The changing geopolitics of climate change finance

Funding for climate change efforts in developing countries is firmly established in the Articles of the United Nations Framework Convention on Climate Change (UNFCCC). Since the early days of the climate change negotiations, finance has been a key focus of attention and, often, a principal source of tension between developed and developing countries. Understandably, these tensions have led to numerous efforts to reform the financial mechanism of the UNFCCC. The history of reforms of the Global Environment Facility – for some time the only operating entity of the financial mechanism – and the recent establishment of the Green Climate Fund are good examples of such efforts. It is asked here whether these efforts have been sufficient to keep pace with a rapidly changing, more complex and radically different world from that of 1992 when the UNFCCC was signed by most countries in Rio de Janeiro. On the 21st anniversary of the signing of the UNFCCC, the effects that global transformations have had on climate change finance are here explored, and some of the new challenges, as well as emerging opportunities, resulting from the new landscape of climate finance that has emerged as a result are described.

Policy relevance

The climate change negotiations are entering a critical period. The issue of finance is one of the key pillars on which the success of a new deal on a binding agreement depends. A better understanding of the increasing complexity of the climate finance landscape is essential. The world of climate finance and the geopolitics in which it operates have been significantly transformed since the signing of the UNFCCC. A better understanding of this transformation would help policy makers and negotiators find more effective and realistic ways to help unleash the immense amount of financial resources that could potentially be made available for the great challenge that many countries face to address climate change. The need for up-front and significantly scaled-up investments requires effective mechanisms that can leverage and encourage investments into areas where they are most needed to face the challenge of climate change. The role of the Green Climate Fund will be critical in this regard.     

Funding low carbon cities: local perspectives on opportunities and risks

There are compelling reasons for policy makers to be interested in the low-carbon agenda. More than half of the world's population lives in, and more than half of the world's economic output comes from, cities. Up to 70% of global carbon emissions can also be attributed to consumption that takes place in cities. Recent research has shown that cost-effective investments in low-carbon options could deliver a 40% reduction in GHG emissions from cities by 2020, while also providing wider economic benefits such as enhanced competitiveness and increased employment. As yet, however, investments in low-carbon cities have not been made at scale due mainly to the scale of the finance required, local government budgetary constraints, and perceptions about their costs and benefits. With a focus on the UK, a contemporary account is provided of what local authorities see as the major financial risks associated with funding low-carbon cities. Practical proposals – which also have more general relevance to the future financing of low-carbon cities around the world – are offered on how local authorities, in conjunction with central government, the private sector, and institutional investors, can effectively manage these risks.

Policy relevance

Cities house more than half of the world's population, generate more than half of the world's economic output, and produce between 40% and 70% of all anthropogenic GHG emissions. In the UK, 70% of such emissions are under the influence of its local authorities. Thus, one of the key public policy challenges for the low-carbon transition is how it should be financed. There are several obstacles and related risks to this transition, including financial and legal obstacles and the differing views and perceptions of stakeholders. These can be attenuated, somewhat, by national government support at scale, local authority leadership, and cooperation between other authorities and the private sector, and the development of tools and guidance to reduce transaction costs.     

Escaping the climate policy uncertainty trap: options contracts for REDD+

Climate policy uncertainty significantly hinders investments in low-carbon technologies, and the global community is behind schedule to curb carbon emissions. Strong actions will be necessary to limit the increase in global temperatures, and continued delays create risks of escalating climate change damages and future policy costs. These risks are system-wide, long-term and large-scale and thus hard to diversify across firms. Because of its unique scale, cost structure and near-term availability, Reducing Emissions from Deforestation and forest Degradation in developing countries (REDD+) has significant potential to help manage climate policy risks and facilitate the transition to lower greenhouse gas emissions. ‘Call’ options contracts in the form of the right but not the obligation to buy high-quality emissions reduction credits from jurisdictional REDD+ programmes at a predetermined price per ton of CO₂ could help unlock this potential despite the current lack of carbon markets that accept REDD+ for compliance. This approach could provide a globally important cost-containment mechanism and insurance for firms against higher future carbon prices, while channelling finance to avoid deforestation until policy uncertainties decline and carbon markets scale up.

Key policy insights

• Climate policy uncertainty discourages abatement investments, exposing firms to an escalating systemic risk of future rapid increases in emission control expenditures.

