-cost 2°C scenario is estimated at 14.1 Gt CO2e in 2030. The gap has been estimated by comparing the updated NDC emission trajectory with the previously assessed emission trajectory in the May 2016 synthesis report of the UNFCCC Secretariat. However, the gap is likely to be even larger if we consider more recent global emission pathway modeling. The latest IPCC Special Report on 1.5°C estimates that to limit global warming to below 2°C, CO2 emissions need to decrease by about 25 per cent from the 2010 level by 2030, which implies that updated NDCs have a gap of about 20.1 Gt CO2e in 2030. To be on a global emission pathway consistent with the 1.5°C goal, global CO2 emissions need to decrease by about 45 per cent from the 2010 level by 2030, which implies that updated NDCs have a gap of about 30 Gt CO2 in 2030.

We estimate the emission trajectory from updated NDCs is most consistent with about a 3°C warming. The increase in planned climate actions up to 2030 reflected in the updated NDCs has been marginal and has not resulted in a revision in the expected level of warming compared to our previous assessment. (See Veritas Global analysis from 17 April 2019, Paris Agreement: the inconvenient gap between ambition and reality).

In the longer-term, there is scope for cautious optimism. Several major economies have put forward more ambitious climate plans that go beyond 2030, including pledges for reaching net zero emissions by mid-century. A key enabler for achieving these goals, particularly in developing countries, will continue to be the scale-up of support for implementation of climate actions. Making good on climate finance commitments of developed countries can help crowd-in much needed capital for scaling-up climate action in developing countries.

For media queries: contact@veritasglobal.ch

Briefing prepared by:

George Anjaparidze

About Veritas Global: Our vision is to have a positive impact on the world through truthful advice informed by robust analysis. We are a premier provider of tailored solutions on climate change, international conflict economics and infrastructure.

Unprecedented opportunity for climate policy in 2021

Policy Pulse - George Anjaparidze - 14 January 2021

2021 promises to be a defining year for international climate policy. There is an opportunity to build on the positive momentum from the 2020 Climate Ambition Summit and accelerate the transition to a climate conscious economy.

Positive momentum in 2020

In 2020, COVID-19 impacts on mobility and economic activity led to the largest annual drop in greenhouse gas emissions, which contracted by about 5%. Despite the drop in emissions, concentration of greenhouse gases in the atmosphere continued to rise, in terms of CO2 equivalents, we estimate an annual increase of about 0.7%. In absolute terms, the rise in atmospheric concentration in 2020 will be among the ten largest annual increases on record.

The disparity in growth profiles in 2020, between emissions and concentrations, is because the two measures are different. Emissions can largely be thought of as a flow measure, meaning it quantifies the amount of greenhouse gases released each year. Concentrations can largely be thought of as a stock measure, meaning it quantifies the accumulation of greenhouse gases in the atmosphere.[1] While there is a linkage between the two measures, they are fundamentally different.

In the context of climate change, it is the atmospheric concentration of greenhouse gases that is the more important measure as the flow of emissions in any one particular year has a relatively small aggregate influence on the planet’s climate system. In recognition of this dynamic, more governments in 2020 announced plans to align their long-term targets with stabilization of greenhouse gases in the atmosphere to levels more consistent with temperature goals of the Paris Agreement. In addition to announcements from western European states, other major economies, including Argentina, Brazil, China, Japan and South Korea, also communicated mid-century carbon neutrality targets. In the United States, the incoming Biden administration was elected on a platform of achieving net zero emissions by 2050. A win for Biden is a win for climate, with immediate implications for international climate policy.

2021 could be breakthrough year for climate policy

A breakthrough year does not mean that there has to be a new climate treaty. Strengthening the existing international climate policy architecture and identifying a clear pathway to scaling-up actions within it, can potentially have a bigger positive impact.

There are three champions, or sources of optimism, for achieving progress on international climate policy in the year ahead:

• The UN Secretary General, António Guterres, has demonstrated a strong commitment to the climate issue and will help ensure it remains a top priority in international fora.

