Category: Environmental Economics

I returned a couple of days ago from the 26^th Conference of the Parties (COP26) of the United Nations Framework Convention on Climate Change (UNFCCC)  in Glasgow, Scotland.  In today’s post, I try to highlight – as briefly as possible – my major impressions of what transpired during the two weeks of the COP, and how to think about the key elements of the outcome.  For your interest – and my convenience – I organize my commentary as a follow up to my blog post from a few weeks ago, “What to Expect at COP-26 in Glasgow.”

But first, I want to offer you my view of the overall nature and evolution of these annual events, based on my personal participation for over a decade.  Ever since I attended my first COP – COP13 in Bali, Indonesia, in 2007 – I have described these annual get-togethers via an analogy to a plumbing industry convention, where the core function is to negotiate an agreement among plumbers (the Parties to the agreement) about standards for such things as moving from old-style metal pipes to newer PVC pipes.  That’s the major explicit function of the annual plumbers’ convention, but in addition to those negotiations, the convention attracts many other interested people and organizations (Observers) – including the businesses that provide and support the newer types of pipes, and those who provide and support the older styles.  Beyond this, there are various non-profit organizations that advocate for the new pipes, and some that worry about the impacts of phasing out the old pipes.  In addition, some of those non-profit organizations are universities and think tanks that carry out research related to the negotiations or to the broader issues surrounding the convention.  I assume I don’t need to state the ways in which this is analogous to what we have been experiencing for many years at the annual COPs regarding climate change.

What is most striking to me is that whereas a decade or more ago I found that the lion’s share of the attention (and attendance) in the annual COPs was directly associated with the negotiations, over time this has gradually evolved to the point where the side shows have sometimes become the featured attractions.  As I explain below with specific examples, many of the most prominent events at the COP and many of what may be the most important outcomes are not associated with the negotiations themselves (on the Paris Agreement), but rather are fundamentally outside of the Agreement, and frequently outside of the authority of the COP and the broader UNFCCC.

Big Issues in Glasgow

As in my pre-COP blog post, I will consider what I consider to be the big issues in four categories:  (1) the big stories for the popular press; (2) the major issues for many of the delegates; (3) some issues for policy wonks (like myself); and (4) what I expected would be “the elephant in the room.”

Potential Big Stories for the Popular Press

One of the potential big stories for the press was substantive and one logistical.  First, on substance, this COP was a particularly important one because it brought with it the first implementation of a key element of the Paris Agreement – renewal and presumably ratcheting up of national emissions reduction pledges every five years.  The substantive issue which has indeed dominated most stories in the popular press after the COP concluded on Saturday, November 13^th (“only” 24 hours after its scheduled adjournment) is whether or not the new, updated Nationally Determined Contributions (NDCs) from some of the major emitters – such as the European Union, the United States, Canada, the UK, and Japan, – combined with the existing, but not updated NDCs from other major emitters – Australia, China, Russia, and Brazil – together put the world on track to achieve the Paris Agreement’s major target of limiting warming in this century to 2^o C, and, even more ambitious, to just 1.5^o C.

The answer, according to a report released by the United Nations, is that even with the enhanced 2030 targets, the world is on track for a temperature increase of about 2.7^o C this century.  (And this assumes that every country puts in place effective polices that will fully achieve its targets.)  If we add in the additional statements (not part of the NDCs under the Paris Agreement) made by many countries of net-zero emissions by 2050 (the EU and the USA, for example), by 2060 (China), or by 2070 (India), warming this century could be limited to 2.4^o C, or as little as 1.8^o C, if other such “commitments” from the private sector are included.  To put this in perspective, note that estimates prior to the Paris Agreement were for the then current set of policies and trajectories leading to 3.7^o C of warming this century!  So, in the very short period of time from 2014 to 2021, predicted warming this century has fallen from 3.7^o to as low as 2.4^o or even 1.8^o. 

That is a very significant change, but whether it represents success or failure depends upon the observer.  Clearly, in the eyes of Greta Thunberg, the Extinction Rebellion, and many of the young (and not-so-young) demonstrators outside of the COP26 secure area (the “blue zone”), it is just “bla, bla, bla,” to quote Ms. Thunberg.  But for some of the negotiators and some of the official Observers, it is remarkable progress, although not ultimate success.

Before and during the COP, Prime Minister Boris Johnson urged the delegations to increase even more the ambition of their pledges within their respective NDCs.  For the most part, this did not come to pass.  So, the Prime Minister and the British COP President, Alok Sharma, changed this exhortation to one saying that the delegates should increase their stated ambitions by the time of the next COP in 2022.  This appeared in the political agreement that closed COP26, the COP’s “Decision,” known this year as “The Glasgow Climate Pact.”  In other words, the can (of heightened ambition) was kicked down the road, with the request that the Parties to the Paris Agreement revisit their NDCs next year.

