By Peter Weisberg, senior investment manager for The Climate Trust, a US non-profit.
Learning in part from the failures of the Kyoto Protocol, the Paris Agreement went to great efforts to ensure the United States would join the global effort to mitigate catastrophic climate change. By building the agreement from the bottom up, with each nation making its own commitment to reduce carbon pollution, only the processes governing the reporting and review of these goals are mandated by international law.
This innovative structure allowed the Paris Agreement to serve as an executive agreement rather than a treaty, and therefore did not require authorisation from the US Congress. Under this Agreement, the US is now required to keep the rest of the world appraised of its progress toward meeting our “Nationally Determined Commitment” to reduce carbon pollution 26–28 percent below 2005 levels by 2025.
Under a Trump Administration, the political will required to meet those ambitious goals is called into question. President Trump has referred to climate change as a Chinese hoax and repeatedly asserted that he will “cancel the Paris Agreement.” The President has been inconsistent at best, walking back some of these statements, recently saying that “nobody really knows” if climate change is real.
In a move condemned by the environmental community, the Trump Administration has proposed Scott Pruitt—a fossil fuel advocate and climate change denier—to lead the Environmental Protection Agency (EPA). Pruitt, as Attorney General of Oklahoma, has brought numerous lawsuits to bear against the EPA, and has been a strong opponent of the Clean Power Plan. Under a Trump Administration, The Climate Trust and other industry groups are anticipating the Clean Power Plan, and its requirement to reduce power plant emissions 32% below 2005 levels by 2030, will effectively end before ever going into force.
The Clean Power Plan was a significant component of the U.S. plan to meet its Paris commitment. The Union of Concerned Scientists show the power sector could contribute roughly a third of the emission reductions we need to achieve the Paris target, with the Clean Power Plan as the driver of around half of those power sector reductions. The Center for Climate and Energy Solutions estimated that, the Clean Power Plan (with additional reductions from the land use and forestry sectors, and additional measures under the Climate Action Plan) would reduce emissions 22.4% below 2005 levels, leaving an additional gap of 3.6% to meet the Paris Agreement.
A quick analysis of Energy Information Administration modelling of emissions, with and without the Clean Power Plan (which also considers the potential for federal policies to contribute less to the increase of the U.S. carbon land sink), shows the Trump Administration could potentially increase 2025 emissions by roughly an additional 540 million metric tons of carbon dioxide emissions. This would increase the gap to meet the Paris Agreement by an additional 8.1%, leaving the US with a need to reduce emissions an additional 11.7% from 2005 levels to meet the Paris Agreement.
States, forward-looking U.S. businesses, and foundations have the opportunity to fill in this gap and keep the US on track to meet its global commitment to reduce dangerous emissions. With the passage of SB32, California will now reduce its own emissions 40% below 1990 levels by 2030—in line, or ahead of the national commitment. California has embraced this leadership role, with Senate President pro Tempore Kevin de León and California Assembly Speaker Anthony Rendon releasing a statement after the election that “California was not a part of this nation when its history began, but we are clearly now the keeper of its future.” Reuters reports that California has hired former Attorney General Eric Holder to represent Democrats in California’s state legislature in “what they expect to be numerous legal challenges to Donald Trump’s agenda on issues ranging from climate change to criminal justice.”
New York State has joined California, committing in its 2015 State Energy Plan to reduce emissions 40% by 2030. Along with New York and California, Connecticut, Massachusetts, Minnesota, New Hampshire, Oregon, Rhode Island, Vermont, and Washington have all agreed to the Memorandum of Understanding on Subnational Global Climate Leadership. Each signatory commits to limit emissions to 80-95% below 1990 levels; for these states, meeting the US commitment under the Paris Agreement is an essential first step to achieving these long-term reductions. Together, these states represent roughly 15% of the total US emissions. States that have made commitments, but taken little action to ensure they meet these targets, must follow California’s lead—agreeing to ambitious 2030 targets and implementing the policies and market mechanisms necessary to get there.
But what about the remaining 85% of emissions in the US? As the Center for Climate and Energy Solutions’ paper demonstrates, long-term trends in renewable energy and land-use already move us significantly toward the Paris Agreement goal, even in the absence of significant policy intervention. For the remaining reductions that are needed beyond what is happening in progressive states, the US will have to rely upon corporate and philanthropic action.
Immediately following the election, more than 360 businesses and investors called on US President-elect Donald Trump to continue to support agreed upon curbs on global warming. While this is a positive signal, en-masse support by U.S. corporations is vital if we hope to meet our climate goals under the Paris Agreement. Those on the fence should take action now to ensure they are not left out of global progress in the transition to the new energy economy. One increasingly popular method to ensure this progress is to establish an internal carbon price that is then incorporated into business and investment decisions. A recent CDP report shows a 23% growth in the number of companies using internal carbon prices, with more than 1,200 companies currently using or planning to use internal carbon pricing over the next two years.
One response to the Paris Agreement has been for national governments, cities, states, and businesses to join carbon market clubs. These clubs advance deep reductions in emissions by supporting the harmonization of carbon markets and the emergence of a national and international framework for carbon pricing, thereby addressing a gap in the Paris Agreement. According to the World Resources Institute, these clubs “combine ambitious vision, clear criteria for membership and concrete activities that lead to significant economic benefits to club members.” Corporate action to meet Paris Agreement goals could be coordinated through a domestic carbon club of forward-looking U.S. businesses.
In addition to participation from state governments and US corporations, foundations will play a key role in ensuring continued US progress toward Paris climate commitments. The key for foundations will be to find grant and impact-investment opportunities that have the ability to leverage significant private finance to shift emissions at scale. In October 2016, The Climate Trust founded a first-of-its-kind carbon investment fund, Climate Trust Capital, and provided $2.75 million to serve as a buyer of last resort for the carbon credits it will generate. With this risk mitigation in place, Climate Trust Capital was able to successfully raise a $5.5 million investment from the Packard Foundation.
The Climate Trust is now interested in offering similar risk mitigation to the market as a whole; planning to launch an Environmental Price Assurance Facility, which will auction put options for environmental credits created in the U.S. to project developers and investors. Along a similar vein, California, as required by Senate Bill 1383, is looking to launch a pilot financial mechanism to assure investors of long-term value for environmental credits. With the huge potential to reduce emissions from these markets, The Climate Trust believes these types of risk-mitigation structures are an ideal use of philanthropic capital given their potential to leverage private capital at scale.
Significant progress is being made to shift the greenhouse gas emissions trajectory of the U.S. Anticipating an absence of federal action, the time is now for states, corporations and foundations to ensure the U.S. is not left out of global progress to mitigate climate change.