Policy Pulse - George Anjaparidze and Vicente Paolo Yu - 8 November 2020
Key points:
November 4, 2020 is the day US withdrawal from the Paris Agreement on climate change took effect.
However, the election of Joe Biden has radically changed the policy outlook and paves the way for a significant overhaul in the US approach on international climate policy.[1]
Joe Biden has an opportunity to greatly strengthen the multilateral effort to address the climate challenge by taking the following steps:
Renew US climate targets under the Paris Agreement while at the same time increase the level of ambition beyond past pledges.
Uphold US commitments to the Green Climate Fund by honoring past pledges and scale-up support, with $14 billion in new contributions from the US.
Boost funding for research, development, and demonstration (RD&D) and encourage a “race to the top” between global players.
End subsidies for fossil fuels to accelerate transition towards clean energy.
Table: Key elements for achieving Biden ambition and restoring US credibility
1. Renewal of US climate targets under the Paris Agreement and adoption of more ambitious climate actions, were part of Joe Biden’s campaign promises (see chart 1).
The US intended nationally determined contribution (NDC) under the Paris Agreement came under heavy criticism from analysts, such as Climate Action Tracker, for being “critically insufficient” and lacking ambition.[2] Despite the Trump administration decision to withdraw the US from the Paris Agreement, US emissions have broadly been in-line with the trajectory needed to achieve its NDC target of 17% reduction by 2020 from 2005 levels.[3] Achieving this trajectory was largely made possible because of an increase in the use of natural gas and a decrease in the use of coal. Between 2015 and 2019, energy output using natural gas increased by about 13% while energy output using coal decreased by about 26%.[4] Furthermore, the impact of the COVID-19 shock, will likely mean that the US will outperform its 2020 emissions target.[5] However, climate targets and supportive policies will likely play an increasingly important role for achieving emission reductions after 2020.
Biden promised to recommit the United States to the Paris Agreement, which implies a renewal of the US intended nationally determined contribution (NDC) – a target to reduce greenhouse gas emissions by up to 28% by 2025 from 2005 levels. The US does not intend to use international carbon crediting mechanisms to achieve its 2025 target but may consider this as an option for scaling-up climate action in the context of reaching future targets.
The Biden Plan includes a major diplomatic push to raise the ambition of global climate targets, which could start by updating the US NDC to include a 2030 target. Other aims are for the US to have net-zero emissions no later than 2050. This implies an emission trajectory where the US achieves about a 42% reduction in greenhouse gas emissions by 2030 from 2005 levels.
Having the US return to the Paris Agreement and constructively support its effective implementation, as part of the multilateral climate framework under the UNFCCC, will greatly strengthen the multilateral effort to address the climate challenge. Since 2009, the US played a major role in shifting the international focus away from the top-down international framework of the Kyoto Protocol to a bottom-up, pledge and review system, of the Paris Agreement.
Chart 1: US return to Paris Agreement and Biden Plan set path to net-zero emissions
2. Upholding US commitments to Green Climate Fund by honoring past pledges and further scaling-up international support can serve as meaningful steps towards rebuilding trust with the international community (see chart 2).
The US is the only developed country and member of OECD that has not submitted its seventh national communication to the UNFCCC secretariat. This makes it particularly difficult to assess recent climate finance flows from the US. In the absence of official data, this policy brief focuses on US contributions to the Green Climate Fund (GCF), a multilateral fund set up specifically to support climate action in developing countries.
Under the Trump administration, the US has not honored previously confirmed climate finance pledges, which were made by the Obama administration during the initial resource mobilization of the GCF. Out of the $3 billion in confirmed pledges, only $1 billion was contributed, meaning that effectively the US defaulted on $2 billion of confirmed pledges.
Subsequently, as part of the next replenishment cycle of the GCF, most donors doubled their pledges on top of those that were made during the initial resource mobilization. Meaning, in the case of the US, it would have meant pledging an additional $6 billion to the replenishment. However, the US did not make any pledge.
To bridge the shortfall of past contributions, the US should immediately contribute $8 billion to the GCF ($2 billion to make up for the default on past pledges plus $6 billion to match the median donor contribution to the fund replenishment). However, if the Biden administration is serious about its campaign promise to raise the level of ambition in international climate policy, it should increase this contribution even further. A further immediate increase of $6 billion (a contribution of $14 billion in total) would serve as a meaningful confidence building measure and signal serious intentions to the international community.
However, the US default on climate finance pledges has also increased the need for more predictable climate finance flows. International public finance plays an important role in crowding-in private capital and leveraging resources needed to support climate investments. Therefore, even a relatively small shortfall in international public finance can have ripple consequence for overall climate flows. In response, developed countries may introduce proposals that target generation of revenues at the international level (for example: financial transaction tax, global carbon tax, international air passenger levy, etc.) so as to improve predictability of international public finance. However, such measures are still controversial for many developing countries, and will require further multilateral discourse in order to ensure that they avoid any adverse economic and social consequences on developing countries.
