international analysis and commentary

The Paris agreement and the major emerging economies

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Whether COP21 (as the Paris Conference of early December is technically known) is to be judged as a success in climate diplomacy largely depends on one factor: how the negotiations will impact the reduction of global emissions, especially those derived from the burning of fossil fuels for energy needs (still representing the largest source of anthropogenic greenhouse gas emissions). While emissions in most developed countries have plateaued and are set to decrease in the coming years, major emerging economies, in particular China and India, are expected to see their emissions rise substantially, driven by demographic and economic expansion. Thus, in order to evaluate whether the 1.5-2 °C target agreed in Paris is a credible one, it is crucial to consider the impact COP21 negotiations have had and will have on these countries’ emissions and in particular on the decarbonisation of their energy sector.

COP21 has already initiated a process of transformation in the energy markets of major emerging economies by exerting pressure on developing countries to submit national voluntary pledges (“Intended Nationally Determined Contributions”, INDCs) for post-2020 mitigation commitments ahead of the Paris summit; driving governments to review domestic energy policies in the process. The INDC submission exercise has brought countries, historically opposing any form of engagement in discussions concerning domestic emission limitation, to voluntarily bring forth reduction commitments and detail actions on how to decarbonise their energy sector.

China represents the most relevant example of this shift in attitude on the part of major emerging economies, announcing ahead of the Paris conference its intention to cap carbon emissions by 2030. Beijing has further advanced a series of reform proposals for its domestic energy market, including an increase in primary energy supply derived by non-fossil energy carriers to 20% by 2030, the capping of annual coal use by 2020, and the introduction of a national emission trading system in 2017. The combination of pressure from the international community, growing domestic attention on climate issues due to high pollution levels in its major cities, and stalling economic growth (signalling the need for China to reconsider its over-reliance on energy-intensive heavy industry), are all factors that have contributed to push climate policy to the top of the Chinese government’s agenda.

The signing of the COP21 agreement by Chinese officials is evidence of a radical change in perspective from a government that now sees climate negotiations, and the “greening” of its energy industry, as an opportunity to push domestic reforms forward. In particular, China sees in the Paris agreement an opportunity to shift its growth model away from its dependence on energy-intensive manufacturing sectors towards services, while overcoming entrenched interests in the domestic coal industry and reducing reliance on foreign energy sources.

Even though nationally determined contributions remain non-binding and are collectively insufficient to limit temperatures from rising above the 2°C threshold, a five-yearly review of the pledges and a uniform reporting system have been enshrined in the Paris text: this reinforces the credibility of the commitments made so far and encourages the continuation of reform processes in the energy markets that were initiated ahead of the conference.

A second crucial aspect of the Paris negotiations is the agreement reached on climate finance, as most developing countries’ INDC’s explicitly indicated the conditionality of their climate action pledges to international economic support from rich nations. The Paris agreement’s inclusion of a commitment by developed countries to deliver $100 billion a year by 2020 in climate finance to the developing world (and to revise that figure upwards prior to 2025), was a critical element for bringing major emerging economies on board to sign the accord.

Given the scale of its global emissions, its rapidly expanding population and the poor state of its energy infrastructure, India is an emblematic example of how important access to climate finance is for the decarbonisation of developing countries’ energy sectors. With energy investment needs estimated by the IEA to exceed $140 billion a year, and a very high cost of capital, India is struggling to satisfy the energy demands of its fast-growing economy in which 300 million citizens still lack access to electricity. India cannot afford the luxury of choosing between dirty or clean sources of energy but rather needs to opt for any energy source that will enable it to achieve its development goals at the lowest possible cost. Despite a 75% decrease in the cost of solar in the last four years, coal remains both the cheapest and most easily accessible energy source; on top of that, the recent slump in oil prices has made it very difficult for renewables to be competitive on the market.

If the non-binding climate finance pledge made by rich countries in Paris is maintained and appropriately channelled to deliver a robust multilateral financial platform for green growth, then that may be the key to attract significant private sector investment into renewable energy research and deployment. In turn, this will lower the price of renewable energy technology and increase its affordability and diffusion in developing countries. Positive signals in this direction were seen in Paris with the announcement of several private sector commitments, most notably the Breakthrough Energy Coalition spearheaded by Bill Gates, as well as major publicly funded initiatives including the Solar Alliance promoted by India and the African Renewable Energy Initiative. The latter is crucial for mobilising necessary investment in a continent with a very high potential for rapid renewable energy uptake. The lack of energy infrastructure in certain areas of Africa, and thus the absence of costs associated with adapting existing infrastructure to the needs of renewable energy sources, makes certain regions of the African continent more predisposed to leapfrog to innovative off-grid renewable energy solutions, thereby circumventing the high emissions development model followed by “emerging”, and by now richer, nations.

While an ambitious global warming target has been agreed in Paris, the lack of any binding instrument to achieve that goal leaves several paths still open. A determining factor for the success of the Paris (and its improvement over time) agreement will be whether the accord is able to put in place sufficient political and financial incentives for a deep and radical transformation of global energy systems. Such a radical transformation can occur only if the cost of renewable energy sources will be able to compete with and overtake traditional ones, and this in turn can happen most rapidly if international efforts are concentrated in channelling substantial investments in research and deployment of renewable energy technology. The major risk post-Paris is that countries will not address this issue forcefully and with necessary foresight, myopically focusing on reaching 2030 decarbonisation goals, while in the meantime further locking-in unsustainable energy sources that will impede the achievement of the long-term zero emission objective.