The other potential big story – which fortunately did not come to pass – was the possibility that COP26 in Glasgow would turn out to be a logistical nightmare, perhaps on the scale of the logistical meltdown at COP15 in Copenhagen in 2009.  This year, for COP26, as many as 20,000 credentialed participants were expected to show up at the COP site in Glasgow for entrance to the secure area, and reduced capacity because of COVID might leave many credentialed participants unable to gain entry (or having to wait hours outside in line before getting in).  I am delighted to say that this logistical nightmare did not materialize, partly because COVID travel restrictions may have dissuaded many observers from attending.  But let me be clear that the other reason the nightmare did not come to pass is that the COP hosts – the UK government, but more to the point the hundreds of Scottish host personnel manning the check points and at locations throughout the COP – were superb, both highly efficient and exceptionally warm and gracious.  (Given that I found the Glasgow Scots – whether at the COP, or in hotels, restaurants, airports, and taxis – to to be consistently friendly and helpful suggests that the logistical success may have been due to individuals as much as to institutions.)

There was one other issue that I predicted would get substantial press attention — whether or not a post-COP statement (Decision) from the Parties would commit to a global phase-out of the extraction and burning of coal.  I said this was unlikely to happen, because leaders from the Group of 20 major economies at their pre-COP meeting in Rome had failed to include such a statement in their post-G20 communique. Opposition came from Australia, China, India, Russia, Saudi Arabia, and Turkey. Without a positive signal from the G-20 leaders, agreement on this in Glasgow appeared highly unlikely. What I noted might be possible, however, would be a general statement from the Glasgow conference about “phasing down” rather than “phasing out” coal.  This is precisely what was agreed to in the final negotiations on Saturday, November 13^th, and included in the negotiated Glasgow Climate Pact with the final text calling for “accelerating efforts” to phase down “unabated coal power and phase out inefficient fossil fuel subsidies.”

Major Issues for Many of the Delegates

About 80% of the national delegations to the climate negotiations are from developing countries (on the order of 157 out of 197), and so the issues that are of greatest significance to those delegations are particularly important.  Two stood out in my mind in advance of the COP.

One was climate finance, which refers to the commitment made in Copenhagen in 2009 that by 2020, developed countries would begin to contribute $100 billion per year to developing countries to help finance their greenhouse gas (GHG) emissions mitigation and their adaption to climate change.  We’re about to enter the year 2022, but the $100/billion has not materialized, with some estimates pegging the combined pledges to be about $80 billion per year over the next few years.  So that is a huge issue for developing countries.  A closely related issue is whether and when the developed countries will make up for what will be the historic shortfall, even if the $100 billion/year is eventually achieved. 

The “resolution” of this issue, codified in the Glasgow Climate Pact, was that the wealthy countries are urged to at least double their levels of finance by 2025 (particularly for adaptation by poor countries).

The other issue that was (and is) a major one for some developing countries, in particular those most vulnerable to the impacts of climate change, is characterized in the negotiations as “Loss and Damage,” which has been an important source of controversy in the annual talks for the past ten years or so.  This phrase refers to the range of damages associated with climate change, since even if emissions are reduced to zero tomorrow morning, damages will continue due to the long lag time of GHGs in the atmosphere, particularly CO₂ with its atmospheric half-life of more than 100 years.  The controversy has been with regard to who should pay for such loss and damage, with the focus on those most responsible for climate change, namely the countries with the greatest contributions to the accumulated stock of GHGs in the atmosphere – the United States and other large, wealthy countries, plus China. 

This has been controversial because, on the one hand, it is absolutely (and understandably) viewed as essential from countries such as the small island states, whereas countries such as the USA, China, and the EU member states worry that talk of “loss and damage” raises the specter of unlimited legal liability.  Indeed, at some climate talks before the Paris Agreement (2015), debates on this issue nearly caused the talks to collapse.  But the issue was finessed in the Paris Agreement’s Article 8, which recognizes the importance of loss and damage, but then eliminated the most contentious aspects in Decision 52 (a document that accompanied the Paris Agreement), where the Parties agreed that loss and damage “does not involve or provide a basis for any liability or compensation.”  As one can understand, some countries are not happy with this apparent resolution, and so the issue was raised again Glasgow. 

The developing-country voices regarding loss and damage – this time favoring a new fund for loss and damage payments – were more prominent than at any previous COP, but in the end the wealthy countries blocked such proposals, and instead agreed to talk more about it in the future by setting up a “dialogue” on the issue in future COPs.

Issues for Policy Wonks

In my pre-COP blog post I cited two issues that policy wonks – both from the government delegations and the observer organizations from civil society (like me) – would be thinking about and working on. 

