Back to the Future? International Climate Policy in 2021

Europe: Master Clock for Climate Goals

Shortly before the German presidency of the Council of the European Union ended in December 2020, EU heads of state and government agreed to increase the 2030 climate target to at least 55 percent emis­sions reductions compared to 1990. This target is part of the Green Deal, which con­sists of over 50 political projects (incl. pro­tecting biodiversity, climate-friendly mobil­ity, increasing the energy efficiency of build­ings, and reforming EU agriculture). The Commission will make legislative proposals to ensure that member states swiftly im­plement these EU climate projects. The Euro­pean Climate Law, which Commission President Ursula von der Leyen presented in March 2020, is at the core of climate legis­lation. It stipulates that the EU will become climate neutral by 2050. Both the European Parliament (EP) and the Environment Coun­cil agreed to the proposal with few amend­ments in October 2020. Negotiations be­tween the EP and member states on final details are to be concluded in March. By June the Com­mission plans to bring for­ward 12 legal propositions to make the EU “Fit for 55”.

With a view to its presidency of the up­coming COP26, in June 2019 the UK was the first major industrialised nation to pass a law intended to pave the way for green­house gas neutrality in 2050. Brexit means that the UK’s NDC, previously negotiated at the EU level, is no longer valid. The UK government announced a new NDC in December, shortly before the Climate Am­bition Summit held in Paris: reducing emissions by at least 68 percent by 2030. The target is embedded in the government’s ten-point plan for a green reconstruction of the British economy post-Covid. This pro­gramme stipulates public investment of 12 billion pounds Sterling (€13.4 bn), and aims to create up to 250,000 “green” jobs. Inter alia, the intention is to develop London into a global centre for “green finance”. In 2021 the British government will concentrate above all on hosting the COP and G7. Close cooperation with the EU and Germany will be indispensable to make the negotiations successful.

USA: Another Return

On his first day in office, President Joseph Biden ordered the US’s immediate reaccession to the Paris Agreement. His staffing decisions also signal that the US once again wants to shape international climate poli­tics. John Kerry, secretary of state during Barack Obama’s second mandate, is the Special Presidential Envoy for Climate and has a seat at the cabinet table.

Biden has declared that climate policy will be one of the top four topics of his term in office and a part of his adminis­tration’s pandemic recovery package. His executive order, Tackling the Climate Crisis at Home and Abroad, makes it a key concern of his foreign and security policy. To restore its international credibility, the US will above all have to formulate an ambitious NDC alongside its climate diplomacy, and implement it rapidly. Analysts from the Rhodium Group have calculated that the US will need to reach a 2030 climate target of minus 40 to 50 percent as compared to 2005 in order for the US economy to attain net zero emissions by 2050. Biden‘s plan for a Clean Energy Revolution and Environmental Justice, which is supposed to drive the cli­mate-friendly transformation of the econ­o­my over the next ten years, is endowed with US$1.7 trillion. Among other things, it intends to achieve a “carbon pollution-free” energy sector by 2035 and to reach net zero across the US by 2050. The plan also pro­motes electromobility and energy efficiency of buildings. Biden has further announced that fossil fuel subsidies will be eliminated, US financing of oil and gas projects abroad will be discontinued, and imports will be subject to a CO₂ border adjustment.

However, the national implementation of these measures is not guaranteed, even though the Democrats now have a slim majority of 51 votes in the Senate. To set a new NDC – the current NDC consists of reducing 2005 emission levels by 26 to 28 percent by 2025 – Biden’s climate package must quickly gain momentum. In this context, proposing new laws, for example to introduce a carbon price, is politically risky since it would require at least 60 votes in the Senate. Regulations by the Environment Protection Agency (EPA) and executive orders by the president will therefore be a key instrument of the new US administration’s Plan for a Clean Energy Revolution and Environ­mental Justice.

In order for the US to restore trust with a view to the COP26, it is important to submit an NDC that is seen to be ambitious, along­side swift implementation. In other words, a new NDC has to go far beyond the pre­vious one. Given the energy with which the new US government has gone to work, there is certainly no lack of political will. Cli­mate finance, which is of particular interest to developing countries, was taken up by John Kerry in the Climate Adaptation Summit in January. He announced signifi­cant financial support – without giving specifics – for climate adaptation. He also stated that international partners could rely on US help through innovation and with climate data.

China and India: The Highest Emissions but not the Greatest Ambitions?

In 2020 the Chinese president Xi Jinping surprisingly announced that China in­tended to reach peak emissions before 2030 and be CO₂ neutral before 2060. It remains unclear how these targets are to be reached. The 2030 target has so far not been sub­mitted as an NDC. The new five-year plan 2021–2025, announced for the spring, is expected to contain answers as to how the Chinese government intends to reconcile its growth targets with its climate goals. After all, China is the top global greenhouse gas emitter – even if, from a historical per­spective, the US and Europe lead on accu­mulated emissions.