• The incoming presidency – the United Kingdom – of the Conference of the Parties of the United Nations Convention on Climate Change (UNFCCC) has a well-resourced team and detailed consultation schedule for the year ahead. The postponement of the conference from November 2020 to November 2021 may prove to be a blessing in disguise. Furthermore, the UK political leadership may be willing to expand a significant amount of political capital internationally to ensure the conference is a major success, as it could help demonstrate UK’s relevance on the global stage in a post-Brexit world.

• Changing global public sentiment has led to increased pressure for action as climate change and environmental issues are emerging as top priorities of public concern. A survey by the UN of more than 1.5 million people in 195 countries found that, across all regions, climate change and environmental issues was identified as the number one long-term global challenge.

On the policy front, there are three key developments in 2021 that have potential to be transformational for international climate policy.

1. Climate finance could get back on track

2020 was planned to be the year when climate finance flows were supposed to reach $100 billion per year from developed to developing countries. Instead, developing countries experienced the largest absolute capital outflows recorded in recent history. One of the challenges in assessing performance against the climate finance target is that governments have not agreed on how to count climate finance flows. Our assessment, carried out prior to COVID-19, analyzed performance on the basis of net finance flows and concluded that while there was increase in finance flows there was also a significant shortfall in reaching the $100 billion per year target. An independent expert group, assembled by the UN, also concluded that the $100 billion target was not reached in 2020.

At the political negotiations level, meeting climate finance targets are important for sustaining an environment of trust. At the implementation level, climate finance flows support scaling-up of climate action. The incoming presidency of the next UNFCCC conference has identified priorities for climate finance related issues in the year ahead, which offer a good starting point for relaunching the climate finance discussions. A key challenge facing the presidency will be to prioritize the agenda.

At the end of the day, finance is about restoring trust. To do this, there needs to be a recognition that the $100 billion per year target was not achieved. The point of that would not be to lay blame but rather to encourage countries to bridge the shortfall in climate finance in a way that leaves no doubt about future climate finance flows. Crucially, climate finance pledges need to be scaled-up and mechanisms may need to be put in place to make the flows more predictable. Achieving all of these goals in 2021 may not be realistic, but countries could start by announcing significant increases in public finance contributions to multilateral institutions such as the Green Climate Fund. In addition, setting a clear pathway for scaling-up finance flows and making them more predictable will greatly help forge a conducive environment for all countries to contribute to raising the level of ambition for climate action.

2. Raising ambition of climate action

It is now unequivocally clear that the measures communicated by governments through their nationally determined contributions under Paris Agreement are not enough to achieve their collective ambition, which is to limit the rise of average global temperatures to within 1.5°C to 2°C. Instead, the planned climate actions would put the world on an emission trajectory consistent with about a 3°C warming.

There are reasons to be cautiously optimist that the momentum from the 2020 Climate Ambition Summit will carry forward into 2021 and more economies will target carbon neutrality by mid-century. There is a real opportunity for 2021 to be the year that sets the mid-century vision for the global economy (at least in terms of greenhouse gas emissions). However, in addition to long-term targets, policies need to provide clarity over how short- and medium-term measures will set the emission trajectory on a desired path. Otherwise, there is a risk of “baking in” undesired levels of warming that eventually lead to missing the Paris Agreement temperature goals.

3. Clear rules for international collaboration under the Paris Agreement

The last two UNFCCC annual climate conferences have not been able to agree on clear rules for international cooperation on mitigating climate change. Having said that, there is already scope for countries to pursue bilateral cooperation, however, not having multilaterally agreed rules still poses an impediment. Perhaps the biggest shortcoming is a lack of a centrally agreed mechanism. If negotiators fail to agree again, it will significantly undermine confidence in the ability of the UNFCCC negotiations to deliver. This pressure could serve as a motivation for negotiators to try harder to converge on a solution. But in itself, this reputational pressure, is unlikely to be sufficient. Greater political leadership is need to champion resolution on securing clear rules for international collaboration.