One was the question of whether China and the United States would return to the spirit and reality of cooperation that characterized their relationship during the Obama years, when their joint initiatives were absolutely essential to the successful completion of the Paris Agreement.  That was before such cooperation evolved into confrontation during the Trump years, which sadly has continued during the Biden year.  Sometimes it seems that “America First” has evolved into “American Manufacturing First.”

Half way through the second week of the COP, the possibility suddenly appeared that China and the United States might re-occupy their position of co-leadership on climate change that had so characterized their relationship during the Obama years.  In a dramatic announcement, the press was informed that U.S. climate envoy John Kerry and his Chinese counterpart, Xie Zhenhua, would hold a joint press conference to reveal a surprise deal to address climate change.  Although it was a welcome development and a surprise to see China and the USA shaking hands (or the COVID equivalent) and seeming to cooperate on various initiatives, neither country announced increased ambitions, and most observers did not consider this a return to the former era of serious co-leadership.  In particular, there was no apparent impact of the joint statement on the actions in Glasgow of the other 195 Parties to the Paris Agreement.

The other issue that I said would be receiving a great deal of attention was the one part of the Paris Agreement for which the accompanying “rulebook” had not been finalized – Article 6.  A little background may help.  The Paris Agreement provided a promising, fresh approach by instituting a bottom-up strategy in which all participating countries specify their own targets, consistent with their national circumstances and domestic political realities.  This convinced many nations to sign up. Countries that joined the Paris Agreement represent 97% of global GHG emissions, compared with 14% under the second commitment period of the top-down Kyoto Protocol.  But it also gave every country an incentive to minimize its own actions while benefiting from other nations’ emission reductions.

So, are there ways to persuade nations to increase their commitments over time? One key strategy is linking national policies, so that emitters (compliance entities under a national policy) can buy and sell carbon emissions allowances or credits across borders.  Such linking need not be restricted to pairs of cap-and-trade systems. Rather, heterogeneous linkage among cap-and-trade, carbon taxes and performance standards is feasible.  Such linkage lowers costs, enabling countries to be more ambitious. One study estimated that linkage could, in theory, reduce compliance costs by 75%.

But for such systems to be meaningful, each country’s steps must be correctly counted toward its national target under the Paris Agreement, with no double-counting. This is where Article 6, in particular 6.2, comes in. Writing the rules for this article was the primary task for negotiators in Madrid (28 other articles were completed at the 2018 COP in Katowice, Poland).  Unfortunately, Brazil and a few other countries insisted on adopting accounting loopholes that made it impossible to reach agreement in Madrid on Article 6.  Negotiators had an opportunity to define clear and consistent guidance for accounting for emissions transfers but failed to close a deal.  On the other hand, if they had adopted guidance that extended much beyond basic accounting rules, as some countries wanted, the result could have been restrictive requirements that would actually impede effective linkage.  

In particular, in Madrid and this year in Glasgow, there were proposals for two very problematic elements to be included in the Rulebook for Article 6.2, which can and should simply be the home for accounting rules to prevent double counting toward meeting NDCs when international exchanges take place between firms under the authority of a bilateral international linkage:  (a) a requirement that net emissions be reduced by some specified amount whenever an exchange occurs under Article 6.2; and (b) a tax on any international exchanges (to generate funds for adaptation in developing countries).  Although increasing ambition (cutting emissions) and generating funds for poor countries to adapt to climate change are both worthy objectives, there are other parts of the Paris Agreement that are proper homes for such provisions.  Such implicit and explicit “taxes on trading” would simply reduce such exchanges, drive up costs, and fail to reduce emissions.

So, with no closure in Madrid, the baton for completing Article 6 was passed to COP-26 in Glasgow.  The good news is that Brazil signaled that it might be open to compromise.  As it turned out, the final Rulebook for Article 6 avoids the worst, despite the fact that the final text cannot be labeled the best possible. 

In the final deal on Saturday, a two-track approach was agreed, in which the worst proposals apply only to Article 6.4 (a top-down CDM-style project-based offset program), not to Article 6.2 (which provides accounting for international linkages to avoid double counting toward NDCs).  First, although a provision for “overall mitigation in global emissions” is included in the Rulebook for Article 6.4 in the form of 2% of exchanged offsets being cancelled with each exchange, there is no such provision under 6.2.  It may well be appropriate in 6.4, given that such offset (emissions reduction credit) systems are plagued by the well-known additionality problem, it is quite possible that exchanges can actually serve to increase emissions if the offsets are bogus.

Secondly, the proposal for “share of proceeds” was included in the 6.4 mechanism at a rate of 5%, but there is no such requirement for Article 6.2 exchanges (where it made no sense, since 6.2 is simply an accounting mechanism, not a home for nation-nation trading – otherwise it would be similar to the Kyoto Protocol’s Article 17, and would fail for the same reasons, as I wrote about long ago with Robert Hahn).

