The Climate Institute

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1 The Climate Institute Global Climate Leadership Review : What the Paris climate negotiations mean for Australia and our economy

2 THE PARIS CLIMATE NEGOTIATIONS: WHY DO THEY MATTER? Negotiators, ministers and heads of state will gather in Paris in December to finalise the framework through which the world will seek to reduce carbon pollution and tackle climate change after This primer sets out the background to negotiations, key challenges, reasons for hope and key tests of success. The world's leading scientists have warned that global warming of 2 C or more above pre-industrial levels will result in irreversible and catastrophic consequences. As of mid, warming levels were projected to reach around 3.8 C with current policies in place. 1 The world has already warmed an average of around 1 C. This is imposing significant economic, environmental and human costs. 2 To have a chance of avoiding 2 C warming, global emissions need to be at zero well before Many scientists and leading business people like Unilever s CEO Paul Polman and Indian industrialist Ratan Tata are urging for a zero carbon global economy by >190 More than 190 countries, including Australia, have committed to avoiding 2 C warming (<2 C goal). Paris marks a critical milestone, but not an endpoint, for setting pollution reduction policies in Australia and other nations. This is important because it is countries own policies, not international treaties, that reduce pollution. The details of the agreement that is struck in Paris will, however, help shape how domestic action can be boosted through time to help avoid average global warming of 2 C. Ahead of Paris, all countries have been asked to outline their initial scope of action after The pollution reduction targets that are announced should show how they are consistent with avoiding 2 C of warming. After countries announce targets they implement additional domestic policies to meet them. In August the US released rules to cut pollution emissions from coal power plants by 32 per cent by Earlier in the year, South Korea launched its national carbon market. It covers emissions from the nation s top 525 companies and is the second largest in the world. China is increasing renewable energy targets and seeking a national emissions trading scheme from 2016 or These post-2020 targets are countries initial offers. The Paris agreement will not come into force until 2020, and so between now and 2020 these targets will be reviewed and scrutinised globally, with opportunity for improvement, before being confirmed. It is likely that the agreement will also include a mechanism to routinely improve the strength of these targets over time. HOW DOES AUSTRALIA COMPARE? In all developed economies submitted their intended post-2020 targets to the UN. Australia was the last of the major developed nations to put forth its initial target: it has now said it will reduce emissions by at least per cent by 2030 from 2005 levels. This initial target fails tests of scientific credibility and economic responsibility. If others do the same share of action it would be consistent with 3-4 C of global warming. It leaves us at the back of the pack among other developed countries per capita emissions in 2030 emissions intensity in 2030 % rate of emissions reduction With these targets, Australia's initial emissions per capita and intended emissions intensity (measured as emissions produced per unit of GDP) will be higher than other developed economies in And between now and 2030, Australia will be reducing its emissions more slowly than most of its developed economy peers WHAT DOES PARIS MEAN FOR OUR ECONOMY? If successful, the Paris agreement will send a strong signal to businesses and investors in Australia that the global transition to a zero carbon economy is gaining momentum. Global capital is increasingly shifting into cleaner technologies and into countries that have credible plans to decarbonise. Australia is falling behind this global mega-trend. Investment in large scale renewable energy fell by 88 per cent in 2014, despite clean energy investments growing by 17 per cent globally. 5 Australia s initial 2030 target would leave us the most pollution intensive economy in the developed world. Stronger and more effective domestic policies will be needed to modernise and clean up our economy if Australia is to remain competitive in a world moving to clean energy Australia is highly vulnerable to the impacts of climate change. CSIRO has said that current warming of 1 C is already costing us. 6 Warming of 2 C or more will induce significant loss of species (including the Great Barrier Reef), dangerous water shortages, severe damage to coastal infrastructure and settlements, large areas of agricultural land taken out of production, and major risks to human life from extreme climate events. 7-8

