Over the last three years, the status of the relationship between the United States and the Paris Climate Agreement might best be described as “limbo.” For many, the election of Joe Biden as the 46th US president forecasts renewed momentum around green policies and investments to bolster the world’s ability to mitigate the worst effects the climate crisis. Will reengaging with the Paris Agreement be enough to precipitate real change?
Weighing Paris Agreement Reengagement
Nearly 200 countries, including the United States, signed the accord in December 2015, pledging to reduce the greenhouse gas emissions and stop the average global temperature from climbing more than 1.5 degrees Celsius above preindustrial levels. Joe Biden has said he will rejoin the agreement, ending a period of nonengagement under President Donald Trump.
While the Trump administration has made headlines for undoing domestic environmental regulations and policies, Biden’s climate plan includes a pledge to reach net-zero greenhouse gas emissions by 2050. To get there, Biden calls for investments aimed at creating clean jobs—$2 trillion in infrastructure, electric cars and mass transit, clean energy, and climate-smart agriculture. Biden’s strategy would also end fossil fuel subsidies and ban new oil and gas permits on public lands. As an initial step, Biden officially recommitted the United States to the Paris Agreement on his first day in office.
Some experts believe the Biden plan has the potential to put the Paris targets “within striking distance.” Of course, that is only if it comes to fruition: partisan politics in 2021 could block such large-scale policy initiatives from the new Democratic president.
It took more than two decades for the world’s leaders to reach the deal inked in Paris. Yet while an agreement between nearly 200 sovereign nations is a feat in and of itself, experts including UN Secretary-General Antonio Guterres say that the accord’s nonbinding pledges do not go far enough. Scientists estimate that human activities have already caused about 1 degree Celsius of warming, and global temperatures are on track to jump between 3 and 5 degrees by the end of 2100, according to the current rate of warming indicated by UN World Meteorological Organization data. Likewise, Climate Action Tracker research predicts that current commitments will see the world fall short of the Paris Agreement’s goals.
Are Carbon Markets the Missing Piece?
The forecasts described in the paragraph above included participation by the United States.
While President Trump announced US withdrawal from Paris in June 2017, the accord’s negotiators specified that no country could officially leave until three years after ratification. Accordingly, the United States’ departure did not become formal until November 4, 2020—the third anniversary of when the treaty came into force, 30 days after at least 55 countries representing 55% of global greenhouse gas emissions had ratified it.
Internal politics have a history of obstructing US involvement in international climate agreements. After President Bill Clinton signed the 1997 Kyoto Protocol, the US Senate did not ratify it. The US House later passed major legislation in 2009 to create a national cap and trade system, which many believed would jump-start a global carbon market. However, this effort also broke down, facing strong opposition in the Senate, from the oil industry, from the conservative Tea Party group, and among climate change deniers. At the international climate talks in Copenhagen later that year, negotiators failed to agree on the terms of a global carbon market.
The carbon market remains a precarious issue at annual climate negotiations even after the 2015 Paris Agreement, which was left purposely vague in order to secure support. At the end of the last round of talks in December 2019, the details of such a market remained the only piece of the Paris Agreement still left unresolved.
The lack of progress toward putting a price on carbon has been cited as a significant hindrance to tackling climate change. Much like the passage of a climate plan to eliminate fossil fuel subsidies and invest in climate solutions, making polluters assume financial responsibility could send a strong signal to investors, some of whom have already been pushing companies to address climate risk.
Making Investor and Company Voices Heard
Investors who are interested in moving the needle on social and climate issues often fall into one of two camps: those who prefer to divest from certain companies or industries and those who remain invested in order to engage companies to work toward change.
Whatever the strategy, investors and companies can send signals to the government through the actions they take and by lobbying their representatives. For example, five automakers recently struck a deal with California agreeing to meet the state’s strict emissions standards. Other automakers have sided with the Trump administration in its attempts to stop the state from implementing such rules after rolling back Obama-era standards for fuel efficiency and greenhouse gas emissions. Both sets of companies are sending a signal.
The number of institutional investors committed to cutting fossil fuel stocks from their portfolios jumped from 180 in 2014 to more than 1,100 in 2019. Meanwhile, US assets in sustainable index funds have grown four-fold since 2017 and now account for 20% of total indexing assets worldwide, according to a report from Morningstar. Venture capital investment in clean tech is reportedly on the rise as well.
These trends send signals, too. The more that consumers, investors, and companies indicate a willingness to support climate action, the easier it will be for politicians to take the bold steps necessary to address the climate crisis.