Chart 2: Biden can bridge the shortfall in US leadership by supporting Green Climate Fund
3. Research, development, and demonstration funding for clean energy will get a boost as the Biden Plan and his personal track record (especially involvement in Recovery Act) point to a favorable outlook (see chart 3).
The Biden Plan recognizes the important role that RD&D plays in energy policy. In addition to scaling-up financial support for RD&D, the plan intends to put in place an institutional structure conducive for supporting game-changing technologies. The plan includes establishing a cross-agency focused on climate technology innovation.
In 2019, budget available for energy RD&D spending was $7.7 billion, which is an increase compared to mid-1990s and early 2000s. However, as a share of GDP, current spending is significantly below the levels observed between mid-1970s and early-1990s, where a combination of energy security concerns and oil price shocks boosted budgets for energy RD&D.
The Obama administration helped usher in increased support for energy RD&D, notably through provisions in the Recovery Act, a stimulus plan in response to the impacts of the Global Financial Crisis. Congressional appropriations have continued to support RD&D spending even though the Trump administration has proposed drastic cuts of more than 60% to clean energy RD&D every year in budget requests to Congress.[6]
There is potential of a “race to the top” between global players. US leadership in combination with international coordination, through initiatives such as Mission Innovation, could also help catalyze a global push for clean energy innovation. China is on track to double government RD&D spending on clean energy from about $4 billion in 2015 to $8 billion in 2020, placing it on par or ahead of the United States.[7]
Chart 3: US spending on energy RD&D can benefit from a boost
4. Ending subsidies for fossil fuels is identified in Joe Biden’s plan as one of the ways to accelerate the transition to clean energy and raise the needed finance to scale-up climate action.
Fossil fuels dominate the world energy supply across all major world regions and country groupings (see chart 4). This global dominance is reinforced through subsidies.
The US has a major opportunity to reduce fossil fuel subsidies. According to the Environment and Energy Study Institute, the United States provides direct and indirect tax subsidies to the fossil fuel industry as a means of encouraging domestic production, with direct subsidies conservatively estimated at about $20 billion per year.[8] Abolishing these subsidies could help reduce US emissions while mobilizing revenues needed to support international climate finance pledges.[9]
Chart 4: Fossil fuels dominate world energy supply with the help of subsidies
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Briefing prepared by:
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[1] Biden Plan for a Clean Energy Revolution and Environmental Justice. 2020. https://joebiden.com/climate-plan/# [2] Climate Action Tracker. Fair Share - USA. https://climateactiontracker.org/countries/usa/fair-share/ [3] The US 2020 target, 17% reduction by 2020 from 2005 levels, was first communicated by the US under the 2010 Cancun Agreements of the UNFCCC. [4] International Energy Agency. World Energy Balances 2020. [5] Climate Action Tracker. USA. https://climateactiontracker.org/countries/usa/ [6] Kelly Sims Gallagher and Laura Diaz Anadon. Database on US DOE Budgets for Energy Research Development, & Demonstration 1978 – 2019. https://sites.tufts.edu/cierp/database-on-u-s-department-of-energy-doe-budgets-for-energy-research-development-demonstration-1978-2019r/ [7] Kelly Sims Gallagher and Zdenka Myslikova. Mission Innovation is mission critical. September 2020. https://www.nature.com/articles/s41560-020-00694-5 [8] Environmental and Energy Study Institute. Fact Sheet: Fossil Fuel Subsidies. July 2019 https://www.eesi.org/papers/view/fact-sheet-fossil-fuel-subsidies-a-closer-look-at-tax-breaks-and-societal-costs [9] The International Monetary Fund (IMF) estimates that in 2015, US fossil fuel subsidies were about $649 billion or about 14% of the global total. These findings diverge from those presented by the Environment and Energy Study Institute because of methodological differences. Specifically, the IMF study is based on a methodology looking at the gap between existing and efficient prices, an approach that incorporates externalities such as (environmental and social costs) as well as other revenue considerations. See IMF study: Global Fossil Fuel Subsidies Remain Large: An Update Based on Country-Level Estimates. May 2019. https://www.imf.org/en/Publications/WP/Issues/2019/05/02/Global-Fossil-Fuel-Subsidies-Remain-Large-An-Update-Based-on-Country-Level-Estimates-46509
About Veritas Global: Our vision is to have a positive impact on the world through truthful advice informed by robust analysis. We are a premier provider of tailored solutions on climate change, international conflict economics and infrastructure.