3 INTERNATIONAL POLICY TRENDS NOV JAN FEB MAR MAY JUN JUL AUG DEC The Intergovernmental Panel on Climate Change established. UNFCCC established. Kyoto Protocol established. Copenhagen climate negotiations where countries agreed to limit warming to 2 C. China and the US, former Copenhagen rivals, jointly announce a climate partnership and targets for the post-2020 period. These targets were formalised in. South Korea launches its national carbon market. It s the world s 2 nd largest. California's carbon market extends to transport and heating fuels, bringing nearly 85% of the state's emissions within the market. Indonesia reduces petrol subsidies, saving the government an estimated 230 trillion rupiah (US$18 bn). The UK s three major political parties jointly pledge to avoid 2 C or more of global warming by keeping to stringent carbon pollution limits and phase out traditional coal power. Switzerland submits post-2020 targets: 50% reduction on 1990 The US submits post-2020 targets: 26-28% below 2005 levels by Beijing closes two major coal fired power stations, and announces last stations will close in The EU submits post-2020 target: 40% below 1990 Mexico becomes the first developing country to submit its post-2020 target, with a target of 22% below business-asusual levels by 2030, and peak emissions by Norway stops its US$890bn sovereign wealth fund form investing in businesses that take at least 30% of their profit from coal. The French Finance Minister announces that the nation will soon pass a law requiring institutional investors to disclose their carbon footprint. China submits post targets: reduce emissions per unit of GDP by 60-65% on 2005 levels and peak emissions by A court in The Hague orders the Dutch government to reduce emissions by 25% from 1990 levels by Leaders of G7 nations pledge to phase-out fossil fuels by end of 21st century. The Pope releases call to action on climate for the world s 1.2 billion Catholics in the encyclical. Mid-year UN climate negotiations, where Australia faced scrutiny of its domestic policies. China starts construction on its biggest solar power plant. The Marshall Island s is first small island developing state to submit post targets: 45% reduction on 2010 French parliament passes a new energy bill that aims to decrease fossil fuel consumption by 30% on 2012 levels, raise the domestic carbon tax to 100/tonne, and increase production of electricity from renewable sources to 40% (all by 2030). Paris climate negotiations. The US releases its Clean Power Plan, which sets limits for emissions from power plants for the first time. Power plants will have to reduce emissions by 32% from 2005 MOMENTUM IN THE FINANCIAL SECTOR 120 Starting to bend the pollution curve The financial sector has been moving rapidly to protect against climate change risks. Highlights from include: + January: Royal Dutch Shell investors passed a shareholder resolution requiring the company to report on whether its business plans were compatible with a 2 C world. + May: Norway's parliament banned the country's $US890bn sovereign wealth fund from investing in companies that base at least 30 per cent of their business on coal. + May: Axa, one of the world s largest insurance companies, pledged to strip $US559m in coal investments from its portfolio by 2020, and to triple its investments in green technologies to $US3.2bn. + June: The Church of England Pensions Board pledged to stop making investments in any company where more than 10 per cent of revenue is derived from coal or tar sands. + July: Aviva, the British insurance group with about 300bn in assets, said it may sell its share in coal companies which can't prove that they are serious about tackling climate change. Aviva also announced it would invest 2.5bn in renewable energy and energy efficiency over the next five years. GtCO2e Historical emissions Business as usual Pre-Paris pledges 2 C pathway Under business as usual scenarios, the world will be well into irreversible, dangerous climate change by the end of the century. Pollution reduction commitments announced ahead of Paris are starting to close the gap. But even stronger ambition is required to keep below 2 C of global warming. The Paris agreement can help get us there.

