The Paris Climate Agreement: what is it and what does it mean for business?

At the recent Paris climate summit a major new international agreement on climate change was concluded – the Paris Agreement. This post sets out some key elements of the deal, how business is affected, and what comes next.

Overall, the Agreement is a major advance and the start of a new phase in international action on climate change that may be more favourable for industry’s key concerns in this area.

It recognizes that old sharp lines between ‘developed’ and ‘developing’ countries as they were in 1992 no longer describe the world, and that all nations need to be involved meaningfully to manage the risks of climate change. That wider involvement will reduce the risk that Australian action will harm the competitiveness of Australian industry, though careful policy design and a close eye on actual action in competitor economies will remain essential.

The Agreement includes strong transparency provisions to ensure it is clear whether nations are living up to their commitments. Wide scope for international market mechanisms will cut the costs of nations meeting commitments – and of businesses complying with national policy.

Finally, the agreement also includes a ‘ratchet’ mechanism of regular re-commitments. Architecturally, this is intended to bootstrap ambition over time and bridge the gap between the significant promises already made and the much larger global emissions cuts needed to realise the Agreement’s goal to keep climate change well below 2 degrees. While deepening cuts would be a challenge for many businesses, albeit an opportunity as well, uncertainty about the goal and direction could be even more damaging. By providing a regular process for stepping up international ambition, and a clear endpoint of net zero global emissions in the latter half of the century, the Agreement provides a firmer basis for long-term investment than was previously possible – though again, domestic policies and their durability will be even more important for most businesses.

We should expect the Australian Government to ratify the Agreement in due course – it’s a good deal and the best we could reasonably expect at this point. They are also likely to make use of the market access provisions to control Australia’s abatement costs while reaching our emissions goals. The Government should continue negotiating to maintain and improve upon the advances at Paris on transparency and markets. And all sides of politics should continue to evolve their domestic policies over time to deliver a stable, flexible and efficient basis for Australian emissions reductions that preserves our trade competitiveness.

Click here for a more detailed overview of the Agreement and its implications.

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Tennant is Principal National Adviser – Public Policy at Ai Group. He has worked heavily on climate and energy issues, advising Ai Group’s Leaders’ Group on Energy and Climate Policy and developing reports on natural gas supply, energy prices and energy efficiency. He also works on a range of issues related to manufacturing and innovation. Previously he was an adviser in the Department of Prime Minister and Cabinet, working on fiscal policy, stimulus and infrastructure.

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