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Carbon border levies could trump US withdrawal from Paris

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Ten years ago today, on 12th November 2014, President Obama of the United States and President Xi Jinping of China surprised the world with a joint announcement in which they acknowledged that their two countries “have a critical role to play in combating global climate change, one of the greatest threats facing humanity,” and that the “seriousness of the challenge calls upon the two sides to work constructively together for the common good.”¹

The statement went further and announced that the US “intends to achieve an economy-wide target of reducing its emissions by 26%-28% below its 2005 level in 2025 and to make best efforts to reduce its emissions by 28%,” while China “intends to achieve the peaking of CO2 emissions around 2030 and to make best efforts to peak early and intends to increase the share of non-fossil fuels in primary energy consumption to around 20% by 2030.”

The presidents, leaders of the two largest economies and greenhouse gas (GHG) emitters, argued that, “by announcing these targets now, they can inject momentum into the global climate negotiations and inspire other countries to join in coming forward with ambitious actions as soon as possible.”

A joint statement signed by an American and Chinese president! It really was a different world back in 2014. But their statement zeros in on one of the most important factors determining whether global climate policy succeeds or fails. Climate change is a collective action problem.

The impact of emission reductions on the climate is the same, irrespective of where it takes place. In contrast, the costs are borne where the climate action takes place. It means that each country would prefer to free-ride on other countries climate actions, letting them bear the costs, while they enjoy the benefits.

The UN and other organisations tried to solve the collective action problem through multilateral agreements where countries agreed in principle to cut emissions more than they would do in isolation. It was this tool that meant the 2015 Paris Agreement, signed by 196 countries at COP21, was a sharp departure from previous commitments to tackle climate change.

Nationally Determined Contributions (NDCs) lay out how each country will contribute to the global temperature goals outlined under the Paris Agreement. They detail how countries will cut emissions, build resilience to adverse climate impacts, and outline the finance required. A conditional NDC requires international support to achieve, as opposed to an unconditional NDC that can be implemented using domestic resources.

Two years before Paris, countries agreed to develop NDCs and communicate them such that other countries would have time to determine whether they could reciprocate with their own emission reduction commitments. On 12th November 2014, the US and China made their joint announcement in which they communicated their NDCs to the world. By the time the Paris conference began, just over twelve months later, 151 countries had announced NDCs.

To estimate the reductions in emissions pledged by the Paris Agreement, Rhodium compared projected emissions based on countries’ Nationally Determined Contributions (NDCs) against the IEA’s World Energy Outlook (WEO) report’s projections for emissions. Published on 12th November 2014 the IEA’s WEO emissions forecast came out the same day that the US and China announced their NDCs. As such, the IEA’s “Stated Policies Scenario” forms a useful counterfactual from which to compare the global aggregated NDC.²

Rhodium’s analysis shows that the Paris Agreement was very successful in yielding committed emissions reductions when compared to the outlook for emissions trajectories prior to those commitments being made. The analysis suggests that countries NDCs, if successfully achieved, would reduce global net GHG emissions by 12 – 24% in 2030 and by 38 – 54% in 2050 versus the IEAs baseline scenario.

But what impact did the commitment from the US have on other countries climate ambitions? It’s position as the largest and most powerful economy, the world’s biggest emitter, and the country with the largest share of historical GHG emissions means the US plays a pivotal role in determining the ambition and adoption of climate policies. If the US makes a commitment, other countries are also more likely to pledge to take action.