• This situation poses a risk of an abatement ‘short squeeze,’ paralleling the case in financial markets when prices jump sharply as investors rush to square accounts on an investment they have sold ‘short’, one they have bet against and promised to repay later in anticipation of falling prices.

• There is likely to be a willingness to pay for mechanisms that hedge the risks of abruptly rising carbon prices, in particular for ‘call’ options, the right but not the obligation to buy high-quality emissions reduction credits at a predetermined price, due to the significantly lower upfront capital expenditure compared to other hedging alternatives.

• Establishing rules as soon as possible for compliance market acceptance of high-quality emissions reductions credits from REDD+ would facilitate REDD+ transactions, including via options-based contracts, which could help fill the gap of uncertain climate policies in the short and medium term.

     

From Lima to Paris,Part 1: The Lima Hangover

A growing body of literature suggests that an economic case may exist for investment in large-scale climate change mitigation. At the same time, however, investment is persistently falling well short of the levels required to prevent dangerous climate change, suggesting that economically attractive mitigation opportunities are being missed. To understand whether and where these opportunities exist, this article contrasts macro-level analyses of climate finance with micro-level bottom-up analyses of the scale and composition of low-carbon investment opportunities in four case study developing world cities. This analysis finds that there are significant opportunities to redirect existing finance streams towards more cost-effective, lower-carbon options. This would mobilize substantial new investment in climate mitigation. Two key explanations are proposed for the failure to exploit these opportunities. First, the composition of cost-effective measures is highly context-specific, varying from place to place and sector to sector. Macro-level analyses of climate finance flows are therefore poor indicators of the micro-level landscape for low-carbon investment. Specific local research is therefore needed to understand the opportunities for cost-effective mitigation at that level. Second, many opportunities require enabling governance arrangements that are not currently in place. Mobilizing new low-carbon investment and closing the ‘climate finance gap' therefore requires attention to policy frameworks and financing mechanisms that can facilitate the exploitation of cost-effective low-carbon options.

Policy relevance

The importance of increasing investment in climate mitigation, especially in developing nations, is well established. This article scrutinizes four city-level studies of the scope for cost-effective low-carbon investment, and finds that significant opportunities are not being exploited in developing world cities. Enabling governance structures may help to mainstream climate considerations into investments by local actors (households, businesses and government agencies). While climate finance distributed through international bodies such as the Green Climate Fund may not always be a suitable vehicle to invest directly in disaggregated, local-level measures, it can provide the incentives to develop these governance arrangements.     

What role for climate negotiations on technology transfer?

Little progress has been made in climate negotiations on technology since 1992. Yet the diffusion of climate change mitigation technologies to developing countries (non-Annex I) has increased dramatically over the last twenty years. The shift has mostly concerned emerging economies, which are now reasonably well connected to international technology flows. This is good news, as the bulk of emissions increases are expected to take place in these countries in the near future. In contrast, the least developed countries still appear to be excluded from international technology flows, mostly because of their negligible participation in the recent economic globalization. This article focuses on the policy implications of the contribution of climate negotiations to international technology diffusion.

Policy relevance

The discrepancy between the small amount of progress made in climate negotiations on technology since 1992 and the steady increase in the international diffusion of climate mitigation technologies leads to the perhaps controversial view that the diffusion of climate mitigation technologies does not need strong international coordination over technology issues under the UNFCCC. However, climate negotiations can play a key role in stimulating the demand for low-carbon technologies by setting ambitious emission reductions targets and policies.     

Proposal for a poverty-adaptation-mitigation window within the Green Climate Fund

The stakes for alleviating poverty and avoiding unbridled climate change are inextricably linked. Climate change impacts will slow down and may even reverse trends in poverty reduction. The pathways consistent with global warming of no more than 2?°C require strategies for poverty alleviation to make allowance for the constraint of low-carbon development. Existing climate funds have failed to target poverty alleviation as a high-priority strategy for adaptation or as a component of low-carbon development. This article proposes a funding window as part of the Green Climate Fund in order to foster synergies targeting greater satisfaction of basic needs, while making allowance for adaptation and mitigation. This financial mechanism is based on indicators of the satisfaction of basic needs and could respond to the claims of the developing countries, which see alleviating poverty as the first priority in climate negotiations. It defines a country continuum, given that there are poor people everywhere; all developing countries are therefore eligible with a mechanism of this sort.