Beijing continues to rely heavily on coal for electricity generation. China consumes about half of the global coal supply for its coal-fired plants alone. Beijing also partici­pates in investments in coal power plants abroad as part of its Belt and Road Initiative (BRI). Its domestic consumption is the greatest obstacle to reaching ambitious cli­mate targets. For instance, the energy out­put from its wind and solar facilities would have to be doubled within the next five years to meet the 2060 target.

However, the Chinese government sub­ordinates climate policy to its geopolitical interests, and has thus far not positioned itself as a leader in UN negotiations. On the contrary, encouraged by US foreign policy of the past four years China has retracted promises that it had made as part of the Paris Agreement negotiations. Originally Chinese leader Xi along with the EU and other countries intended to fill the leader­ship gap left by the US, but no actions fol­lowed his speech at the 2017 World Eco­nomic Forum. The climate goals announced last September at the UNGA were all the more surprising. This move indicates that Beijing considers climate policy a part of its systemic rivalry with the US and EU. After all, the move at the UNGA created the im­pression that China was far ahead of the US on climate policy. The EU and US will have to renego­tiate cooperation with China at the UN as well as bilateral and trilateral levels this year.

In its current NDC, the Indian govern­ment has not set any climate targets that define an emissions reduction in absolute terms, and, as with China, it is not expected to in the next NDC either. India has been hard hit by the pandemic and combating it has tied up political capacities. However, the Indian government has always been reserved on international environmental commitments, in particular because it sees industrialised nations as responsible for climate change. India’s share of global emissions puts it in fourth place. Thus far, the government has focused on the emis­sions intensity of the economy rather than setting absolute targets. Per unit of gross domestic product, this intensity is meant to decrease by 33 to 35 percent as compared to 2005. By 2040 India’s electricity supply from non-fossil sources is to reach 40 per­cent of the total. Due to the economic con­sequences of the coronavirus pandemic, India’s emissions fell for the first time in 40 years. If this trend (which is mainly based on less coal-based electricity generation) continues, the country is heading towards a share of 60 to 65 percent non-fossil ener­gies. Many G77 countries see India as a role model, and New Delhi is increasingly ring-fencing itself from China’s economic influ­ence. It will be important for Europe and the US to exchange with India in the run-up to the COP26 with a view to the G77. Boris Johnson’s invitation to India for the G7 summit takes this into account. An EU-India summit is scheduled for 8 May.

Japan and South Korea are joining in; Australia is not

After Beijing published its climate targets, the Japanese government followed suit in October 2020 and declared its intention of making the country climate-neutral by 2050 (according to Climate Action Tracker). Japan’s current NDC for 2030 is seen as lacking ambition. However, President Suga has announced that a higher target will be submitted before the COP26. To reach its 2050 target, Tokyo intends to exploit the US$708 bn stimulus package. This package includes US$19.2 bn earmarked for climate measures. The Japanese industry does not want to miss out on the race for environmental technologies. The government is therefore attempting to start long-delayed restructuring towards renewable energy sources, and is investing in infrastructure and innovation.

South Korea also followed suit and in late 2020 announced an NDC with emis­sions reductions of 24.4 percent as com­pared to 2017. By 2025 at the latest the government plans to declare a more ambi­tious goal for 2030, enabling CO₂ neutrality by 2050. After the 2009 financial and eco­nomic crisis, South Korea had stated that it was committed to establishing a Green Economy. The South Korean Covid stimulus package also has a green focus: the so-called Korean New Deal (K‑New Deal) is worth US$135 bn, almost half of which is intend­ed for creating green jobs. Along with invest­ments in future technologies and infrastructure, the K-New Deal includes a target of CO₂ neutrality by 2050. Critics point out that the K-New Deal is grey rather than green, inter alia because it also promotes fossil fuels such as LNG along with renew­able energies. A significant part of the plan, they claim, is based on the as yet unproven competitiveness of hydrogen in the trans­port sector.

Australia, on the contrary, has a govern­ment that is critical of more ambitious climate targets. It has not raised its NDC. Australia is the world’s largest exporter of LNG and its second-largest exporter of coal. The Australian government under Prime Minister Scott Morrison openly represents coal industry interests and objects to strict international climate rules. Even the devas­tating heat wave and fires of 2020 have not made the Australian government more cooperative on international climate policy, despite public protests for more climate pro­tection. Canberra’s climate policy seems particularly contradictory given its plan to establish itself as one of the world’s largest hydrogen exporters. Along with Germany, Australia is currently examining supply chains for green hydrogen.

