Key to Success of Climate Pact Will Be Its Signals to Global Markets

Source: By CORAL DAVENPORT, New York Times • Posted: Friday, December 11, 2015

LE BOURGET, France — As diplomats here work through the final points of a sweeping new climate change accord, experts said the ultimate measure of success of the agreement will be whether it sends a clear signal to global financial investors that they should move money away from fossil fuels and toward clean-energy sources such as wind and solar power.

Without that signal, there is little chance that emissions will be reduced enough to stave off the most catastrophic impacts of global warming.

The appeal to investors remained a question mark early Friday morning after Laurent Fabius, the French foreign minister who is presiding over the United Nations conference on climate change, released a near-final draft text.

It addressed many sticking points of the talks, and largely cleared the way for a final deal that accomplishes many of the goals that climate-policy advocates say are necessary to start reducing global emissions.

But the draft dodges the issue of how countries would monitor, verify and report their levels of planet-warming pollution.

The impact of the deal hangs on that one section, experts say, because without it, no one will be able to trust that governments are doing what they say they will do to cut emissions. Without that certainty, investors will be skittish about shifting to renewable energy.

“It’s a question of what kind of signal you give to investors and people who decide where the dollars go,” said Nathaniel Keohane, an economist with the Environmental Defense Fund, an advocacy group, and a former adviser to the Obama administration. “They decide whether to invest in one kind of electric power plant or another.”

Hundreds of negotiators have spent nearly two weeks in this compound of tents on the outskirts of Paris hammering out countless details in the substance of a deal, which could be passed into international law as soon as Friday night.

The emerging pact would require countries to enact plans to cut their fossil fuel emissions, set up a system for rich countries to pay for poor countries to mitigate and adapt to the ravages of climate change, and establish a legally binding timetable for countries to ratchet up the strength of their emissions plans over time.

Such a transition would fundamentally transform the energy system that has powered the global economy since the Industrial Revolution. Fossil fuels, including coal, oil and gas, now make up about 80 percent of the world’s energy mix. The combined stock value of the world’s coal, oil and gas companies is about $5 trillion. By comparison, stocks related to renewable energy are valued at about $300 billion, according to Bloomberg New Energy Finance, a research firm.

The questions about transparency will define Friday’s negotiations.

At the heart of the emerging deal are pledges by 186 countries outlining ways in which they will lower their greenhouse gas emissions through 2030.

When combined, those pledges would still reduce planet-warming emissions by about half as much as is necessary to stave off a temperature increase above the catastrophic limit of 2 degrees Celsius, or 3.6 degrees Fahrenheit — the point at which the planet will be locked in to devastating climate consequences.

However, poor and vulnerable countries, including low-lying island nations that are already experiencing the effect of sea level rise, have successfully pushed for the Paris deal to include language that would set an aspirational, although not legally binding, goal of cutting emissions enough to avoid an atmospheric warming of 1.5 degrees Celsius.

Reaching that goal would prevent further devastation but require far more rapid and stringent economic action than governments have pledged. The new deal would require countries to come back to the table every five years and offer up new, stronger emissions reductions plans.

“The text is trending towards the better than half-full outcome of what’s been on the table — which would be historic,” said Andrew Deutz, director of international government relations at the Nature Conservancy.

“There are still details to be worked out on transparency and reporting, on markets, and on finance,” he said, as well as sorting out the different obligations of developed countries compared with developing ones. “The deal isn’t done yet, but we can see a clear path to success.”

By early Friday morning, negotiators were hammering out language that would require countries to monitor, verify and report on how well they are reducing their emissions compared with their publicly stated targets.

Secretary of State John Kerry is the chief advocate at the talks for aggressive transparency measures, and has been pushing to create a regime in which all government numbers on emissions reduction are made publicly available, and subject to verification by an outside body of experts — a sort of carbon emissions auditor.

He said in an interview this week that he believes the final deal will succeed in creating that all-important signal to business markets.

“There will be a sea change,” he said. “You will see more money begin following those outcomes, flowing to wind and solar, because there’s trillions of dollars in profit to be made.”

While the United States, the world’s second-largest carbon polluter, is pushing for strong transparency measures, China and India, the world’s largest and third-largest polluters, still oppose those proposals.

They demand that the Paris deal reflect a division of responsibility inscribed in the 1997 Kyoto Protocol, which created lighter emissions monitoring and verification requirements for developing economies.

“We already have a thorough system of accounting,” said Ashok Lavasa, secretary of India’s Ministry of Environment, Forest and Climate Change. Of the proposal for an outside emissions auditor, he said, “We don’t understand the need for a superinspector going around and seeing what we’re doing.”

For now, the language in the draft climate change pact is too vague to please either side.

Unless it is refined, the final deal may be too weak to influence investors to put money into solar companies rather than coal companies.

“In the Paris agreement, corporations will need to see these numbers,” said Robert Stavins, director of the environmental economics program at Harvard University. “That affects what they put in their spreadsheets, their decision-making.”