The lack of a multilaterally agreed mechanism for promoting international cooperation on mitigation has resulted in the development of instruments outside the scope of the Paris framework. If negotiators want to avoid diluting the Paris framework, they should do more to develop solutions within it. For example, the aviation sector was left with no choice but to identify other carbon offsetting mechanisms for meeting future offset demand under its Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). Plans to source offsets from outside the Paris Agreement framework has led to a perception, among some, that the aviation sector will not adequately contribute to achieving the Paris Agreement goals of keeping global temperature rise to within 1.5°C to 2°C. In Europe, this perception has increased the pressure to introduce other more costly measures targeting the aviation sector.

Other key policy trends to watch in 2021:

• The COVID-19 pandemic has led to the deployment of large fiscal support, with the recovery phase expected to have even greater resources mobilized. A key focus of policy makers and development partners will be to identify ways that climate friendly policies can be deployed to support a green recovery.

• Global debt levels have risen sharply and reached all-time highs. According to the International Monetary Fund, global public debt stood at 83% of GDP in 2019 and is estimated to have made an unprecedented jump to about 100% of GDP in 2020. OECD countries and official finance providers (such as China) may have different perspectives on how borrowers should manage the debt burden and in application of conditions associated with new financing arrangements. Differences in approach could be a source of tension between finance providers, which may spill over unfavorably into climate negotiations and could also potentially impact the overall financing environment.

• The aviation industry is currently the only sector with a global cap on net CO2 emissions. However, the targets adopted under the CORSIA scheme are not in-line with an emission trajectory that would be consistent with Paris Agreement temperature goals. Some airlines have adopted more ambitious individual targets. However, in order for climate action to be financially sustainable, especially in the medium and long term, action at the industry level is essential. Coherent and ambitious industry level action can help the sector avoid being subject to a patchwork of more costly measures and prevent creating competitive distortions.

• An initiative to impose a carbon boarder adjustment mechanism is being considered by the EU. A conceptually similar approach was used with some success in motivating greater climate action for managing international aviation emissions. While a carbon boarder adjustment mechanism is unlikely to be implemented in 2021, developments during the year will shed more light on the extent to which such an initiative can become part of the EU climate policy tool kit for incentivizing greater international climate action.

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[1] The established practice is to quantify atmospheric concentrations through direct measurement. Estimating concentration requires one to take into account a number of complex natural phenomena such as the planet’s absorptive capacity, decay rate of exiting stock of greenhouse gases as well as several other complex interactions in the earth system.

About Veritas Global: Our vision is to have a positive impact on the world through truthful advice informed by robust analysis. We are a premier provider of tailored solutions on climate change, international conflict economics andinfrastructure.

Biden Win Is A Win For The Climate

Policy Pulse - George Anjaparidze and Vicente Paolo Yu - 8 November 2020

Key points:

• November 4, 2020 is the day US withdrawal from the Paris Agreement on climate change took effect.

• However, the election of Joe Biden has radically changed the policy outlook and paves the way for a significant overhaul in the US approach on international climate policy.[1]

• Joe Biden has an opportunity to greatly strengthen the multilateral effort to address the climate challenge by taking the following steps:

1. Renew US climate targets under the Paris Agreement while at the same time increase the level of ambition beyond past pledges.

2. Uphold US commitments to the Green Climate Fund by honoring past pledges and scale-up support, with $14 billion in new contributions from the US.

3. Boost funding for research, development, and demonstration (RD&D) and encourage a “race to the top” between global players.

4. End subsidies for fossil fuels to accelerate transition towards clean energy.

Table: Key elements for achieving Biden ambition and restoring US credibility

1. Renewal of US climate targets under the Paris Agreement and adoption of more ambitious climate actions, were part of Joe Biden’s campaign promises (see chart 1).

• The US intended nationally determined contribution (NDC) under the Paris Agreement came under heavy criticism from analysts, such as Climate Action Tracker, for being “critically insufficient” and lacking ambition.[2] Despite the Trump administration decision to withdraw the US from the Paris Agreement, US emissions have broadly been in-line with the trajectory needed to achieve its NDC target of 17% reduction by 2020 from 2005 levels.[3] Achieving this trajectory was largely made possible because of an increase in the use of natural gas and a decrease in the use of coal. Between 2015 and 2019, energy output using natural gas increased by about 13% while energy output using coal decreased by about 26%.[4] Furthermore, the impact of the COVID-19 shock, will likely mean that the US will outperform its 2020 emissions target.[5] However, climate targets and supportive policies will likely play an increasingly important role for achieving emission reductions after 2020.

