Building Global Institutional Synergies to Accelerate the Ambition Mechanism of the Paris Agreement

The Paris Agreement was designed and universally adopted to unfold a dynamic process of reviewing and ratcheting up GHG emission reduction commitments over time to limit the increase of global temperature under 2^?C by the end of this century. However, the current political inertia within the Paris Agreement has weakened its ambition mechanism and global emissions are unlikely to peak even by 2030. In this context, to overcome this inertia toward increasing ambition, we direct attention on a multitude of regime-external platforms at the international-level that could be utilized to bolster the ambition mechanism within the climate regime. In particular, we focus on the recently concluded/proposed international trade agreements–the EU-MERCOSUR and the ACCTS, high-level diplomacy, realignment of development banks, and fiscal policy guidance by the International Monetary Fund, to discuss how the international community can find ways to synergize global environmental governance to realize the objectives of the Paris Agreement.

Introduction

Adopted at COP 21 in 2015, the Paris Agreement marked a new beginning for the international climate change regime. Under the Agreement, countries from both the global North and the South pledged to pursue efforts to limit the global average temperature increase to 2^?C and reach net zero GHG emissions in the second half of this century.¹ The Agreement does not dictate emission limit for any country, but it establishes an ongoing, regular process whereby all the members parties must submit their Nationally Determined Contribution (NDC) toward the overall mitigation goals and come together every 5 years to take stock of progress, and—informed by this stocktake—submit an NDC that is progressively more ambitious than the last until the global temperature has been stabilized. This is dubbed as the “ratchet” or the “ambition mechanism” of the Paris Agreement. Last year, with the adoption of the Paris Agreement Implementation Guidelines at COP 24 in Katowice, Poland (2018), parties almost completed the process of establishing the terms of the Agreement, and we are now very close to the first phase of its implementation which starts in 2021.

However, the United Nations Environmental Program (UNEP) gap report released in 2018 estimated that the current NDCs will lead to a warming of global temperature by 3^?C by 2100. Additionally, global GHG emissions are unlikely to peak even in 2030. Therefore, the focus now is on accelerating the ambition mechanism of the Agreement, which is driven by the nationally determined ambition of individual countries, to achieve the overall objectives of the Agreement in time. The significance of this step was underscored by the International Panel on Climate Change (IPCC) 1.5 special report, released in 2018, which articulated the dangers of exceeding the 1.5-degree threshold and the need to take immediate actions to reduce emissions in order to avoid runaway impacts from climate change.

Unfortunately, lack of political will, exemplified by the United States’ decision to withdraw, Brazil’s threats to pull-out of the Agreement, and the inherent lack of enforcement power of multilateral environmental agreements, have undermined the ambition mechanism of the Paris Agreement. Individually determined ambition targets set by countries, which are supposed to ultimately increase the aggregate ambition of the Agreement, are stagnant. Given the state of affairs, we underscore the need to look toward regime-external international mechanisms to synergize global governance around climate change and to provide momentum to the ambition mechanism of the Paris Agreement.

The Paris Agreement and its Limitations

The Paris Agreement created a unique top-down/bottom-up structure to mitigate climate change that brought both industrialized and developing countries together to agree upon a common set of objectives. The bottom-up approach of the Agreement allows individual countries to establish their GHG emissions reduction targets with complete autonomy. Moreover, countries can decide how they will achieve said targets. The top-down approach of the Agreement makes it mandatory for all the member parties to regularly submit progress reports on their individually determined targets, which will then be used by the United Nations Framework Convention on Climate Change (UNFCCC) to monitor and aggregate the collective progress toward achieving the common objective of the Agreement–limiting the global temperature increase to 2 degrees by the end of this century–in order to provide feedback toward “ratcheting-up” mitigation commitments over time.

