Wharton's Eric Orts, Columbia Law School's Michael Gerrard and Felix Mormann from Texas A&M University discuss the potential outcomes of the COP24.

Nearly 200 countries that gathered in Katowice, Poland, for a two-week United Nations meeting on climate change framed a rulebook to ensure compliance with the 2015 Paris climate accord on reducing greenhouse gas emissions. But they were unable to agree on carbon pricing to create disincentives for polluting businesses; they pushed that milestone to November 2019, when the 25th annual Conference of the Parties (COP25) will meet in Chile. Even so, the U.N. conference claimed success, and declared, “We have a global climate agreement.”

Meanwhile, the Trump administration continues to refuse to abide by the 2015 U.N. Paris Agreement, which aims to cap the rise in global temperatures to 2 degrees Celsius above pre-industrial levels. Another concern stems from a follow-up U.N. report in October that warned that the goal should be 1.5 degrees Celsius and it should be achieved in the next 12 years, or before 2030. The U.S., Russia, Saudi Arabia and Kuwait merely “noted” the report; they resisted pressure on them to “welcome” it.

These stances reveal how each country would craft related policies and allocate budgets to combat climate change. Earlier, 18 nations pledged to bring $100 billion a year by 2020. Participants at the 24th annual Conference of the Parties (COP24) agreed to draw new climate finance targets and tap more contributions to help developing countries reach their climate goals.

But money won’t be enough of a stimulus to meet ambitious climate change goals, according to experts from Wharton and elsewhere. Regulatory action is necessary as well. The policies must ensure a price on carbon so that businesses can factor in the “externalities” of their investments, or the impact in terms of greenhouse gas emissions, they said.

The Knowledge at Wharton radio show on SiriusXM invited three experts to analyze the outcome of the COP24: Eric W. Orts, a Wharton professor of legal studies and business ethics and faculty director of the Initiative for Global Environmental Leadership; Felix Mormann, law professor at Texas A&M University and a faculty fellow at Stanford University’s Steyer-Taylor Center for Energy Policy and Finance; and Michael Gerrard, director of the Sabin Center for Climate Change Law at Columbia Law School, where he is also professor of professional practice, teaching climate change law and energy regulation.

“Unless we find some way of putting teeth into [climate agreements], it’s going to be difficult to ensure that every country actually follows through with commitments.”  –Felix Mormann

Most Countries Are Behind

Most nations are a ways away from meeting either the Paris accord’s global warming cap of 2 degrees Celsius above pre-industrial levels, let alone the target of 1.5 degrees Celsius that the October 2018 U.N. report suggested, according to Gerrard. “The voluntary pledges that all countries in the world put on the table add up to 3 or 4 degrees centigrade, which would be catastrophic,” he said. “Many countries, including the U.S., are not on target even to meet the Paris accord’s goals.”

Added Mormann: “This is a dynamic space. Even if the commitments made in 2015 had indeed locked us into a course for [a cap of] 2 degrees Celsius at the time, there’s no guarantee that that would still be the case today, or five years from today.” He called for ways to overcome policy instability that regime changes bring. “There has to be a mechanism that offers some sense of binding future governments and future generations.”

Pricing Carbon Is Necessary but Painful

According to Orts, “The basic problem is that our current economic system does not take into account the externality of carbon and its equivalence being put into the atmosphere.”

The Trump administration’s policies have discouraged businesses from factoring that externality with a price on carbon, he said. “Right now, if you’re a hard-nosed Wall Street investor, you’ve made money if you said alternative fuels are not going to be that great once Trump gets [into office].” Many investors were bullish on alternative energy sources, but “when the political situation turned on them, they lost money,” he noted.

Mormann said pricing carbon, such as with a fuel tax, “will be painful for many” and that will test the depth of commitment at an individual level. “Surveys have shown, time and again in the U.S. and elsewhere, that even among the large segment of the population that acknowledges climate change as a reality … the willingness to pay always falls way short of that concern,” he said. “In other words, when it’s time to put our money where our mouth is, many of us just hesitate.”

