On 12 December 2015, nearly 200 countries at the 21 st annual meeting (COP21) of the United Nations Framework Convention on Climate Change (Convention or UNFCCC) reached an agreement that many have described as a historic turning point for global cooperation in addressing climate change. Following the negotiations that took place from November 13 th to December 12 th 2015, the Paris Climate Agreement, adopted on December 12 th 2015, contains emission reduction commitments from almost 190 countries starting in 2020.
In our January Energy Newsletter, we presented the key elements of the Paris Agreement, its legal status and potential implications in general for the energy sector. In this edition, we offer perspectives from regions around the world, including Latin America, Asia, Russia, the Middle East, the European Union, and North America. In a separate article, our featured perspective provides an in-depth look at Africa its vulnerabilities to climate change and its related challenges and opportunities for the energy sector.
Latin American countries such as Brazil, Mexico, Peru and Costa Rica were key players in the UN climate negotiations leading up to the Paris Agreement. It makes sense for Latin American countries to actively promote changes in public policy on climate when the region is highly vulnerable to climate impacts such as extreme weather ( e.g., tropical storms, floods and droughts) which, jointly with lack of appropriate response from governments, increases the gap between the wealthy and poor. According to the Inter-American Development Bank, damages caused by the impacts associated with a rise of 2 degrees over pre-industrial temperatures will reach approximately USD 100 billion a year by 2050. 1Edwards, Guy, Roberts, J. Timmons, Araya, Monica and Retamal, Cristian, “A New Global Agreement Can Catalyze Climate Action in Latin America,” Global Views, Policy Paper 2013-03, The Brookings Institution, May 2015. As a result of the Paris Agreement, Latin American countries will continue to focus on adaptation and mitigation, two of the key measures of the Paris Agreement. Latin American countries have already implemented important adaptation measures such as the promotion of best practices in the management of natural resources, improvement of infrastructure to resist environmental disasters, development of crops that resist droughts, floods and other consequences of higher temperatures, monitoring climate change in the region and development of response plans and information networks to be used in environmental disasters. With respect to mitigation, Latin America likely will continue its efforts in the preservation of forests and biodiversity, development of public transportation systems that respect the environment and the strengthening of legislation to achieve these measures. 2www.caf.com
The impact of the Paris Agreement in Latin America and the success of the implementation of the required measures will vary depending on whether or not the economy of the affected countries relies heavily on the production of hydrocarbons. Certain countries will struggle between promoting economic development by increasing the production of fossil fuels and the implementation of clean energy policies. Brazil, Bolivia, Ecuador, Mexico, Peru and Venezuela have huge hydrocarbons reserves and expect that the development of their economies will require increased investment in oil and gas. Governments will be challenged to support and subsidize clean energy development while depending on fossil fuels for the growth of their economies.
As an example, Mexico is scheduled to ratify the Paris Agreement later this year; 3Ernesto Mendez, Buscan que COP21 sea en México ley; Entrevista con Rafael Pacchiano, Excelsior, Jan. 19, 2016. however, Mexico amended its constitution and created new legislation to allow private investment in oil and gas activities in 2014, which if successful may increase the production of hydrocarbon exports by 75%. 4Edwards, Guy, Roberts, J. Timmons, Araya, Monica and Retamal, Cristian, “A New Global Agreement Can Catalyze Climate Action in Latin America,” Global Views, Policy Paper 2013-03, The Brookings Institution, May 2015. In December 2015, Mexico approved the Energy Transition Law which regulates the use of sustainable energy and obligations regarding clean energy and the reduction of contaminant emissions from the electric industry. The Mexican government is struggling to maintain its clean energy goals in the understanding that economic growth will greatly depend on the increase of fossil fuel production. Brazil is in a similar situation given the current contraction in its economy which has forced the government to prefer economic development at the cost of clean energy policies. Brazil greatly reduced deforestation during the Lula administration by 75% relative to the 1996-2005 historical average; however, in the last two years deforestation has increased in the Amazon and Cerrado regions. 5Ibid. Finally, Venezuela could enter into default in 2016, 6www.wsj.com due to poor economic policies of exchange control, fixed prices and expropriation of private property. The only short-term respite will be an increase in the production of oil and gas which has been declining since 2002. It is unlikely that the Venezuelan government will favor clean energy policies that would delay the recovery of the economy.