Policy relevance

The Intergovernmental Panel on Climate Change (IPCC) calls for substantial emissions reductions and adaptation strategies over the next decades to reduce the high risks of severe impacts of climate change over the 21st century. Industrialized countries and developing countries alike recognize the need to mitigate climate change and to adapt to it. But they face many challenges that lead to an ‘emissions gap’ between an emissions level consistent with the 2?°C increase limit and the voluntary pledges that they have made thus far in the climate negotiations (United Nations Environment Programme. (2014). The Emissions Gap Report 2014. A UNEP synthesis report). In this arena, many developing countries underline that their first domestic priority is the satisfaction of basic needs. In the run-up to the next climate negotiations at the 21st Conference of the Parties (COP 21) in Paris, the proposed poverty-adaptation-mitigation funding window could contribute to alleviate the conflict between development and climate goals in developing countries. In this sense, it could spur developing countries to integrate more ambitious emissions limitations pledges into their Intended Nationally Determined Contributions. This could in turn entice industrialized countries to act similarly. In the end, it could pave the way to an ambitious climate agreement in Paris at COP 21.     

Encouraging clean energy investment in developing countries: what role for aid?

A large portion of foreign assistance for climate change mitigation in developing countries is directed to clean energy facilities. To support international mitigation goals, however, donors must make investments that have effects beyond individual facilities. They must reduce barriers to private-sector investment by generating information for developers, improving relevant infrastructure, or changing policies. We examine whether donor agencies target financing for commercial-scale wind and solar facilities to countries where private investment in clean energy is limited and whether donor investments lead to more private investments. On average, we find no positive evidence for these patterns of targeting and impact. Coupled with model results that show feed-in tariffs increase private investment, we argue that donor agencies should reallocate resources to improve policies that promote private investment in developing countries, rather than finance individual clean energy facilities.

Policy relevance

We suggest that international negotiations could usefully shift the focus of climate change finance towards adaptation in exchange for mitigation-improving policy reforms in developing countries. There is little evidence that mitigation-related financing is having broader effects on energy production, so new financial arrangements should be the focus of future negotiations. Additionally, international donors should focus efforts on reforming policies to attract private investment.     

The cost of achieving South Africa’s ‘fair share’ of global climate change mitigation

Global climate change mitigation action is hampered by systematic under-assessment of national ‘fair shares’, largely on the basis of perceived national interests. This paper aims to inform discussions centred on South Africa’s nationally determined contribution (NDC) by estimating (1) emissions reduction pathways for the country using the Climate Equity Reference Calculator (CERC) assuming a maximum 2°C aggregate warming target and (2) the likely economy-wide net mitigation costs or savings associated with reaching these pathways if known lower-cost mitigation measures, identified through the national mitigation potential analysis, are prioritised. The cumulative net savings associated with achieving the CERC ‘fair share’ emissions pathway, assuming the moderate use of low carbon power generation measures, would reach $5.3 billion by 2030. Net savings could be substantially greater reaching $46.8 billion by 2030 assuming power generation focuses on moving towards full decarbonisation. An unconditional commitment to the mitigation action implied by the ‘fair share’ emissions pathway therefore seems reasonable and prudent purely from the point of view of net country-wide savings. Only if power generation moves towards full decarbonisation would there be a reasonable chance of achieving the more ambitious CERC domestic emissions pathway. However, the significant additional cost associated with achieving the domestic emissions pathway should be conditional on international assistance.

Key policy insights

• South Africa can only achieve its ‘fair share’ of the global mitigation effort if greater use is made of renewable energy options, and can realise significant net savings if it does so.

• Further emissions reductions would incur costs and require significant upscaling of the share of renewable energy and full implementation of all non-power generation mitigation measures available.

• Committing to this further mitigation action contingent on international finance would both strengthen the nation’s position in climate negotiations and support the provision of finance for those vulnerable developing nations that bear little or no responsibility for climate change.