Investor Action Is Not Enough

One unexpected move at COP24 came from a group of 415 investors managing $32 trillion in assets that called on governments to achieve the goals of the Paris accord. According to Mormann, such a statement underscores the need for policy action. “It speaks to the magnitude of the problem — that even if you control incredible amounts of money, you need policy guidance.”

Gerrard suggested that investors should take things further. “What we really need is not only the useful language endorsing the goals, but also action by the investors to move their money away from fossil fuels and toward renewable energy efficiency and the other things that we need for the energy transition.”

Mormann noted that the energy transition promises to be “the biggest business opportunity for many decades to come” in industries including wind and solar energy, energy storage and transmission. However, “if we don’t internalize the cost to a price on carbon in some fashion, the transition will happen a lot slower, and the business opportunities will be a lot lower. And so, a price on carbon is a very important part of the mix.”

All the same, “you can’t just throw money at the problem” and expect it to be solved, said Orts. With many nations subsidizing fossil fuel, he said, “what you have is an uneven playing field.” He called on big investors to act. “What you need to do to kill coal — to put it just bluntly — is to have policy agreements that say it’s just too dirty.” He explained that it would be hard to get fossil fuel companies to take “a positive role” to tackle climate change “because their whole business model depends on it.” He cited author Upton Sinclair’s remark, “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”

“This is not some scientific fantasy of the future. What we need is a Sputnik moment.” –Eric Orts

Gains at COP24

The COP24 meeting scored gains on several fronts, in addition to the unanimous agreement on framing a rulebook.

  • A group of countries including the European Union that called themselves the High Ambition Coalition agreed to do their bit to cap the rise in global temperatures to 1.5 degrees Celsius by 2030. That is a higher bar than the Paris accord’s goal to cap global warming at 2 degrees Celsius. Efforts to require other Paris accord signatories to agree on stricter emissions targets will resume at a meeting in September 2019.
  • Responding to calls for more funding to help developing countries meet their climate change goals, Germany and Norway pledged to double their contributions to the climate fund.
  • A declaration on “Solidarity and Just Transition” recognized that policies to reduce emissions will face social resistance and significant political risks for the governments implementing them if they are not accompanied by social security programs for workers whose jobs will be lost or transformed. It exhorted governments, social partners and civil society organizations to work towards “a fair transition” in those efforts.
  • The Katowice Partnership for Electromobility promoted regulations to popularize low- and zero-emission vehicles.
  • A “Forests for Climate” declaration pushed for action to conserve and enhance sinks and reservoirs of greenhouse gases, including forests and forest products.

The Problem Is Political

“The biggest disappointment is that the U.S. has basically thrown the gear in reverse under the current administration,” said Orts. Just three weeks ago, the U.S. National Climate change assessment report issued dire warnings, but the Trump administration downplayed its importance. “It’s a political problem,” he added. “You’re not going to have success unless you solve that.”

The U.S. dug in its heels at Katowice in denying climate science in a side event it supported, titled “Innovative Technologies Spur Economic Dynamism.” Wells Griffith, an adviser in the U.S. Department of Energy, warned against “alarmism” over climate change, adding that “all energy sources are important, and they will be utilized unapologetically,” according to a report in The State newspaper.

Protesters disrupted the meeting, but Griffith maintained that the U.S. would continue extracting fossil fuels, including through hydraulic fracking. Incidentally, Australia was the only country to support the U.S. stance at the event, a Guardian newspaper report noted. At the same time, U.S. negotiators drove efforts to create the rulebook to govern the Paris Agreement, according to a Wall Street Journal report.

Orts said the adverse effects of global warming are already evident in wildfires, droughts, hurricanes and heat waves. “This is not some scientific fantasy of the future. What we need is a Sputnik moment,” he added, referring to the Russia launching the Sputnik 1 satellite in 1957, which galvanized the U.S. to stake its claim to leadership in space missions.