• Biden promised to recommit the United States to the Paris Agreement, which implies a renewal of the US intended nationally determined contribution (NDC) – a target to reduce greenhouse gas emissions by up to 28% by 2025 from 2005 levels. The US does not intend to use international carbon crediting mechanisms to achieve its 2025 target but may consider this as an option for scaling-up climate action in the context of reaching future targets.

• The Biden Plan includes a major diplomatic push to raise the ambition of global climate targets, which could start by updating the US NDC to include a 2030 target. Other aims are for the US to have net-zero emissions no later than 2050. This implies an emission trajectory where the US achieves about a 42% reduction in greenhouse gas emissions by 2030 from 2005 levels.

• Having the US return to the Paris Agreement and constructively support its effective implementation, as part of the multilateral climate framework under the UNFCCC, will greatly strengthen the multilateral effort to address the climate challenge. Since 2009, the US played a major role in shifting the international focus away from the top-down international framework of the Kyoto Protocol to a bottom-up, pledge and review system, of the Paris Agreement.

Chart 1: US return to Paris Agreement and Biden Plan set path to net-zero emissions

2. Upholding US commitments to Green Climate Fund by honoring past pledges and further scaling-up international support can serve as meaningful steps towards rebuilding trust with the international community (see chart 2).

• The US is the only developed country and member of OECD that has not submitted its seventh national communication to the UNFCCC secretariat. This makes it particularly difficult to assess recent climate finance flows from the US. In the absence of official data, this policy brief focuses on US contributions to the Green Climate Fund (GCF), a multilateral fund set up specifically to support climate action in developing countries.

• Under the Trump administration, the US has not honored previously confirmed climate finance pledges, which were made by the Obama administration during the initial resource mobilization of the GCF. Out of the $3 billion in confirmed pledges, only $1 billion was contributed, meaning that effectively the US defaulted on $2 billion of confirmed pledges.

• Subsequently, as part of the next replenishment cycle of the GCF, most donors doubled their pledges on top of those that were made during the initial resource mobilization. Meaning, in the case of the US, it would have meant pledging an additional $6 billion to the replenishment. However, the US did not make any pledge.

• To bridge the shortfall of past contributions, the US should immediately contribute $8 billion to the GCF ($2 billion to make up for the default on past pledges plus $6 billion to match the median donor contribution to the fund replenishment). However, if the Biden administration is serious about its campaign promise to raise the level of ambition in international climate policy, it should increase this contribution even further. A further immediate increase of $6 billion (a contribution of $14 billion in total) would serve as a meaningful confidence building measure and signal serious intentions to the international community.

• However, the US default on climate finance pledges has also increased the need for more predictable climate finance flows. International public finance plays an important role in crowding-in private capital and leveraging resources needed to support climate investments. Therefore, even a relatively small shortfall in international public finance can have ripple consequence for overall climate flows. In response, developed countries may introduce proposals that target generation of revenues at the international level (for example: financial transaction tax, global carbon tax, international air passenger levy, etc.) so as to improve predictability of international public finance. However, such measures are still controversial for many developing countries, and will require further multilateral discourse in order to ensure that they avoid any adverse economic and social consequences on developing countries.

Chart 2: Biden can bridge the shortfall in US leadership by supporting Green Climate Fund

3. Research, development, and demonstration funding for clean energy will get a boost as the Biden Plan and his personal track record (especially involvement in Recovery Act) point to a favorable outlook (see chart 3).

• The Biden Plan recognizes the important role that RD&D plays in energy policy. In addition to scaling-up financial support for RD&D, the plan intends to put in place an institutional structure conducive for supporting game-changing technologies. The plan includes establishing a cross-agency focused on climate technology innovation.