The level of support from financial institutions will be crucial in determining the success of the Paris Agreement in Latin America. The extension of the USD 100 billion a year climate finance commitment to 2025 is positive, but possibly not sufficient for Latin America which will not be first in line to receive such funding, given the needs of Africa. Multilateral development banks like CAF, commercial banks that have been continuously investing in climate change like BICE Bank in Chile, Bancolombia in Colombia and public private partnerships will be the key to increased climate finance. 7www.climatedevlab.brown.edu Recent examples such as (i) the CAF and the French Development Agency agreement on a credit line for the amount of 100 million Euros for financing of urban projects for mitigation of greenhouse gas emissions and adaptation for impact of climate change in cities in Bolivia, Colombia, Ecuador, Peru and the Dominican Republic; 8www.caf.com and (ii) the increase of the Inter-American Development Bank (IDB) Clean Energy and Climate Facility (loans to private entities for energy efficiency, investment in water and other adaptation measures) to USD 100 million; 9www.iadb.org are good indicators of the type of financial support that will be required.
Although fully-drafted, the Paris Agreement has not yet opened for signature and it remains an open question which members of the Association of South East Asian Nations (ASEAN) will commit to the agreement when it opens for signature on 22 April 2016. ASEAN is a political and economic organization whose members are home to one of the worlds rapidly growing energy demands and are some of the most vulnerable to the effects of climate change. Predicting the effect of the Paris Agreement on ASEAN as a whole may prove difficult since its members have disparate levels of economic development as well as varying energy use and electrification profiles.
Nonetheless, ASEAN member States have signified strong support for the Paris Agreement through their submission of Intended National Determined Contributions or INDCs to the UNFCCC. It is thus likely that most if not all ten member States of ASEAN will sign the agreement, which would then jumpstart the diverse processes amongst these member States for incorporating an international instrument such as the Paris Agreement into their domestic law, if at all required.
With the expected entry into force of the Paris Agreement, ASEAN may well find itself in a crossroads and caught between the often-conflicting strands of rising economic growth and reduction of greenhouse gas emissions. Although there appears to be a commitment to the Paris Agreement on the State level in ASEAN, it may expectedly take some time before those commitments directly affect practices on energy use and the utilization of fossil fuels.
Policy-makers in ASEAN will have to reconcile their respective countries commitments to the Paris Agreement with, for example, the prevalence of coal use in the region. Coal remains abundant and cheap in South East Asia, with Indonesia as the worlds top exporter of thermal coal. According to the International Energy Agency, the share of coal in the South East Asian power market is projected to rise to 50% from 32% by 2040, despite an increased focus on renewable energy. In fact, looking at Asia as a whole, more than 500 coal-fired power plants were being built as of 2015 alone, with more than a thousand more in the pipeline.
Thus, while it is true that the Paris Agreement may well have ushered in an age of de-carbonization, policy-makers especially in a region such as ASEAN will have to navigate the tricky demands of balancing their countries dependence on fossil fuels such as coal with their commitments to reductions of greenhouse gas emissions while at the same time addressing the rising energy demands of a growing, and increasingly prosperous population.
In its INDC, communicated ahead of COP21, Russia committed to limiting its GHG emissions to 70-75% of its 1990 levels by 2030. The indicated target, however, implies that Russia, in fact, may even be able to increase its GHG emissions levels to certain extent and still comply with the established target. The reason for that is the decay of the Russian industry that followed the fall of the Soviet Union when the levels of GHG emissions decreased almost by a half. While Russian industry and the levels of GHG emissions began to increase again in the early 2000s, Russia still remains well below the 1990 levels.
Russia's commitment, indicated in its INDC, is also "subject to the maximum possible account of absorbing capacity of forests". Russia has been persistent and eventually rather successful in promoting the factor attributable to Russias boreal forests in the course of negotiating the Paris Agreement. The Russian forests account for 70% of boreal forests and 25% of the world's forest resources, and absorb approximately 500 million tonnes of carbon dioxide per year. Russia is likely to heavily rely on the absorbing capacity of its massive forests as the primary means of reducing GHG emissions.
In addition, Russia intends to work towards increasing its energy efficiency and promoting the use of renewable energy. As stated by President Putin, Russia will aim at continuing to increase energy efficiency, including by introduction of nanotechnologies. It is also worth noting that many facilities and machinery used in Russia still date back to the Soviet time and apparently have low energy efficiency and require significant restoration or replacement.
The renewables sector in Russia benefits from certain privileges when bidding for long-term capacity supply agreements (which is traded separately from power as such) for the sake of securing thereturn of investment. Sergey Donskoi, the Russian Minister of Natural Resources, who was present at COP21 in Paris, stated that Russia plans to invest approximately 53 billion USD into the renewable energy sector in Russia by 2035.
The ramifications of the Paris Agreement on the Middle East region are varied, depending on the metric of choice. Some measures indicate that the Paris Agreement represents recognition in Middle Eastern countries that they must get on board with climate change efforts, and others present an opposite view. At COP21, Middle Eastern countries participated in a variety of negotiating blocs, including the G77+ China, Arab Group, and Like Minded Developing Countries. OPEC also negotiated as a bloc on specific issues.