The rules for accounting (under both 6.2 and 6.4) via “corresponding adjustments” to NDCs was made clear, which is the key protection against double counting.  Finally, Brazil’s demand to use Kyoto era Certified Emission Reductions (CERs) to comply with Paris was approved in a compromised fashion, allowing only CERs produced between 2013 and 2020 to be counted against countries’ first (and only first) NDCs.

Another issue I noted in my previous blog post that policy wonks were watching was associated with cutting global emissions of methane — an extremely potent greenhouse gas, although relatively short-lived in the atmosphere.  I predicted there would be a success in this regard in Glasgow, because leaders from a number of important countries were likely to pledge at COP26 to cut methane emissions by at least 30% by 2030, a goal that was previously unveiled by the United States and the European Union in September. More than a dozen countries had already signed the pact. For its part, the Biden administration will impose aggressive regulations on methane leaking from all existing oil and gas wells and pipelines throughout the United States, an approach which is more ambitious than the Obama administration’s regulation, subsequently withdrawn by former President Trump, to regulate wells built since 2015.  In fact, outside of the actual negotiations, over 100 countries agreed in Glasgow to cut methane emissions by 30 percent over the next 8-9 years.  Unfortunately, the world’s top methane emitter, China, did not join the international pledge.

One other potentially important issue was not actually associated directly with COP26 itself, but rather with the reality that prior to the beginning of the Glasgow sessions, the Biden administration announced a trade agreement with the European Union which incorporates the concept of using tariffs on trade to cut carbon emissions. The agreement is intended to cut imports of steel that is particularly carbon intensive in its production (such as from China and Brazil). Such agreements may turn out to be a very important complement (or even substitute) for the Paris Agreement. I hope to write more about carbon tariffs (border adjustments) in a forthcoming essay at this blog. 

The Elephant in the Room

For everyone – the press, the delegates, and observers of all kinds – I predicted that a major question in Glasgow would be whether the United States’s ambitious NDC – a 50-52% reduction of GHG emissions by 2030 below the 2005 level – is truly achievable with reasonably anticipated policies.  I’ve written about this in the past, so suffice it to say that this question boils down to whether the Biden administration – in the real world of current Congressional politics – is able to sign enacted legislation that can make dramatic strides toward that impressive 2030 target.  The Biden administration has included in its scaled-down “reconciliation bill” a $555-billion spending plan of tax breaks, tax credits, and other subsidies for various approaches and types of clean energy generation and use, validating once again that U.S. politicians are more comfortable giving out benefits than costs. Importantly, what would have been an effective program for green electricity generation has been scrapped, and fees on methane releases may or may not survive. Indeed, a new White House plan for achieving the 2030 target relies in part on carbon removal and unknown technologies.

So what can the Biden administration accomplish via regulations and executive orders?  See my comments above regarding a new methane rule. But the regulatory approach, in general, is particularly challenging because legal challenges from the political right are much more likely to be successful during the Biden years than they were during the Obama years, given the 245 Trump-appointed Federal judges (>25% of the total federal judiciary) and the 6-3 conservative majority on the Supreme Court.

In this regard, it is worth noting that a recent report from the Rhodium Group calculates that even if the scaled-back version of the climate and social spending bill now before Congress is signed into law, new action by the states plus a significant number of new rules and regulations will be required (for sectors that have yet to be regulated, including chemicals, natural gas, and refineries) in order to have a chance of achieving the Biden administration’s NDC target.  Also, regulations for power plant emissions would have to be more stringent than the Obama-era predecessor (the Clean Power Plan), and would have to include mandates for carbon capture and storage for existing power plants.  Despite all of this, President Biden’s climate team in Glasgow sought to assure the delegates that the U.S. is on track to achieve its 2030 target.

Although multiple parties with whom I met in the COP26 hallways in Glasgow – from the press, delegations, and observer organizations – were certainly aware of this inconsistency between the ambitious and impressive U.S. NDC and domestic political realities, I was surprised to find that many or most seemed quite happy to put this reality aside, and proceed with the many other issues they were confronting.

A Final Word

In addition to my making presentations at COP26 in Glasgow at the pavilions of some countries, and participating in meetings with country delegations, multilateral organizations, NGOs, academics, and the press, the Harvard Project on Climate Agreements conducted a panel event at COP26, which I moderated – “Securing Climate Ambition with Cooperative Approaches: Options under Article 6,” co-sponsored with the Enel Foundation, and the Foundation Environment-Law Society.  More information about it is found here, and – more importantly – you can watch a video of the complete panel discussion at this event in the blue zone of COP26 here.  As you will note in the video, shortly before the event was scheduled to conclude, I had to make a hasty exit to the airport for my flights back to Boston!