• In 2019, budget available for energy RD&D spending was $7.7 billion, which is an increase compared to mid-1990s and early 2000s. However, as a share of GDP, current spending is significantly below the levels observed between mid-1970s and early-1990s, where a combination of energy security concerns and oil price shocks boosted budgets for energy RD&D.

• The Obama administration helped usher in increased support for energy RD&D, notably through provisions in the Recovery Act, a stimulus plan in response to the impacts of the Global Financial Crisis. Congressional appropriations have continued to support RD&D spending even though the Trump administration has proposed drastic cuts of more than 60% to clean energy RD&D every year in budget requests to Congress.[6]

• There is potential of a “race to the top” between global players. US leadership in combination with international coordination, through initiatives such as Mission Innovation, could also help catalyze a global push for clean energy innovation. China is on track to double government RD&D spending on clean energy from about $4 billion in 2015 to $8 billion in 2020, placing it on par or ahead of the United States.[7]

Chart 3: US spending on energy RD&D can benefit from a boost

4. Ending subsidies for fossil fuels is identified in Joe Biden’s plan as one of the ways to accelerate the transition to clean energy and raise the needed finance to scale-up climate action.

• Fossil fuels dominate the world energy supply across all major world regions and country groupings (see chart 4). This global dominance is reinforced through subsidies.

• The US has a major opportunity to reduce fossil fuel subsidies. According to the Environment and Energy Study Institute, the United States provides direct and indirect tax subsidies to the fossil fuel industry as a means of encouraging domestic production, with direct subsidies conservatively estimated at about $20 billion per year.[8] Abolishing these subsidies could help reduce US emissions while mobilizing revenues needed to support international climate finance pledges.[9]

Chart 4: Fossil fuels dominate world energy supply with the help of subsidies

For media queries:contact@veritasglobal.ch

Briefing prepared by:

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About Veritas Global: Our vision is to have a positive impact on the world through truthful advice informed by robust analysis. We are a premier provider of tailored solutions on climate change, international conflict economics and infrastructure. 

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[1] Biden Plan for a Clean Energy Revolution and Environmental Justice. 2020. https://joebiden.com/climate-plan/# [2] Climate Action Tracker. Fair Share - USA. https://climateactiontracker.org/countries/usa/fair-share/ [3] The US 2020 target, 17% reduction by 2020 from 2005 levels, was first communicated by the US under the 2010 Cancun Agreements of the UNFCCC. [4] International Energy Agency. World Energy Balances 2020. [5] Climate Action Tracker. USA. https://climateactiontracker.org/countries/usa/ [6] Kelly Sims Gallagher and Laura Diaz Anadon. Database on US DOE Budgets for Energy Research Development, & Demonstration 1978 – 2019. https://sites.tufts.edu/cierp/database-on-u-s-department-of-energy-doe-budgets-for-energy-research-development-demonstration-1978-2019r/ [7] Kelly Sims Gallagher and Zdenka Myslikova. Mission Innovation is mission critical. September 2020. https://www.nature.com/articles/s41560-020-00694-5 [8] Environmental and Energy Study Institute. Fact Sheet: Fossil Fuel Subsidies. July 2019 https://www.eesi.org/papers/view/fact-sheet-fossil-fuel-subsidies-a-closer-look-at-tax-breaks-and-societal-costs [9] The International Monetary Fund (IMF) estimates that in 2015, US fossil fuel subsidies were about $649 billion or about 14% of the global total. These findings diverge from those presented by the Environment and Energy Study Institute because of methodological differences. Specifically, the IMF study is based on a methodology looking at the gap between existing and efficient prices, an approach that incorporates externalities such as (environmental and social costs) as well as other revenue considerations. See IMF study: Global Fossil Fuel Subsidies Remain Large: An Update Based on Country-Level Estimates. May 2019. https://www.imf.org/en/Publications/WP/Issues/2019/05/02/Global-Fossil-Fuel-Subsidies-Remain-Large-An-Update-Based-on-Country-Level-Estimates-46509

About Veritas Global: Our vision is to have a positive impact on the world through truthful advice informed by robust analysis. We are a premier provider of tailored solutions on climate change, international conflict economics and infrastructure.