However, like other international environmental agreements, the Paris Agreement faces significant challenges toward implementation and compliance because of our state-sovereignty based international system. In order to secure the political will of the key negotiating countries, the Agreement had to dilute the legal language for outcome-based directives, which pertain to tangible end goals like the amount of finance, specific mitigation targets or specific actions to aid mitigation and adaptation goals.²  Moreover, the Paris Agreement discarded differentiation between countries. This means when the Agreement calls for capacity building support or finance transfer from developed countries to developing countries, it is unclear which countries are included in the “developed” and “developing” categories. In spite of these intentional ambiguities in the Paris Agreement, increase in mitigation ambition over time was (and perhaps is) expected to be facilitated by path dependency, network effects, and bandwagoning, initiated by the expansion of renewable energy use that will engender positive feedback loops for infrastructure, technology, and investments related to GHG mitigation. Therefore, as time goes on, even in the absence of highly specific rules, the alternative (fossil fuel-intensive) paths will begin to look more uncertain to the negotiating parties. Additionally, the transparency mechanism (periodic reporting) outlined in the text of the Agreement is designed to allow peer countries or domestic and international civil society organizations to keep a check and put pressure on governments to enforce compliance.

Nevertheless, in the end, the above processes have to be undergirded by the political will of the countries to drive-up their individual ambition and thereby increase the overall ambition of the Agreement. With the United States—the world’s biggest economy, second highest GHG emitter, and one of the key architects of the Agreement—announcing its intention to withdraw, the political will around the Paris Agreement and its legitimacy is under threat. It is true that many other major economies–the EU, China, India, and Canada–have declared their continued commitment. Several sub-national entities like individual states within the US, cities, and communities have also pledged to step-up their efforts to achieve the goal of the Agreement, yet the global GHG emissions have continued to rise and the ambition mechanism of the Paris Agreement is looking vulnerable. Given the severity of the problem and the lack of time, we must harness the leverage of other major international platforms with significant influence on global economic growth, that have been outside the range or on the periphery of international climate change governance, to accelerate the ambition mechanism within the Paris Agreement.

Synergizing Regime-External Platforms and the Paris Agreement

For our analysis, we draw upon Biermann et al.’s (2009) conceptualization of fragmentation in global governance, which propose a systemic typology—synergistic, cooperative, and conflictive—to examine institutional relationships in global governance.³ The ideal type for synergistic global governance includes three elements—multiple institutions that are tightly integrated with one core institution, core norms of all the institutions are integrated, and all the relevant actors uphold the same institutions. Synergizing global climate governance around the Paris Agreement requires integrating other key international platforms like the international financial institutions, trade agreements, and high-level diplomacy, where their central norms are coordinated with the norms and objectives of the Paris Agreement to address climate change. Additionally, all of these platforms need to recognize the primacy of the regulatory framework established by the Agreement and align their agenda with that core institution. A discussion of how these regime-external platforms can be reshaped in order to synergize global climate change governance follows.

Multilateral and Bilateral Trade Agreements

Trade agreements, like the North American Free Trade Association (NAFTA) or the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), have explicitly included compliance with specific multilateral environmental agreements in the past. However, trade agreements have remained outside the ambit of the climate change negotiations.⁴  Under Article 3.5 of the UNFCCC, parties agreed to cooperate to promote a supportive and open international economic system that would lead to sustainable economic growth and development for all parties, particularly developing country parties, thus enabling them better to address the problems of climate change. But, at the same time, the UNFCCC recognizes the primacy of the World Trade Organization (WTO) and has maintained that measures taken to combat climate change, including unilateral ones, such as border carbon adjustments, should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade.