     

China's role in attaining the global 2°C target

In the recent climate change negotiations it was declared that the increase in global temperature should be kept below 2°C by 2100, relative to pre-industrial levels. China's CO₂ emissions from energy and cement processes already account for nearly 24% of global emissions, a trend that is expected to keep increasing. Thus the role of China in global GHG mitigation is crucial. A scenario analysis of China's CO₂ emissions is presented here and the feasibility of China reaching a low-carbon scenario is discussed. The results suggest that recent and continued technological progress will make it possible for China to limit its CO₂ emissions and for these emissions to peak before 2025 and therefore that the global 2°C target can be achieved.

Policy relevance

In signing the Copenhagen Accord, China agreed to the global 2°C target. Results from this article could be used to justify low-carbon development policies and negotiations. While many still doubt the feasibility of a low-carbon pathway to support the global 2°C target, the results suggest that such a pathway can be realistically achieved. This conclusion should increase confidence and guide the policy framework further to make possible China's low-carbon development. Related policies and measures, such as renewable energy development, energy efficiency, economic structure optimization, technology innovation, low-carbon investment, and carbon capture and storage (CCS) development, should be further enhanced. Furthermore, China can play a larger role in the international negotiations process. In the global context, the 2°C target could be reaffirmed and a global regime on an emissions mitigation protocol could be framed with countries’ emissions target up to 2050.     

United States non-cooperation and the Paris agreement

In June 2017, the Trump administration decided to withdraw the US from the Paris Agreement, a landmark climate agreement adopted in 2015 by 195 nations. The exit of the US has not just raised concern that the US will miss its domestic emission reduction targets, but also that other parties to the Paris Agreement might backtrack on their initial pledges regarding emission reductions or financial contributions. Here we assess the magnitude of the threat that US non-cooperation poses to the Paris Agreement from an international relations perspective. We argue that US non-cooperation does not fundamentally alter US emissions, which are unlikely to rise even in the absence of new federal climate policies. Nor does it undermine nationally determined contributions under pledge and review, as the Paris Agreement has introduced a new logic of domestically driven climate policies and the cost of low-carbon technologies keeps falling. However, US non-participation in raising climate finance could raise high barriers to global climate cooperation in the future. Political strategies to mitigate these threats include direct engagement by climate leaders such as the European Union with key emerging economies, notably China and India, and domestic climate policies that furnish benefits to traditional opponents of ambitious climate policy.

Key policy insights

• US non-cooperation need not be a major threat to pledge and review under the Paris Agreement.

• US non-cooperation is a serious threat to climate finance.

• Deeper engagement with emerging economies offers new opportunities for global climate policy.

     

Carbon tariffs for financing clean development

In order to address carbon leakage and preserve the competitiveness of domestic industries, some industrialized Annex I countries have proposed to implement carbon tariffs. These tariffs would be levied on energy-intensive imports from developing non-Annex I countries that have not agreed to binding emissions reductions. This action could have detrimental welfare impacts, especially on those developing countries, and may not lead to significant reductions in leakage. A recent proposal is to use the revenues generated from carbon tariffs to finance clean development in the relevant exporting non-Annex I countries. This proposal is evaluated using an energy-economic model of the global economy. The model is supplemented by marginal abatement cost curves and bottom-up information on abatement potentials in order to represent how clean development financing affects emissions reductions. The results indicate that carbon tariffs could raise US$3.5–24.5 billion (with a central value of $9.8 billion) for clean development financing. This could reduce the emissions of non-Annex I countries by 5–15% and still leave funds available for other purposes, such as adaptation. Furthermore, recycling the revenues generated from carbon tariffs back to the exporting country itself could alleviate some of the negative welfare impacts associated with them. However, a net negative impact especially on the welfare and gross domestic product of developing countries would remain.     

The global carbon market-mechanism landscape: pre and post 2020 perspectives

With market-mechanisms likely to achieve emission reductions at lower cost than alternative approaches, there is a presumption that they will be embraced by those who are serious about achieving ambitious reductions. Two broad messages exist; there is already considerable activity and some ambition in many parts of the world – a fragmented but embryonic ‘global’ trading landscape is emerging – and there are efforts at UN level to provide a unifying framework for these bottom-up developments. The topography of interest and response varies considerably across groups of countries, and there have been delays in making progress on a unifying framework. This article analyses the current carbon market landscape in terms of market dynamics and market-mechanism developments whilst undertaking an examination of how climate change negotiations under the United Nations Framework Convention on Climate Change (UNFCCC) is shaping the future carbon market landscape. This work shows that the combination of existing, emerging, and potential carbon market-mechanisms can be regarded as an emerging pre-2020 fragmented ‘global’ carbon market landscape based on differing bottom-up market based approaches. One outcome of a 2015 Climate Agreement could be a post-2020 global carbon market which would include new domestic and international market initiatives such as the Framework for Various Approaches and New Market Mechanism, together with reformed Kyoto mechanisms.

