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Why a Mechanism to Increase Countries’ Climate Ambition over Time Makes Good Economic Sense

In advance of the historic climate meetings in Paris this month, more than 180 countries put forward their Intended Nationally Determined Contributions (INDCs) reflecting the climate targets they commit to reaching by 2025 or 2030. Many of these INDCs are ambitious, but we know that they are also not yet enough. Various assessments suggest that the INDCs collectively put us on a path to keep average global temperature rise to 2.7-3.7 degrees C (4.9-6.7 degrees F). This is better than the catastrophic 4-6 degree C (7.2-10.8 degrees F) pathway we were on a few years ago, but delivers only about a third of the cuts we need to keep temperature rise below 2 degrees C and limit the worst effects of climate change.

Thus, INDCs should be seen as the “floor” rather than the “ceiling” to countries’ climate ambition. While the Paris Agreement needs to provide businesses and others with the clear signal that we are on a road to a decarbonized and climate-resilient economy, it also needs to provide space for individual countries to increase their commitments over time and mobilize the trillions of dollars needed to address climate change.

Allowing for these increased levels of action in the agreement -- known as a ratchet mechanism -- also makes good economic sense. There is strong evidence that low carbon solutions will become increasingly affordable and accessible over time. Here are three reasons why:

  1. Innovation continues to surpass our expectations. Solar, wind and geo-thermal power are increasingly cost-competitive with traditional fossil fuel power. Costs of solar components fell by an incredible 80 percent between 2008 and 2013. We could never have predicted this five or 10 years ago. Had we locked ourselves into a specific emissions-reduction pathway then, we would have missed the opportunity these cost reductions represent. By seizing these opportunities, India has committed to have 175 gigawatts (GW) of renewables by 2022, and the Indian prime minister and the French president launched a $1 trillion international solar alliance with 121 solar-rich countries in the tropics. How much more might now be achieved with the unprecedented announcements last week of Mission Innovation (a new initiative by U.S. President Barack Obama, President Francois Hollande, Indian Prime Minister Narendra Modi and 17 other countries and 27 private sector partners to spur rapid advances in clean energy research and development) and by the Breakthrough Energy Coalition (by Bill Gates and 27 other private investors to put money to help clean energy technologies come to market)?

  2. We are witnessing a surge in climate policy experimentation, and gaining insights on what works and what doesn’t. Some of the policy instruments that economists have long espoused, but politicians feared – carbon pricing and fossil fuel subsidy reform – are being implemented successfully around the world. Around 40 countries, 23 states or cities, and about 450 major companies implement some form of carbon pricing, and almost 30 countries have launched or accelerated fossil fuel subsidy reforms in the last two to three years. In British Columbia, carbon pricing contributed to 10 percent emissions reductions between 2008 and 2013, while growing its GDP in line with the rest of Canada. California and Quebec have linked their cap-and-trade systems, and Ontario will join the market in 2016. The results have been very positive: 100 percent of permits were sold in their most recent auction, at higher prices than expected, and evidence suggests that the ambitious emission reductions have been compatible with economic growth and have ensuring affordable access to energy. In Ireland and Sweden, carbon taxes have brought in about $1 billion and $3.5 billion, respectively, to government budgets. In Ireland, this allowed the government to avoid some of the more stringent austerity measures after the financial crisis.

  3. We are not alone. We are now seeing ambitious action in policies and the INDCs in countries all over the world. Leading global businesses and investors have stepped up as well in recent years. Consumer goods companies such as Unilever, Cargill, General Mills and Nestlé that together represent about 90 percent of the palm oil trade have committed through the Tropical Forest Alliance to deforestation-free supply chains by 2020. They now have the tools to make good on this commitment – a unique partnership of World Resources Institute, Google, and more than 40 other partners have developed Global Forest Watch, an on-line platform providing near real-time mapping of forests around the world.

It is because of opportunities like these that many heads of state at COP21 echoed the recommendation of the Global Commission on Economy and Climate -- a group of 28 economic and finance leaders led by Felipe Calderón, the former president of Mexico -- and called for a mechanism to regularly review and strengthen country ambition every five years. This means all countries would come back to their commitments in 2020 to build on what’s agreed to in Paris.

The emissions reductions envisaged in the current INDCs are only a fraction of the economically beneficial options possible over the next 15 years. Now is the time to identify how the Paris agreement, together with multi-stakeholder action and international cooperation, can help governments not only implement the INDCs successfully, but also to identify the economically-beneficial options to go beyond them. Increasing ambition over time is imperative for securing the climate-safe world that we and future generations deserve.

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