Nearly 200 countries agreed to a global pact to reduce their emissions and work towards containing climate change to 2 degrees Celsius during the twenty-first session of the Conference of the Parties (COP21) in Paris last December. So what happens next? The Energy Policy Institute at the University of Chicago (EPIC) and Chicago Council on Global Affairs brought together a panel of experts to discuss the implications of the Paris Agreement to an audience of more than 200 on February 1st, 2016.
Wendy Abrams, founder of Cool Globes, gave introductory remarks on the panel moderated by Ed Crooks, US industry and energy editor for the Financial Times. Panelists Paul Bodnar, Ted Brandt, Michael Greenstone, and Derek Walker took questions on the outcome of Paris, and how public policy and private industries can collaborate to achieve the climate targets set by countries.
Bodnar, the White House National Security Council’s senior director for energy and climate change, spoke to the positive outcome COP21 has had for the future of climate change.
“Paris was a very important milestone,” he said. “This is an issue that we’ve been grappling with for a generation and it’s extremely difficult to get these countries to the point where they can agree like they did last December.”
According to Bodnar, though not legally binding, the Paris Agreement included nationally determined pledges submitted by each country that collectively would maintain a climate neutral environment by the second half of the century and keep global warming below 2 degrees Celsius. Bodnar reminded the audience that despite the lack of legal enforcement mechanisms, COP21 resulted in a ‘great enabling machine’ that could guide countries toward a more synchronized implementation plan.
When asked about the complexity of implementing the climate targets, Michael Greenstone, director of EPIC, noted that confronting climate change is actually a simple problem: the cost of fossil fuels should incorporate the cost of damages caused by emissions.
“There should be an even playing field, and that even playing field is that there should be a price or tax on emissions and I don’t think there’s an economist out there that disagrees with that,” Greenstone said.
The real challenge, however, is overcoming the political hurdles to get there, Greenstone noted. For example, while the benefit of reducing emissions could be dispersed across the nation, the cost will focus on particular regions and industries. At the international level, the fairness principle would theoretically raise the cost of energy for developing countries, which could be a hard ask, Greenstone said. But as more and more research proves the detrimental health effects of pollution from fossil fuels, many developing countries have realized the importance of reducing emissions.
“The increasing recognition that the very same fossil fuels causing climate change are causing horrendous air pollution in China and India and that’s impairing people’s lives is an incentive to attack that problem, which could produce a lot of benefits,” Greenstone said.
Derek Walker, associate vice president of global climate at the Environmental Defense Fund, agreed that creating markets is difficult, but important.
“Markets are a great way to transition economies into lower carbon alternatives,” he said. “I think Paris in many was a watershed moment, though we have a long way to go.”
Yet, even new pricing models cannot bring about enough economic change without the concurrent increase in investment, noted Ted Brandt, co-founder and CEO of Marathon Capital, a national investment banking firm focused on the global energy and infrastructure markets.
“When we talk about these countries keeping their commitments, to me the constraint is really about capital,” he said. “Almost always the developing world has a lack of capital and these countries are considered low investment grade, or the utilities are controlled by the government. You simply can’t finance for those in the normal private markets.”
Out of the 190 countries present at COP21, Brandt estimates that 100 countries lack the appropriate business environment and capital-based institutions to support investments in alternative energy sources and emissions reduction plans. Establishing more favorable tax systems for green energy companies and creating more welcoming business environments are non-trivial aspects of achieving the goals of COP21, Brandt said.
Bodnar agreed that moving forward all countries will need good policies to incentivize green energy investment, deeper capital markets, and faster innovation in research and development of the latest renewable technologies. Despite the challenges ahead, Bodnar still remained optimistic about the world’s direction following COP21.
“A clean energy future is not a scary place,” he said. “We are succeeding in decoupling economic growth from carbon emissions that we understand has all of these negative impacts. We should feel confident that as a nation this is a good path to be on.”