Not surprisingly, none of the countries in the region proposed any near- or mid-term intent to abandon fossil fuels. However, the INDCs of Middle Eastern countries offered a range of approaches and intentions, and common themes emerge among the variety of plans, policies and negotiating positions:
Restrict emissions growth, not total emissions: Most countries in the Middle Eastern region did not pledge to reduce emissions compared to a 2005 or similar baseline. At most, they offer to restrict emissions growth compared to a Business as Usual (BAU) scenario. Jordan pledged an unconditional 1.5% restriction, with an additional 12.5% contingent on climate finance. Iran and Kuwait similarly offered pledges to hold back the growth of their emissions. This position is not surprising, given that none
Focus on natural gas: Many countries in the region intend to rely heavily on natural gas, either as an endpoint for conversion from oil or as a bridge fuel to non-emitting technologies. Kuwait, Iran and Qatar all mentioned natural gas as a central point in their climate change plans. Indeed, Iran stated its intent to have 100% gas-fired power by 2025. Qatar also offered its unique view: Qatar has been contributing indirectly to the global efforts to mitigate climate change by exporting Liquefied Natural Gas as a clean energy.
Renewables as a hedge investment: INDCs for the region include renewable energy targets nearly across the board. The United Arab Emirates intends to increased its renewable portfolio to 24% by 2021, Kuwait to 15% by 2030, and others, including Saudi Arabia and Oman, stated qualitative goals for renewable energy.
Limited progress without significant financial support and technology transfer: If there is one common theme among the Middle East INDCs, it is the view that developed countries must assist them in moving toward low-carbon economies. Saudi Arabia, in particular, offered this blunt opinion: [T]he financial obligation for climate change is a commitment for developed countries. 10Views of Saudi Arabia with Regards to Climate Change Negotiations (Nov. 2015). Saudi Arabia’s curt assessment is consistent with an antagonistic negotiating position that it pursued throughout the COP21 meetings. Estimates of climate finance, to the extent offered, are significant. The enumerated amounts alone add up to more than 50 billion USD.
Ultimately the economic dependence of the region on fossil fuels, particularly oil, presents an obvious dilemma. Without oil revenues, Middle Eastern countries cannot invest in low-carbon technologies address their vulnerability to climate impacts. Yet those technologies are aimed at eliminating the source of those revenues. As a Saudi Arabian representative has noted, [a]daptation is about building resilience, and it must be made explicit that adaptation is to both the adverse impacts of climate change and the adverse impacts of response measures. 11Views of Saudi Arabia with Regards to Climate Change Negotiations (Nov. 2015). For the foreseeable future, then, the regions efforts with respect to climate change will swing back and forth on the pendulum between economic development and climate vulnerability.
In view of the 21 st session of the Conference of the Parties on Climate Change, the EU member states defined their common negotiating position 12In the context of the UN framework Convention on Climate Change, the 28 members of the European Union meet in private to agree on common negotiating positions and subsequently, the country that holds the EU Presidency speaks for the EU and its member states. in favor of high ambition and by March 6 th, 2015, the EU was the first major economy to submit its INDC, which commits the EU and its member states to a binding target of an at least 40% domestic reduction in greenhouse gas emissions by 2030 compared to 1990.
Regarding the adoption of the Paris Agreement, EU Climate Action and Energy Commissioner Miguel Arias Canete stated, this agreement is a major win for Europe. But more importantly, it is a major win for the global community. Europe has led the efforts in Paris to get an ambitious and legally binding global climate deal. We have forged alliances and others have joined. Our key objectives on the long-term goal, the 5-yearly review cycles and transparency are in the new agreement. The agreement also reconfirms global commitment to continued support to those in need of assistance. We succeeded. Now, what has been promised must be delivered. Europe will continue to lead the global low-carbon transition we have agreed.
Shortly after the adoption of the treaty, EU leaders were convened to the European Council meeting in which said Council welcomed the historic outcome reached in Paris where the world adopted the first-ever global and legally-binding climate agreement and furthermore, invited the Commission and Council to assess the results of the COP21 by March 2016, in particular in view of the 2030 climate and energy framework 13In that “framework” adopted in October 2014, the European Council endorsed four important targets amongst which a binding EU target of at least 40% less greenhouse gas emissions by 2030, compared to 1990 and a target, binding at EU level, of at least 27% renewable energy consumption in 2030. and to prepare the next steps.
