[authors: Stephen Orava, Nina Howell, and Ben Burnham]

On December 12, nearly 200 countries reached an agreement that many have described as a historic turning point for global cooperation in addressing climate change. This article looks at the key elements of the Paris Agreement, its legal status, and its potential implications for international trade.

Background to the Paris Agreement

The Paris Agreement arose out of the 21st annual meeting (COP21) of the United Nations Framework Convention on Climate Change (Convention or UNFCCC), an international environmental treaty that entered into force on 21 March 1994. The Convention’s objective is to “stabilize greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.” The Convention currently has 195 members and enjoys broad legitimacy, largely due to its nearly universal membership.

Work of the Intergovernmental Panel on Climate Change (IPCC) and other scientists indicates that over the last few decades, mostly due to global industrialisation, the concentration of carbon dioxide and other greenhouse gases in the atmosphere has been increasing rapidly. Other factors contributing to higher carbon emissions include deforestation, change in land use, and increased use of road and rail vehicles. Global greenhouse gas emissions have reached 50 gigatonnes a year. Scientists predict that the average global temperature could increase between 1.4 and 6 degrees Celsius in the 21st century and that the effects of global warming can have a potentially disastrous impact on our planet.

Key Elements of the Paris Agreement

COP21, held in Paris between November 30 and December 12, 2015 to take the next steps in addressing climate change, culminated in the adoption of the Paris Agreement. One of the principal developments was the move away from the binary developed-versus-developing nation structure that proved so destructive under the current Kyoto Protocol regime. Other key measures in the Paris Agreement are set out below.

Mitigation

• Keep global temperature rise well below 2 degrees Celsius above pre-industrial levels and pursue efforts to limit temperature rise even further to 1.5 degrees Celsius above pre-industrial levels.

• Reach global peaking of greenhouse gas emissions as soon as possible.

• Achieve a balance between anthropogenic emissions by sources, and removals by sinks, of greenhouse gases in the second half of the century.

Transparency system and accountability

• Each party shall contribute to the common goal by setting and communicating “nationally determined contributions” with respect to emissions reduction targets with a view to renew its ambitions every five years—with each further target expected to be more ambitious than the previous one.

• The implementation of the Paris Agreement will be evaluated every five years whereupon each party must account for its climate action.

Adaptation

• Strengthen the ability of countries to deal with, and recover from, climate impacts.

• Recognize the importance of averting, minimizing, and addressing loss and damage associated with the adverse effects of climate change, including extreme weather events and slow onset events.

Support

• Provide support to developing country parties, including financial support, to assist them with respect to their mitigation and adaptation obligations.

• The parties committed to contribute USD 100 billion a year in climate finance by 2020 with a commitment to further finance in the future.

The obligations under the Paris Agreement are set out “in the context of sustainable development and efforts to eradicate poverty.”

Status of the Paris Agreement

The Paris Agreement will open for signature on April 22, 2016, and will come into force 30 days after the date on which at least 55 of the 195 parties to the Convention ratify the Agreement. In order for the Agreement to come into force, these 55 parties must also account for an estimated 55 percent of total global greenhouse gas emissions. It remains to be seen which parties will sign and ratify the Agreement. It will be necessary for several of the world’s main carbon-emitting countries to ratify the Agreement for it to enter into force.

The Agreement contains ostensibly mandatory language in places with respect to the obligations of signatory states. For example, under Art. 9, “[d]eveloped country Parties shall provide financial resources to assist developing country Parties with respect to both mitigation and adaptation in continuation of their existing obligations under the UNFCCC.” Further, parties “shall” determine their targets for emissions reductions (Art. 4).

If and when the Agreement comes into force, however, non-compliance by the parties is unlikely to result in far-reaching legal consequences. The targets for individual states’ reductions in emissions are voluntary, and the majority of states’ other commitments are couched in precatory language (e.g. to hold the increase in the global average temperature to “well below 2° C above pre-industrial levels” under Art. 2).

Article 8(3) provides that Parties should enhance understanding, action and support on a “cooperative and facilitative basis” with respect to loss and damage associated with the adverse effects of climate change, and Article 15(2) provides for the establishment of an expert-based committee to facilitate implementation of and promote compliance with the Agreement. However, the committee is “facilitative” in nature and function and is to carry out its role in a manner that is “transparent, non-adversarial and non-punitive.” The Agreement contains no dispute resolution provisions, and while the Agreement is a strong expression of collective political will, its provisions are not strictly legally enforceable under international law. Moreover, the Decision accompanying the agreement expressly states that Article 8 of the Agreement on loss and damage “does not involve or provide a basis for any liability or compensation.”

Potential International Trade Implications

The Paris Agreement is unlikely to have direct implications for international trade, given that draft language expressly referring to an obligation to prevent protectionist measures was removed from the final Agreement. The Agreement, however, may have a significant indirect impact on international trade in goods and services.

First, the objective of the Agreement is to encourage the development and implementation of measures to reduce greenhouse gas emissions substantially over the coming decades. Such measures will necessarily impose additional compliance costs on industrial sectors across the world, often at different levels and on different timetables. The nature, scope, and timing of the reduction measures in each country will impact the relative competitive position of such country’s industries and the effectiveness of reduction measures. Countries that are first to employ these measures may face economic and emissions “leakage,” because consumers may shift from domestically-produced goods to lower cost and higher greenhouse gas intensive imports. The results of such leakage could be a transfer of manufacturing to countries with lower climate change compliance costs and a dampening of climate change benefits. How countries choose to remedy this risk of leakage will determine the scope of the Paris Agreement’s effect on international trade, new investment, and the sustainability of local industries, particularly those producing relatively fungible products in the energy, chemical, steel, and cement sectors.

Second, the Agreement is likely to require the introduction of new technical requirements to promote energy efficiency for industrial and consumer products, such as fuels, automobiles, appliances, and other goods. Such requirements have historically been an avenue for countries to introduce discriminatory measures that favor local producers. Countries can also be expected to launch or increase government subsidies for the development and production of new energy-efficient products, which may cause distortions in global markets. Countries and their exporters can be expected to exercise heightened scrutiny of any new technical requirements or subsidy programs to ensure compliance with binding international trade obligations.

Third, the Agreement is likely to provide a significant boost to research and development activity related to innovative energy efficient and low carbon technologies. In addition to the incentives provided in the Agreement itself, governments also launched initiatives in Paris, for example, to promote solar energy deployment in developing countries and to increase public investment in clean energy research and development. The results of these incentives and new investments are expected to increase the development and trade in new products and technologies.

Finally, the Agreement should provide an incentive to expedite and conclude a range of additional agreements affecting trade and climate change. For example, Member countries of the World Trade Organization (WTO) are negotiating an agreement to phase out or remove tariffs on a wide range of “environmental” goods. The conclusion of this agreement should facilitate increased trade in these goods and lower costs for implementing leading technologies, including those directed at lowering greenhouse gases and mitigating the impact of climate change. Both the aviation and maritime shipping sectors are also expected to intensify efforts to conclude global agreements to address emissions, which will likely have a direct impact on the costs associated with international trade.

Next Steps

Perhaps the impact on industries of the Paris Agreement may be best described by a partner at a venture capital firm: “People are boarding this train, and it’s time to hop on if you want to have a thriving, 21st century economy.” The next stop for the Convention train is Bonn in May 2016, when the new Ad-Hoc Working Group on the Paris Agreement is scheduled to meet. Then, it is onward to Marrakesh in November 2016 for COP22.