4 HOW TO ASSESS THE PARIS OUTCOME While success in Paris isn t guaranteed, there have been consistent signals throughout that show countries are willing to put in the necessary work. Australia can play a constructive role in making Paris a success. As a relatively wealthy and technologically advanced country, Australia has a high capacity to transition to a zero-carbon economy. And Australia has technological and public policy knowledge and experience that can be fed into the creation of new global mechanisms to manage climate impacts. With so many vulnerable and poor countries in our neighbourhood, investments in a more resilient and prosperous region is in our interests. Australia can help by scaling up public climate finance investments. Some of the world s largest polluters have implemented pollution reduction regulations and trading schemes. As of July over 60 per cent of the world s emissions were covered by post-2020 reduction targets. 11 UN climate negotiations are complex, so defining the success of the Paris agreement can be difficult. The Climate Institute has developed three key aspects that should be included in a successful Paris agreement: The agreement is bankable Limiting global warming to less than 2 C, which governments have agreed to do, requires that trillions of dollars are invested in modernising and cleaning up the global economy. 10 The Paris meeting can help catalyse this investment by sending a strong signal to businesses and investors that governments will continually ratchet-up action. This can be spelt out in the agreement by ensuring that every time countries advance new targets, these are greater than before and are justified against the <2 C goal. Ideally, the agreement will also make a clear statement about the need for the world to transition to a zero carbon economy well before The agreement builds trust and accountability Trust is key to successful international climate action. Forward looking countries are taking action to build zero emissions industries because they see the co-benefits of action - they see it is in their economic interests (eg. new innovation, modern industry sectors, low air pollution, greater energy security). However, greater global success can be achieved if the Paris agreement includes credible rules and processes to ensure countries actions are visible, transparent and countries are held accountable for the actions they commit to internationally, as well as at home. This can help build trust between countries, and therefore greater action over time. The agreement is fair The world s poorest nations are the most vulnerable to climate change impacts, while at the same time they have limited resources to invest in zero carbon development and increased resilience to climate change impacts. The Paris agreement can demonstrate fairness by providing a mechanism for predictable support from public and private sources to countries that are least able. This would help them participate in zero carbon solutions and better prepare for escalating climate change risks. CHALLENGES TO SUCCESS There are various political challenges to a successful outcome in Paris. The key ones are: Incorporating fairness A successful Paris outcome will recognise that all countries have varying capacities to reduce emissions and adapt to the impacts of climate change. For example, advanced economies like Australia, the US, the EU and Japan are relatively wealthy, educated, healthy, and are more able to reduce emissions and adapt to climate change impacts than the world s poorest nations. These countries have agreed to continue to play a leadership role, while at the same time working with other major emitters like China and Brazil to ensure they also do their bit. Adaptation and climate finance Some developing countries, from Africa to lowlying Pacific Islands, are already being impacted by significant climate change impacts. Poor developing countries are less able to deal with the ravages of more severe weather and failing crops. Development resources are also stretched as nations seek to drag their populations out of poverty. For this reason, climate adaptation and finance has long been a major part of the negotiations. Richer countries and investors should help the poorest nations to curb pollution and adapt to the impacts of climate change. This in part explains why many countries ranging from those in the EU, to the US, to China are, through various mechanisms, supporting the world s most vulnerable countries to address the challenges climate change presents. Australia has contributed around $800 million to climate finance since 2010, and this will need to be scaled up to play our part in these global efforts. Legal form Whether or not the international agreement is legally binding or not has become a distraction over time. While the core Paris agreement will likely have legal force, it is unlikely that emissions reductions targets will be binding internationally. It is not treaties but domestic action that reduces pollution. The reality is some countries have been very active in recent years despite not being part of a legally binding international agreement. The rest of a country's commitment to climate action is not whether it signs up to a binding commitment but whether it enforces domestic policies to limit pollution, and whether it works with other countries towards the shared goal of <2 C.

5 NOTES 1. Climate Action Tracker, global,, 2. Bureau of Meteorology and CSIRO, State of the Climate 2014, 2014, State-of-the-Climate-2014.aspx 3. The B Team, Open Letter Calls for Bold Climate Action at COP21 in Paris,, 4. Estimates include LULUCF. Emissions intensity numbers are ktco2e/gdp PPP. GDP estimates are extrapolated from IMF projections. Non-Australian emissions data is from the UNFCCC and population projections are based on UN mid-range forecasts. Australian emissions data is from the most recent Australian Government reports. 5. Frankfurt School-UNEP Centre and Bloomberg New Energy Finance, Global Trends in Renewable Energy Investment,, 6. Bureau of Meteorology and CSIRO, op cit. 7. G. Pearman, Climate Change Risk in Australia Under Alternative Emissions Futures. Report, 2008, prepared by Graeme Pearman Consulting Pty Ltd for the Australian Government. 8. P. Christoff (eds), Four degrees of global warming: Australia in a hot world, 2014, Routledge, New York. 9. Climate Action Tracker, ibid. 10. International Energy Agency, World Energy Investment Outlook, 2014, OECD/IEA, Paris freepublications/publication/weio2014.pdf 11. Climate Action Tracker, Tracking INDCs,, CLIMATE ACTION NEEDED Creating change takes leadership. We need people to lead: individuals, communities, investors and business leaders. We need people from all walks of life to step forward and join us as leaders of change. To support us please visit The Climate Institute is Australia's leading climate policy and advocacy specialist. Backed primarily through philanthropic funding, the Institute has been making solutions to climate change possible, through evidence based advocacy and research, since We have bold and ambitious goals. But we have a track record of getting difficult things done through our strategic partnerships as well as our research. Global Climate Leadership Review was prepared by Prue Pickering with input from Erwin Jackson and Kristina Stefanova. The Climate Institute Level 15/179 Elizabeth Street Sydney NSW 2000, Australia To keep track of global climate action developments, visit The Climate Institute's interactive map at Key imagery in this report is by Michael Hall. Design by The Climate Institute + Platform by Glider Printed on Carbon Neutral, FSC Certified 100% Recycled Paper