Policy relevance

With the 2015 Agreement under the United Nations Framework Convention on Climate Change (UNFCCC) expected to see Parties commit to ambitious mitigation commitments, post-2020 could see significant Party (& industry) investment in market-mechanisms and associated emissions units in an effort to achieve some of the abatement cost minimization offered by market approaches. This article is written for those who have an interest in understanding what is happening – and what is not happening – as regards the emergence of market-related approaches to GHG mitigation globally in the run up to the 21st Conference of the Parties (COP) of the UNFCCC which meets in Paris in December 2015, and what could be the shape of things to come post-2020.     

A low-carbon society: global visions,pathways, and challenges

The feasibility of two low-carbon society (LCS) scenarios, one with and one without nuclear power and carbon capture and storage (CCS), is evaluated using the AIM/Enduse[Global] model. Both scenarios suggest that achieving a 50% emissions reduction target (relative to 1990 levels) by 2050 is technically feasible if locally suited technologies are introduced and the relevant policies, including necessary financial transfers, are appropriately implemented. In the scenario that includes nuclear and CCS options, it will be vital to consider the risks and acceptance of these technologies. In the scenario without these technologies, the challenge will be how to reduce energy service demand. In both scenarios, the estimated investment costs will be higher in non-Annex I countries than in Annex I countries. Finally, the enhancement of capacity building to support the deployment of locally suited technologies will be central to achieving an LCS.

Policy relevance

Policies to reduce GHG emissions up to 2050 are critical if the long-term target of stabilizing the climate is to be achieved. From a policy perspective, the cost and social acceptability of the policy used to reduce emissions are two of the key factors in determining the optimal pathways to achieve this. However, the nuclear accident at Fukushima highlighted the risk of depending on large-scale technologies for the provision of energy and has led to a backlash against the use of nuclear technology. It is found that if nuclear and CCS are used it will be technically feasible to halve GHG emissions by 2050, although very costly. However, although the cost of halving emissions will be about the same if neither nuclear nor CCS is used, a 50% reduction in emissions reduction will not be achievable unless the demand for energy service is substantially reduced.     

Landscape for change? International climate policy and energy transitions: evidence from sub-Saharan Africa

What is the role of the climate regime in facilitating rapid decarbonization of the world’s energy systems? We examine how core assumptions concerning the roles of the nation state, carbon markets and finance and technology in international climate policy are being challenged by the realities of how transitions in the energy systems are unfolding. Drawing on the critical region of sub-Saharan Africa, we examine the potential for international climate policy to foster new trajectories towards decarbonization.

Policy relevance

The international regime for climate policy has been in place for some twenty years. Despite significant changes in the landscape of energy systems and drivers of global GHG emissions over this time, the core principles and tools remain relatively stable – national governments, carbon markets, project-based climate finance and the transfer of technological hardware. Given the diversity of actors and drivers and the limited direct reach and influence of international climate policy, however, there is an urgent need to consider how the climate regime can best support the embryonic transitions that are slowly taking form around the world. To do this effectively requires a more nuanced understanding of the role of the state in governing these transitions beyond the notion of a cohesive state serving as rule-enforcer and transition manager. It also requires a broader view of technology, not just as hardware that is transferred, but as a set of practices and networks of expertise and enabling actors. Likewise, though markets have an important role to play as vehicles for achieving broader ends, they are not an end in themselves. Finally on finance, while acknowledging the important role of climate aid, often as a multiplier or facilitator of more ambitious private flows, it is critical to differentiate between the types of finance required for different transitions, many of which will not be counted under, or directed by, the climate regime. In sum, the (low-) carbon economy is being built in ways and in numerous sites that the climate regime needs to be cognizant of and engage with productively, and this may require fundamental reconsideration of the building blocks of the international climate regime.     