Indeed, compliance with the Paris Agreements high ambition provisions will require the implementation of decisive climate actions by the EU. In particular, as the Paris Agreement recognizes the urgency of enhancing the pre-2020 ambition and emphasizes the benefits of ambitious and early action, the EU will need to increase its 2020 climate target from a 20% to an at least 30% reduction compared to 1990 levels.
Furthermore, as the EU agreed to pursue efforts to stay below 1.5C temperature increase, reductions beyond the -40% target by the year 2030 are required to stay within the newly adopted 1.5C goal. Hence, the EU will need to adopt and submit to the UNFCCC, an increased 2030 climate target in line with 1.5C goal. This updated target should be implemented through the ongoing revisions of the EUs Emissions Trading System and the Effort Sharing Decision.
Lastly, the Paris Agreement includes an ambition mechanism by which progress towards the 1.5C is reviewed every 5 years. The EU will need to adopt 5-year ambition periods in the EU ETS revision and the post-2020 Effort Sharing Decision instead of its 10-year mitigation cycles.
Both the United States and Canada will be influential in the ultimate success or failure of the Paris Agreement, if for no other reason than they are among the top emitters of greenhouse gases and significant producers of fossil fuels. The United States pledged in its INDC to reduce emissions 26-28% from 2005 levels by 2030, 14INDC of the United States. and Canada pledged to reduce emissions 30% from 2005 levels by 2025. 15INDC of Canada. Both pledges are economy-wide targets. It is important to note that neither country has comprehensive climate change legislation, presenting a significant hurdle for implementation of the pledges.
Canadian action on climate change already includes measures for the power and transportation sectors. Standards for coal-fired power generation eliminate new construction and ramp up the retirement of existing coal-fired assets. Fuel economy standards for motor vehicles parallel those in the U.S., as do other regulatory plans. These include methane standards for the oil and gas sector, increased fuel economy standards for heavy-duty vehicles, and GHG standards for gas-fired electricity generation and chemical manufacturing facilities.
Provincial authorities also play a role in Canadas climate action plans. Policies in place in one or more provinces include carbon taxes, vehicle fuel efficiency standards, phaseouts of coal-fired power facilities, market-based emission reduction programs, and incentives for reducing GHG emission intensity.
Near-term action to implement the United States pledge will rest almost entirely in the regulatory arena. US EPA plans to complete several rulemakings encompassed in President Obamas Climate Action Plan. These include, among others, emissions standards for methane emissions from oil and gas operations, the next round of vehicle efficiency standards for medium- and heavy-duty trucks, and initiating the regulatory process for aircraft greenhouse gas emissions. These rules, of course, supplement the Clean Power Plan regulations presently undergoing judicial review.
Other regulatory activities have the potential to impact greenhouse gas emissions because they may lengthen the approvals process for energy projects, including LNG facilities and pipelines. These include the Waters of the United States (WOTUS) rule, 16Like the Clean Power Plan, the WOTUS rule is expected to wend its way to the U.S. Supreme Court in 2016. proposed revisions to the environmental report submittal guidelines of the Federal Energy Regulatory Commission, proposed Bureau of Land Management methane emissions rules, final guidance from the Council on Environmental Quality on evaluating greenhouse gas emissions under the National Environmental Policy Act, and increased energy efficiency standards from the Department of Energy.
While the Administration proceeds with its regulatory agenda, political opposition on Capitol Hill will also continue. Several resolutions have already been introduced expressing the Senates view that President Obamas agreement to the Paris Agreement circumvented the Senates constitutional role to advise and consent on international treaties. 17See also Rep. Mullin et al., Letter to Administrator McCarthy, US EPA, Jan. 14, 2016 (“The United States cannot be legally bound to any global agreement that sets emissions targets or financial commitments without treaty ratification by the U.S. Senate.). The Administrations view that its actions merely carry out the 1992 UN Framework Convention on Climate Change previously ratified by the Senate is unlikely to fend off a vote. Congressional attempts to restrict funding for climate funding have largely been unsuccessful to date, but are likely to persist. Ultimately, the key political question in the U.S. is whether and to what extent the 2016 Presidential election will alter the present course.
State and local action will supplement the national climate change agenda in the U.S. More than half of the states have initiated plans to reduce emissions, and several already have binding reduction targets, such as Californias Global Warming Solutions Act (AB32). Regional and municipal authorities have also expressed intentions for action on climate change.
These regional perspectives demonstrate that the implementation pathway of the Paris Agreement will vary widely around the globe. Moreover, while the Paris Agreement is a significant milestone in international effort on climate change, other milestones will follow. Differences in priorities and the pace at which they are implemented will require energy companies to keep abreast of developments in not only the regions in which they invest and operate, but also in each country and sub-national area.