Exciting News to Come Out of the G-20 Summit

There was exciting news Labor Day Weekend about the world’s efforts to tackle climate change. In Hangzhou, China, where the G20 leaders met to work their way through a number of major issues, President Obama and China’s President Xi Jinping announced their formal ratification of December’s Paris climate accord.

The two leaders submitted their plan to join the agreement to U.N. Secretary-General Ban Ki-moon, who traveled to Hangzhou for their event.

"Today's announcement is the strongest signal yet that what we agreed in Paris will soon be the law of the land," said Mattlan Zackhras, minister-in-assistance to the president of the Marshall Islands. "With the two biggest emitters ready to lead, the transition to a low-emissions, climate-resilient global economy is now irreversible."

China and the United States account for about 38 per cent of global greenhouse gas emissions. "The signal of the two large emitters taking this step together and taking it early, far earlier than people had anticipated a year ago, should give confidence to the global communities and to other countries that are working on their climate change plans, that they too can move quickly and will be part of a global effort," Obama’s senior environmental adviser, Brian Deese, told reporters.

Major emitters that may follow their lead include India, Canada, and Brazil. The treaty will enter into force only after 55 countries representing at least 55 per cent of emissions ratify or join the deal in other ways. The United States and China were the 24th and 25th nations to take such action, but the first 23 account for just 1 per cent of emissions. "We expect a surge of ratifications around the U.N. Climate week later in September," said Bill Hare, chief executive of Climate Analytics.  

The G20 applauded the joint decision, saying: "We welcome efforts to allow its entry into force by the end of 2016 and we expect a rapid implementation of the agreement."

In addition, Obama and Xi committed to cooperate on two other global environmental agreements this year: an amendment to the Montreal Protocol to phase down air-conditioning refrigerants and a market-based measure to reduce carbon emissions from aviation.

On August 24 investors managing more than $13 trillion of assets urged all G20 leaders to ratify the Paris accord before year’s end. The Institutional Investors Group on Climate Change, made up of 130 investors from a variety of countries, also called for the G20 to double global investment in clean energy, develop carbon pricing, and phase out fossil fuel subsidies.

Subsequently, a collection of insurers, with assets of $1.2 trillion, challenged the G20 leaders to set a timetable to phase out subsidies for fossil fuels by 2020. "Climate change in particular represents the mother of all risks," said Aviva CEO Mark Wilson. 

A British-based think tank, the Overseas Development Institute, has estimated that average annual subsidies for fossil fuel production were $444 billion in 2013 and 2014, roughly four times the subsidies for renewable energy in 2013.

Now that the United States has ratified the Paris agreement, there is additional pressure to come up with a plan to honor the nation’s pledge. The new Congress and new president will need to decide whether to continue to emphasize regulatory solutions or move to a market-driven approach by putting a price on carbon, as most economists advise.