Delivering the two degree global climate change target using a flexible ratchet framework

Global climate negotiations have been characterized by a divide between developed and developing nations – a split which has served as a persistent barrier to international agreement within the United Nations Framework Convention on Climate Change process. Notable progress in bridging this division was achieved at the 21st Conference of the Parties meeting in Paris through the introduction of Intended Nationally Determined Contributions (INDCs). However, the collective ambition of submitted INDCs falls short of a global 2°C target, requiring an effective ratchet mechanism to review and increase national commitments. Inequitable distribution of additional responsibilities risks re-opening historic divisions between parties. This article presents a flexible ratchet framework which shares mitigation commitments on the basis of per capita equity in line with emerging requirements for a 2°C target. The framework has been designed through convergence between developed and developing nations; developed nation targets are based on an agreed standardized percentage reduction wherever emissions are above per capita equity; developing nations are required to peak emissions at or below per capita equity levels by an agreed convergence date. The proposed framework has the flexibility to be integrated with current INDCs and to evolve in line with shifting estimates of climate sensitivity.

Policy relevance

The outcome of the 21st Conference of the Parties (COP21) negotiations in Paris offered mixed results in terms of level of ambition and submitted national commitments. A global agreement to keep average global temperature rise below two degrees was maintained; however, current pledged Intended Nationally Determined Contributions (INDCs) are projected to result in an average warming of close to three degrees. The implementation of a global ratchet mechanism to scale-up national commitments will remain key to closing this ambition gap to reach this two degree target. How this upscaling of responsibility is shared between parties will be a defining discussion point within future negotiations. This study presents a standardized, equity-based framework for how this ratchet mechanism can be implemented – a framework designed to be flexible for evolution in line with better understanding of climate sensitivity, and adaptable for integrations with current INDC proposals.     

Modelling innovation and the macroeconomics of low-carbon transitions: theory,perspectives and practical use

Energy and climate policies may have significant economy-wide impacts, which are regularly assessed based on quantitative energy-environment-economy models. These tend to vary in their conclusions on the scale and direction of the likely macroeconomic impacts of a low-carbon transition. This paper traces the characteristic discrepancies in models’ outcomes to their origins in different macro-economic theories, most importantly their treatment of technological innovation and finance. We comprehensively analyse the relevant branches of macro-innovation theory and group them into two classes: ‘Equilibrium’ and ‘Non-equilibrium’. While both approaches are rigorous and self-consistent, they frequently yield opposite conclusions for the economic impacts of low-carbon policies. We show that model outcomes are mainly determined by their representations of monetary and finance dimensions, and their interactions with investment, innovation and technological change. Improving these in all modelling approaches is crucial for strengthening the evidence base for policy making and gaining a more consistent picture of the macroeconomic impacts of achieving emissions reductions objectives. The paper contributes towards the ongoing effort of enhancing the transparency and understanding of sophisticated model mechanisms applied to energy and climate policy analysis. It helps tackle the overall ‘black box’ critique, much-cited in policy circles and elsewhere.

Key policy insights

• Quantitative models commissioned by policy-makers to assess the macroeconomic impacts of climate policy generate contradictory outcomes and interpretations.

• The source of the differences in model outcomes originates primarily from assumptions on the workings of the financial sector and the nature of money, and of how these interact with processes of low-carbon energy innovation and technological change.

• Representations of innovation and technological change are incomplete in energy-economy-environment models, leading to limitations in the assessment of the impacts of climate-related policies.

• All modelling studies should state clearly their underpinning theoretical school and their treatment of finance and innovation.

• A strong recommendation is given for modellers of energy-economy systems to improve their representations of money and finance.

     

Evaluating the US Mid-Century Strategy for Deep Decarbonization amidst early century uncertainty

The recent change in US presidential administrations has introduced significant uncertainty about both domestic and international policy support for continued reductions in GHG emissions. This brief analysis estimates the potential climate ramifications of changing US leadership, contrasting the Mid-Century Strategy for Deep Decarbonization (MCS) released under the Obama Administration, with campaign statements, early executive actions, and prevailing market conditions to estimate potential emission pathways under the Trump Administration. The analysis highlights areas where GHG reductions are less robust to changing policy conditions, and offers brief recommendations for addressing emissions in the interim. It specifically finds that continued reductions in the electricity sector are less vulnerable to changes in federal policy than those in the built environment and land use sectors. Given the long-lived nature of investments in these latter two sectors, however, opportunities for near-term climate action by willing cities, states, private landowners, and non-profit organizations warrant renewed attention in this time of climate uncertainty.