However, this ambiguity over the use of trade agreements to help facilitate stronger obligations under the Paris Agreement is now being thought about more creatively. The new EU president in her mission letter to the new commissioner designate for the economy proposed, “You should lead on the proposal of a Carbon Border Tax, working closely with the Executive Vice-President for the European Green Deal. This is a key tool to avoid carbon leakage and ensure that EU companies can compete on a level playing field. The Carbon Border Tax should be fully compliant with WTO rules.”⁵

Much maligned for its social and environmental impact, WTO directives do not penalize countries for imposing environmental regulations on free trade if the policy is effective and applied in a fair and nondiscriminatory manner, and if states make a good-faith effort to address environmental issues in the global commons multilaterally prior to taking unilateral actions that affect trade.⁶ Therefore, multilateral or bilateral trade deals can be used as instruments to trigger greater compliance with the obligations under the Paris Agreement. Developing trading standards to ensure reciprocity in production process could prove effective in synchronizing and embedding the norms and objectives of the Paris Agreement with international trade and thus leading to increase in ambition of countries in order to ensure competitive advantage.

As an example, the recent trade agreement between the European Union and the MERCOSUR countries—Argentina, Brazil, Paraguay, and Uruguay—concluded on June 28, 2019, was used to push the MERCOSUR countries to continue to undertake obligations within the Paris Agreement. The EU is Mercosur’s number one trade and investment partner. Under section 14 of the agreement on trade and sustainable development, both parties “agreed to strong language committing to effectively implement the Paris Agreement and to cooperate on the trade-climate change interface.”⁷

The EU exports to Mercosur were 45 billion euros in goods in 2018 and 23 billion in services in 2017. The EU is the biggest foreign investor in Mercosur with a stock of 381 billion euros, while Mercosur’s investment stock in the EU amounts to 52 billion in 2017.⁸ This privileged position of the EU within this trade agreement and its ability to dictate the environmental terms of the agreement is clearly indicative of how asymmetry in trade is exploited by powerful countries to push their agenda. However, the trade agreement proved crucial in coercing the new Brazilian government, that had been particularly vocal about its contempt for the Paris Agreement and had repeatedly threatened to pull out of the Agreement, to recommit to the Agreement. Cecilia MalmstrÖm, who negotiated the trade deal on behalf of the EU also affirmed that this trade agreement “does not mean that we agree with all the policies of these countries, but it is a way to anchor Brazil in the Paris Agreement.”⁹ Moreover, the trade agreement forced Brazil to tackle the fires in the Amazon, when the spokesperson for the President of France forced Brazil to take action, or else “In these conditions, France will oppose the Mercosur deal as it is.”¹⁰

The 5-way initiative announced by New Zealand called the “Agreement on Climate Change, Trade and Sustainability” (ACCTS) is yet another example of countries coming together to use trade as potential leverage to get their trading partners to increase their climate ambition. The scope of ACCTS is centered around developing guidelines to encourage high-integrity, voluntary eco-labeling programs and associated mechanisms for traded goods that are transparent in their criteria to create stronger awareness among consumers about the GHG footprint of the product they are buying.¹¹ The parties to the agreement are also working on eliminating fossil fuel subsidies.

High-Level Diplomacy and Engagement

Heads of state are often the principal actors responsible for setting a climate change related agenda in their countries and dramatically increasing mitigation ambition. In the run-up to COP 21 in Paris, heads of state were strategically engaged much before the formal negotiations for the Paris Agreement took place. The UN Climate Leaders’ Summit organized by the UN Secretary General in 2014 is one such example of encouraging high-level diplomacy, where all the heads of state were invited to pledge their commitment to addressing climate change. This kind of engagement is not only necessary to gather political will around a universal agreement, it is also critical in establishing personal accountability for the political leaders to take action against climate change. The recently concluded Climate Action Summit was another such forum created by the UN Secretary General where the heads of state reaffirmed their commitment to fulfill the objectives of the Paris Agreement and to increase their mitigation ambition.