Positioning vis-à-vis China and the US

In the past, the EU has successfully co­oper­ated on climate policy with China, for instance when the People’s Republic devel­oped emissions trading along the European model. However, overall relations between the EU and China have deteriorated during the past two years. Furthermore in the UN climate negotiations, Beijing has reverted to claiming the status of a developing country, so as to avoid having to apply, for example, international standards for measuring greenhouse gases.

For the EU and US the issue of transpar­ency is non-negotiable; it will once again be one of the crucial themes in the COP26 talks. However, with its Green Deal the EU can now set new priorities in its climate diplomacy – not just at the UN level, but also in direct exchanges with Beijing. These include making progress in climate protec­tion also through trade initiatives and the development of new technologies. The Com­mission has suggested it will relieve European companies, which face rising costs because of the new 2030 climate tar­get, from competitive pressure caused by imports. A so-called Carbon Border Adjust­ment Mechanism (CBAM) is part of the Fit-for-55 package and is sup­posed to charge imports according to their carbon content. A considerable part of imports that would be covered by it, for instance cement or steel products, come from China. The CBAM plans could increase Beijing’s domestic efforts to broaden its emissions trading and even define an abso­lute emission cap, so as to reduce or even entirely avoid EU import charges. Again transparent data are an in­dispensable tool in this respect.

Vis-à-vis China, the EU and its member states have to find the right balance be­tween cooperation and competition. With the US, they will have to rapidly explore the most productive options for cooperation with a view to the COP26. The new US gov­ern­ment’s decisiveness in devoting itself to climate policy will fan the competition between the three big players over new ideas, technologies and international leader­ship beyond 2021.

It will be difficult, however, to proceed jointly on the CBAM. The Commission and member states are demanding that WTO rules be met. Without carbon pricing in the US – which will not happen on the national level in the foreseeable future – the Biden administration will have to em­ploy executive orders and trade rule exemp­tions to bring a border adjustment in line with international trade law – unless it decides to ignore WTO rules entirely. It would therefore be preferable to link EU-US climate cooperation with new approaches to trade cooperation, and leave enough time for thorough investigations into a border adjustment.

Fossil Fuels and Carbon Markets Remain Sticking Points

Any progress in international climate pro­tection will depend on whether hesitant countries can be pulled along. The most important projects of the EU, the US and documented in many NDCs, focus on the reduction of fossil fuel consumption. While for emerging economies such as India this seems to be mainly a question of timing and costs, for fossil fuels exporters (incl. Iraq, Australia and Russia) a drop in de­mand is not an appealing prospect. How­ever, when the world’s leading oil exporter Saudi Arabia chaired the G20 in 2020, it emphasised the role that carbon capture and storage technologies play in climate mitigation, and the government wants to follow the German example in expanding renewable energies. In this respect, it is to be expected that at the COP26 parties will again address technological issues, the costs of climate policy for these producer coun­tries, and the impact on investment. Ger­many’s and the EU’s hydrogen strategy is one starting point for identifying new cooperative pathways. This will require, among other things, international standards to guarantee that “green” hydrogen really is produced in a carbon-free manner (see SWP Comment 2020/C 32).

Investment in climate-friendly energies and carbon sinks will depend to a large degree on a breakthrough at COP26 about the governance for international trade in emissions certificates. High standards will have to be agreed upon for such trading systems in order to avoid double accounting and defraud on the substance of verified emission reductions. For this, the EU will need US support. Strict quality requirements are resisted by those countries hop­ing for new revenues from certification and little control. Moreover, Brazil has successfully blocked any agreement so as to secure its substantial income from emissions cer­tifi­cates during transition from the old trad­ing system set up by the Kyoto Protocol.

Last but Not Least: Building Confidence in the UN Process

EU climate diplomacy will be called upon to convince developing countries that they can trust the UN process – and the US’s climate action – despite the consequences of the pandemic. Washington’s complete reversals in the past on both compliance with agreements and financing climate action have led to doubts as to whether the US is a reliable long-term partner at all. In 2021 Europe’s negotiators will most likely find themselves in a situation where they need to ask poor countries to trust the new US climate policy.

The most recent UNEP Adaptation Gap Report estimates that developing countries will need US$70 bn per year for adaptation to climate change. It considers a fourfold increase by 2030 to be possible. The pan­demic has emptied public coffers. In his first international appearance at the Cli­mate Adaptation Summit, John Kerry was not yet able to commit the US to any spe­cific financial support for poor countries. Neither was China. Germany pledged €220 million in additional support. Yet the issue of financing will once again determine whether real progress is made at COP26; due to the pandemic, demands will be more vocal this year. Talks at the G-formats could also be used to improve financial room for manoeuvre for developing countries’ assis­tance. For example, aid could be freed up by reducing subsidies for fossil fuels. Beyond that, collective debt relief linked to climate policy objectives could be envisaged.