“A Climate Accord Based on Global Peer Pressure” – New York Times, 14 December 2014

Last month, almost 200 nations gathered in Lima, Peru to agree on a global pact to reduce fossil fuel emissions, one of the primary causes of climate change. The deal — called the Lima Accord — shows huge progress in global effort to fight the effects of climate change: it’s the first time that these nations will make a unilateral effort to curb the use of oil, gas, and coal.

However, the Lima Accord is not lawfully mandatory. If it were legally binding, then the nearly 200 nations wouldn’t have agreed to the deal — not even the US. Instead, the hope is that global peer pressure will be the impetus to move the accord forward. At this point, every nation has agreed to place limits on its carbon emissions.

According to the accord, each nation will have to introduce carbon-cutting domestic legislation by either March or June. Laws will delineate how each country will curb emissions after 2020. These proposals are known to the UN as “Intended Nationally Determined Contributions,” which will be included in an upcoming climate deal in Paris in 2015.

But because the Lima Accord has no requirements, countries could conceive of feeble plans that wouldn’t drastically combat the effects of climate change. Countries also have the choice of not even offering a plan — and if they don’t submit a plan, there are no fines or retribution.

Again, the accord relies on peer pressure and a method called “name-and-shame.” Each countries’ plan will be posted to the UN’s site as public information. If the countries’ plans are made public and some are found to be weak in comparison, then the shame of such a weakness will hopefully push that country to strengthen its plan.

The biggest worry comes with the top three polluters: the US, China, and India. While President Obama has tried to make climate change a vital element of his second term, his legacy really depends on what happens after his term is over. He has vowed to reduce emissions by at least 28 percent by 2025, which can be attained if tailpipe and power plant emissions regulations are passed. Unfortunately, most Republican White House contenders are staunch opponents of Obama’s climate change policies and likely don’t care about global urgencies.

China has been pushed to seek methods of reducing emissions due to discord among its citizens, as citizens disapproved of China’s worsening air quality. The country has now eclipsed the US as the number one polluter — President Xi Jinping has promised that China’s emissions will spike in 2030 and then fall. In order to ensure that target, the country is enacting a national cap-and-trade structure where polluters will have to purchase greenhouse gas emissions.

Because curbing emissions can be costly, it is a difficult burden for developing nations. India Prime Minister Narendra Modi has cast aside any efforts towards reversing climate change, instead focusing on economic growth and poverty, which could mean building new coal power plants. However, India’s Environment Minister Prakash Javadekar has stated that the country will offer a plan in June.

Other countries that climate change policy observers are following are Russia and Australia. Russian President Vladimir V. Putin doesn’t believe that humans cause climate change, and Australia has phased out its Department of Climate Change, and also revoked a carbon tax.

While we have a majority of the countries on board with the deal, there are a few important strays that will determine whether or not the Lima Accord is indeed productive.

(From New York Times)

Developed and Written by Dr. Subodh Das and Tara Mahadevan

December 15, 2014

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Copyright 2014. All rights Reserved by Phinix, LLC.

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“Unburnable Fuel” – The Economist, 4 May 2013

According to the current market, “the more fossil fuels a firm has underground, the more valuable its shares.” However, some of these reserves might actually be unusable — firms might not be able to dig them up, thus making the firms overvalued.

According to Carbon Tracker, a lot of the carbon would have to remain un-dug. Their analyses is based upon the estimation that the world’s temperature would not increase by more than 2°C from now until 2050. Based upon that estimation, the world’s “carbon budget” til 2050 is 1,000 gigatons (GTCO2).

As reported by IEA, the world’s reserves total 2,860GTCO2, around three times bigger than our carbon budget. Anything more than the estimated 1,000GTCO2 is marked as “unburnable carbon”.

Most of these reserves are owned by government and state energy firms, which could easily enact public policy to leave the fossil fuels in the ground. The rest of the reserves — 762GTCO2 are proven to exist, while 1,541GTCO2 potentially exist — are owned by oil companies and fossil fuel firms who have grown the reserves using investors’ money (i.e. investors who anticipate a monetary return). The best case scenario is that private firms’ proven reserves — the total of 762GTCO2 is within the allotted 1,000GTCO2 range — should be carefully used before 2050, giving more money back to investors. Governments, in turn, should not burn their reserves. This, however, isn’t happening: it seems that private firms are betting against government climate policies, and both governments and firms no longer seek long-term environmental improvements.

This could be fairly accurate, as the European Parliament recently voted against saving the EU’s Emissions Trading System from collapse, which is the EU’s leading environmental policy and the biggest global carbon market.

Energy firms assert that they are embracing green culture by increasing carbon prices for their investors, which is often untrue. The market actually overvalues the firms by assuming that all reserves will be burned, and that they are indicative of future monetary gains. When reserves are consumed, investors demand fossil fuel firms to resupply almost immediately. This is called the reserve replacement ratio, and fossil fuel firms’ ratios are expected to stay above 100%. Share prices decline if the ratio declines.

Carbon Tracker’s report advised that firms should be required to reveal how much carbon they have in their reserves; and firms’ enterprises should fall in line with international emission goals. Yet, none of this matters until the world takes serious steps to get ahead of climate change.

See my other entries:
Europe’s Emissions Plan Hits Turbulence
EPA Plans to Require New Standards on Gas
States Cooling to Renewable Energy
Utah Cracks Down on Smog
On Climate Change, Some Arguments Shift

Developed and Written by Dr. Subodh Das and Tara Mahadevan

May 24, 2013

Phinix LLC

Copyright 2013. All rights Reserved by Phinix, LLC.

www.phinix.net    skdas@phinix.net

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