Key policy insights

• The recent US presidential election has already impacted mitigation goals and practices, injecting considerable uncertainty into domestic and international efforts to address climate change.

• A strategic assessment issued in the final days of the Obama Administration for how to reach long-term climate mitigation objectives provides a baseline from which to gauge potential changes under the Trump Administration.

• Though market trends may continue to foster emission declines in the energy sector, emission reductions in the land use sector and the built environment are subject to considerable uncertainty.

• Regardless of actions to scale back climate mitigation efforts, US emissions are likely to be flat in the coming years. Assuming that emissions remain constant under President Trump and that reductions resume afterwards to meet the Obama Administration mid-century targets in 2050, this near-term pause in reductions yields a difference in total emissions equivalent to 0.3–0.6 years of additional global greenhouse gas emissions, depending on the number of terms served by a Trump Administration.

     

Global climate policy: will cities lead the way?

While the Conference of the Parties wrangle at an international scale with climate policy, a quiet set of policies and measures is being implemented at a local scale by municipalities across the globe. This study examines the motivation municipalities have for undertaking policies to reduce their greenhouse gas emissions, when the theory of free-riding would predict that local administrations should find it difficult to unilaterally reduce their emissions for the benefit of the global climate. Through interviews with officials and/or staff in 23 municipalities in the United States enacting climate policy, data are gathered that suggest local government abatement policies are primarily a top–down decision based on what officials or staff members believe to be “good business” or rational policy choices. They are primarily driven by the potential for realised or perceived cost savings and co-benefits rather than by public pressure. Economic data from some dozen municipal projects are analyzed, finding, while municipalities lack sophisticated accounting techniques, some justification for the often-disputed claim that at least initial reductions in emissions can be made at cost savings. In the United States, with the lack of national abatement policies, it is municipalities that are leading the way in beginning to implement mitigation strategies, even if only for initial reductions.     

EU 20-20-20 energy policy as a model for global climate mitigation

The EU has established an aggressive portfolio with explicit near-term targets for 2020 – to reduce GHG emissions by 20%, rising to 30% if the conditions are right, to increase the share of renewable energy to 20%, and to make a 20% improvement in energy efficiency – intended to be the first step in a long-term strategy to limit climate forcing. The effectiveness and cost of extending these measures in time are considered along with the ambition and propagation to the rest of the world. Numerical results are reported and analysed for the contribution of the portfolio's various elements through a set of sensitivity experiments. It is found that the hypothetical programme leads to very substantial reductions in GHG emissions, dramatic increases in use of electricity, and substantial changes in land-use including reduced deforestation, but at the expense of higher food prices. The GHG emissions reductions are driven primarily by the direct limits. Although the carbon price is lower under the hypothetical protocol than it would be under the emissions cap alone, the economic cost of the portfolio is higher, between 13% and 22%.     

Economic instruments for mitigating carbon emissions: scaling up carbon finance in China’s buildings sector

The relevance and cost-effectiveness are key criteria for policymakers to select appropriate policy and economic instruments for reducing carbon emissions. Here we assess the applicability of carbon finance instruments for the improvement in building energy efficiency by adopting the high efficiency standards as well as advanced energy supply systems, building on a case study in a northern city in China. We find that upgrading the current Chinese BEE standard to one of the best practices in the world coupled with the state-of-the-art energy supply system implies an abatement cost at 16US$/tCO₂, which is compatible with the international carbon market price. The institutional reorganization turns out to be indispensable to facilitate the implementation of the proposed scheme of local government-led energy efficiency programme in the form of programmatic CDM in China’s buildings sector. We show that with international support such as carbon finance, the BEE improvement will facilitate city’s transition to low-carbon supply in the longer term. More importantly, it is argued that demand-side energy performance improvement in buildings should be considered a prerequisite to shifting low-carbon energy supply technologies such as fuel-switching, renewable power generation and Carbon Capture and Storage to address climate mitigation in light of cost-effectiveness and environmental integrity.