Political leaders of countries like New Zealand, Germany, Chile, and Fiji have played a decisive role in steering their countries in the direction of ambitious climate commitments. With a much more ambitious call to action by the UN Secretary General for reaching net zero emissions by 2050, phasing out coal among many others, more direct engagement with heads of state is key to accelerating this process.¹²

Other than the multinational forum of the UN, bilateral joint-statements can be strategically crucial diplomatic platforms to build and maintain momentum around the Paris Agreement. Bi-lateral summits offer a chance to establish an even more intimate personal accountability and trust between heads of state. For example, the US-China agreement concluded between President Barack Obama and President Xi Jinping in 2014, played a vital role in breaking the impasse between the US and China in the climate change negotiations, and shaping the Paris Agreement.¹³

The joint statement made by heads of state from China and France along with the UN Secretary General offers a more recent example of how high-level diplomacy can inject momentum into the ambition mechanism of the Paris Agreement. In their statement, the two countries reaffirmed “their commitment to update their nationally determined contributions in a manner representing a progression beyond the current one and rejecting their highest possible ambition, and to publish their long-term midcentury low greenhouse gas emissions development strategies by 2020 in the context of sustainable development.”¹⁴ A similar joint statement was also adopted by France and India where the two countries recommitted to update their nationally determined contributions.¹⁵

The language of these statements is drawn directly from the text of the Paris Agreement, signifying the centrality of the Agreement’s objectives even in unrelated diplomatic arenas.¹⁶ Such alignment boosts political will that is central to countries’ engagement in raising their commitments and places personal responsibility to meet the Agreement’s obligations on the country heads.

Realignment of Development Banks

The Green Climate Fund (GCF) is the central financial mechanism of the UNFCCC to assist developing countries in adaptation and mitigation actions to counter climate change.¹⁷ However, within the world of climate change-related finance and investments, the GCF has a very small footprint. Multilateral Development Banks (MDBs) are playing an increasingly important role within the larger picture of climate finance.¹⁸ According to the 2018 report from the UNFCCC’s Standing Committee on Finance, in 2016, within the total estimated global climate finance flows of 681 billion dollars, 19.7 billion dollars were attributed to MDBs as compared to 2.4 billion dollars that were channeled through the UNFCCC including the GCF.¹⁹

Figure 1 presents the increase in total climate finance by the MDBs over time. The joint report on climate finance suggested that climate financing by the world’s largest MDBs specifically in developing countries and emerging economies rose to an all-time high of 43.1 billion dollars in 2018.²⁰

This is a very small fraction of the potential ability of the MDBs to mobilize global finance. MDBs are major finance providers for developing countries toward infrastructure development, much of which will be around for decades and therefore has a long-term effect on countries’ development trajectories and future carbon emissions. In 2017, for example, the MDBs mobilized an estimated 154.4 billion dollars in additional long-term public and private finance, about 54 billion dollars of this was directed to middle and low-income countries.²¹ Admittedly, scholars, policy-practitioners, and activists have raised concerns over the environmental and social consequences of MDBs’ investments in developing countries toward developmental projects, such as mining or dam construction. However, MDBs are recognizing the difference between just prioritizing economic growth and facilitating sustainable development in developing countries. This normative shift in MDBs philosophy provides an opportunity to harmonize their activities with the objectives of the Paris Agreement.

Reorienting and aligning portfolios of MDBs and other development banks toward climate positive investments would incentivize developing countries to propose projects that contribute toward increased climate action. Moreover, since development banks and MDBs play an important role in de-risking investment with the provision of loans, changing their investment portfolios will also incentivize private finance within recipient countries to follow suit.

The first step in this direction was taken at the COP 24 in December 2018, when MDBs committed to combating climate change and presented a joint approach that will align their activities with the goals of the Paris Agreement. This approach goes beyond each MDB’s own climate finance targets for 2020 and 2030 and builds on their sustained contributions to climate finance.²² A joint statement made by the MDBs announced:

“We, the Multilateral Development Banks (MDBs), are acting on our previous commitments made at COP 21……..In particular, in December 2017, together with the International Development Finance Club (IDFC), we announced our vision to align financial flows with the objectives of the Paris Agreement. Now, in order to realize this vision, we are working together to develop a dedicated approach, which constitutes our concrete and ongoing contribution to the operationalization of the Paris Agreement’s Article 2.1.(c).”²³

Similarly, IDFC that consists of national and regional development banks is also moving in the direction of aligning its portfolio to address climate change. At the UNSG Climate Action Summit in 2019, IDFC committed to provide more than USD 1 trillion of climate finance by 2025 as well as align financial flows with the objectives of the Paris Agreement.²⁴ Such initiatives, if carried through, will encourage many developing countries to use the finance provided by these banks toward increasing their mitigation goals and will accelerate the ambition mechanism of the Paris Agreement.

