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USJI Voice Vol.28

Paris Agreement: Accelerating toward Decarbonized Society

September 06,2017
Kazuo Matsushita
Kazuo Matsushita
Professor Emeritus, Kyoto University

Paris Agreement as an Indication of Zero Fossil Fuel Civilization

The Paris Agreement had set ambitious long-term goals on global climate change, and delivered a message to break away from fossil fuels. It established a comprehensive framework that defines initiative actions by developed countries and participation of developing countries. The provisions are regularly reviewed and strengthened every five years. All participating nations are required to submit national targets and pursue domestic measures to achieve their goals.

The aims of the Paris Agreement are to limit the increase in the global average temperature to well below 2°C above pre-industrial levels, and further pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels. In order to achieve this goal, Parties aim to achieve a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second half of this century. The intention is to virtually cancel greenhouse gas emissions produced via human activity. This requires that drastic economic and social changes toward a zero fossil fuel civilization be taken.

Rising Movements toward a Decarbonized Society

A drastic transformation toward a decarbonized society has already begun. Renewable energy costs are dropping rapidly, and this alternative energy is growing explosively popular. In the decade following 2005, the amount of wind power generation installed worldwide increased about sevenfold (59 GW to 432 GW), while solar power generation installation expanded about 46 times (5.1 GW to 234 GW). World coal consumption in 2014 and 2015 declined, compared to that in previous years.

According to the United Nations Environment Programme (UNEP), global investment in renewable energy, excluding large-scale hydropower, in 2015 was 286 billion US dollars, which is more than sixfold compared to that in 2004. Investment in fossil fuel power generation during the same period was 130 billion dollars, which is less than half of the amount invested in renewable energy.

The number of companies that have pledged to convert to 100% renewable energy (RE100)[1] has increased rapidly to 96 and includes IKEA, Bloomberg, and Ricoh. Similarly, companies that participate in the Science Based Targets Initiative[2], which promotes CO2 reduction targets based on scientific evidence, has boomed to 286. (data for both as of July 4, 2017)

Likewise in Japan, the “Japan Climate Leaders’ Partnership” (Japan-CLP)[3], which encourages top management of firms to realize a decarbonized society, is developing a business approach in order to significantly reduce CO2 emissions (e.g., scientific goal setting, carbon pricing within the firms) and examining collaborative businesses.

Among the world’s major institutional investors, there is a movement that considers coal and other fossil fuels as “stranded assets” (assets that are at risk of becoming unusable in the future owing to regulation tightening to achieve the Paris Agreement goals), recognizes corporate values and climate change risks, and retracts fossil-fuel-related investments (divestment).

For example, the Government Pension Fund Norway has decided on a deaccession policy of coal-related shares, whereas Deutsche Bank has announced a policy that avoids investing in or financing construction of new coal-fired power plants as well as expansion of existing coal-fired power plants.

In private financing, green finance has become a significant trend. According to the International Energy Agency (IEA), $53 trillion is needed by 2035 for investment in renewable energy and improvement of energy efficiency. Green Bond, Green Investment Bank, and other activities that specialize in climate control businesses are also expanding in correspondence with high demand of funds.

United States Withdrawal from the Paris Agreement

President Trump’s speech that announced the United States’ withdrawal from the Paris Agreement (June 2017) stimulated other nations, local governments, industries, and civil societies to reconfirm and further strengthen their will to work toward the Paris Agreement.

The statement presented by Michael Bloomberg (former New York mayor) that notes “We Are Still In (we are still in the Paris Agreement)” has been signed by nine states including New York and California and 125 cities across the United States, along with 902 companies/investors and 183 universities (as of June 5, 2017). In California, the State Legislature has passed a bill with the aim to achieve 100% renewable energy by 2045.

The EU member states, China, and other developing countries have decided to proceed with implementation of the Paris Agreement without the United States. The G20 summit held in Germany (July 2017) declared, “Participating countries except the United States reaffirm strong determination towards the full implementation of the Paris Agreement. The United States will cooperate closely with other nations to support clean use of fossil fuels.”

Development of New Innovation and Sustainable Economy through Decarbonization

Under the Paris Agreement, Japan aims to achieve the target of 26% emission reduction by 2030 (compared to 2013), as well as 80% emission reduction of greenhouse gases by 2050 as a long-term goal. Conventional efforts will not be sufficient to realize such significant reduction targets.