IMF and Fiscal Policy Guidance

The lack of motivation from countries to increase ambition and the subsequent scientific evidence of impending climate catastrophe has raised concerns within the IMF, which increasingly sees climate change as a threat to global economic stability. The previous IMF chief, Christine Lagarde, deemed climate change as the greatest existential threat and IMF started to seriously explore how it could potentially address the climate crisis through reflecting climate resilience in macro-fiscal and financial frameworks as well as assessing the fiscal and financial impacts of countries’ climate policy choices.²⁵

So far, many countries have chosen to include different fiscal policy measures within their NDCs as a means to reduce emissions. However, most of these fiscal measures tend to revolve around carbon pricing with limited measures on public guarantees or including climate within financial frameworks.²⁶

Countries motivated to safeguard their own economy again climate change can adopt a wide range of macroeconomic and financial policies. The IMF, through its consultations with these countries under Article 4, could encourage them to develop fiscal policies that are good for the climate and facilitate an increase in countries’ overall ambition.²⁷ Figure 2 presents the recently proposed package measures by the IMF for mitigation. In a recent paper, the IMF described these policies as “those that aim to correct the lack of accounting for climate risks for financial institutions and those that aim to internalize externalities and co-benefits at the level of society.”²⁸ The former support mitigation by changing the demand for green and carbon-intensive investments, as well as relative prices. The latter work through similar channels but give rise to questions about appropriate policy tool assignment, trade-offs, and political economy. All of these monetary policy options recommended by the IMF are within most central bank mandates (reflecting climate risks in large-scale asset purchase programs or collateral frameworks), while others are more controversial (green quantitative easing or purchase of green corporate bonds, credit allocation policies, adapting monetary policy frameworks).

One of the other core responsibilities of the IMF is to monitor economies and provide policy advice by identifying weaknesses that might lead to financial and economic instability. This process is known as “surveillance.” Aligning IMF’s surveillance with the need to mitigate climate change would likely focus on monitoring countries’ mitigation framework, adaptation policies, and risk management systems. Currently, the IMF is also considering whether to include economic implications of countries’ mitigation policies within fund surveillance.²⁹

Such explicit adoption of the goals and norms of the Paris Agreement by the IMF is another critical regime-external avenue to facilitate countries in increasing their ambition through self-interest while at the same time contributing toward the overall mitigation targets of the Agreement.

Conclusion

The urgency of addressing global climate change cannot be overstated. However, current global efforts will not limit the global temperature rise by the end of this century to under 2^?C. In this paper, we have explained how in spite of lacking legal enforcement, the Paris Agreement’s ambition mechanism was designed to have a dynamic regulatory structure to raise countries’ individual commitment to mitigate climate change over time. Unfortunately, the positive feedback loop to fuel that mechanism has not materialized, and due to lack of political will the efficacy and legitimacy of the Agreement is under threat. Therefore, the international community needs to make efforts at every level–local, national, and international–to inject momentum in the ambition mechanism of the Agreement. We focus on the international level and suggest synergizing global governance to address the issue. This involves synchronizing activities and norms of thus far peripheral or extraneous institutions and forums to the climate change regime such as international trade agreements, high-level diplomacy, MBDs and the IMF to achieve the goals of the Paris Agreement. While synchronizing these key international economic institutions will drive-up the ambition mechanism of the Agreement in the short-run, it will also restructure the entire global economy toward a more sustainable future.

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References

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