However, there are many problems with the government’s 2030 energy mix. Prospects for energy conservation and renewable energy are too small, while nuclear power generation that would account for 20% to 22% is unrealistic. Increasing coal-fired power to 26% is also excessive considering CO2 emissions. Currently, there are numerous plans to construct new coal-fired power plants in Japan, but the amount of CO2 emissions per electricity unit is more than twice that of natural gas-fired powers, even in the latest power plant models. With the intensified regulations on emissions set for the future, thermal power plants that take consumption of fossil fuels for granted may become “stranded assets.”

The “Long-term Decarbonization Strategy[4]” currently under preparation by the Japanese government should be a national development strategy that outlooks the future socioeconomy. Innovations not only in technologies driven by counter climate change acts, but also  in economic and social systems, as well as in lifestyle will be the keys to achieving long-term emission reduction while solving multiple social and economic challenges in Japan, such as low birthrate and extended longevity, decreasing population, and weakening of rural areas.

The trend toward a decarbonized economy is inevitable. Therefore, the decarbonized green market (“promised market”) is expected to expand. According to the IEA’s estimate, to decarbonize the electricity sector in line with the 2°C scenario, about 9 trillion dollars is required from 2016 to 2050 as an additional investment. Moreover, a 3-trillion-dollar investment is required to pursue energy conservation in buildings, industries, and logistics from 2016 to 2050[5]. The future of the Japanese economy depends on how it participates and challenges the huge “promised market.” Implementing measures to combat climate change will bring various benefits, such as reducing energy expenditure, strengthening international competitiveness, and job creation, along with aversion of climate change risk, improvement of asset values, and reinforcement of energy security.

“Carbon pricing[6]” (pricing for carbon emissions) is the core element in transitioning towards a decarbonized economy. It provides all economic agents incentives to reduce emissions and is expected to strengthen market competitiveness in the area of low-carbon technologies, products, and services with the full use of market vitality. With carbon pricing, CO2 emitters will have to choose between reducing emissions and paying for the emission cost. In this way, society as a whole will be able to reduce CO2 evenly and efficiently. Carbon pricing will spark investment and demand, while accelerating innovation for decarbonization.

Specific methods of carbon pricing include carbon taxes and emission trading. Japan’s current global warming tax sets a very low tax rate, compared to that found in the rest of the world, and has not been effective in controlling greenhouse gas emissions[7]. Implementation of a full-scale carbon tax with a tax rate more than 10 times the current rate is necessary[8]. As part of their green tax reforms, Sweden and Germany decided to enforce carbon/environment tax with much higher rates compared to that of Japan, while simultaneously achieving economic benefits and lower emissions[9]. Carbon tax revenue can also be integrated with other policy agendas. For instance, the revenue can complement reductions in income tax and social insurance premium tax to establish neutrality, or it can be funds for social security policy.

Although the Japanese economy enjoys an abundance of funds with low interest, it suffers from shortage of investment demand and opportunities. Introduction of funds and technologies to climate change challenges and innovations will lead to strengthening the foundation of the Japanese economy and international competitiveness.

 

[1] http://there100.org/

[2] http://sciencebasedtargets.org/

[3] https://japan-clp.jp/

[4] Ministry of Environment presented “Long-term Low-carbon Vision” in March 2017. Ministry of Economy, Trade and Industry presented “Report on Platform for Long-Term Countermeasures Against Global Warming” in April 2017.

[5] Ministry of the Environment (2017), p. 6

[6] Carbon Pricing Leadership Coalition (2017), Ministry of the Environment (2017)

[7]According to World Bank (2014), the green tax rate in Japan (rate: 289yen/t-CO2) is one of the lowest carbon prices among those already implemented worldwide.

[8]The Carbon Pricing Leadership Coalition (2017) declares that in order to fulfill the Paris Agreement, the explicit carbon price needs to be set at 40-80 dollars per ton by 2020, and 50-100 dollars by 2030.

[9]Ministry of the Environment (2017), p. 150

 

References:

  • Ministry of the Environment (2017), “Long-term Low-carbon Vision”
  • Carbon Pricing Leadership Coalition (2017), “Report of the High-Level Commission on Carbon Prices”
  • World Bank (2016), “State and Trends of Carbon Pricing 2016”

 


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