On 12 December 2015, after nearly two weeks of negotiation in Paris, world leaders announced that they had agreed to adopt a "legally-binding" agreement to keep global warming "well below 2°C above preindustrial levels" (the full text is available here). As part of the progress towards the Paris Agreement, 187 countries made individual commitments to address emissions and climate change, with many - including the US - adopting specific emissions reductions targets.

The Paris Agreement has been welcomed as 'historic' and a 'turning point' but it has also attracted criticism for delivering promises rather than action, and for a lack of timescales and deadlines. The real impact of the Paris Agreement will not be known for some years yet, but it should send increasingly clear signals to businesses, consumers, and investors that the world is moving towards a low-carbon economy. During the negotiations, the Financial Stability Board announced that a new disclosure taskforce was being established to encourage businesses to make voluntary disclosures on climate change risks.

Long-term global targets

The Paris Agreement "emphasises with serious concern" the need to hold the increase in global average temperatures to "well below 2°C above pre-industrial levels" and the importance of "pursuing efforts to limit the temperature increase to 1.5°C". Although this target is intended to be legally binding, it is a collective target and compliance with it cannot be imposed or enforced on any country.

The Paris Agreement also calls for "a balance between anthropogenic emissions by sources and removals by sinks of greenhouses gases in the second half of this century" which implies a target of net zero emissions sometime after 2050.

National commitments

In the lead up to and during the Paris negotiations, countries submitted their 'intended nationally determined contributions' (INDCs) to represent the policy approach which they propose, or will continue, to implement to mitigate and adapt to global climate change. The United States proposed a 26 to 28 per cent domestic reduction in greenhouse gases by 2025 compared to 2005, with best efforts to reach the 28 per cent target. China, meanwhile, promised a peak in its emissions by 2030, with best efforts to peak earlier.

In total, 187 INDCs have been submitted (available here) and they range from absolute emissions reduction targets to actions relative to economic intensity. The INDCs will be converted into 'nationally determined contributions' (NDCs) as and when each country ratifies the Paris Agreement.

It is widely accepted that the INDCs submitted to date will not deliver the 2°C target and so the Paris Agreement includes a ratcheting mechanism. For the period after 2020, countries are required to “communicate a nationally determined contribution every five years”. The Paris Agreement does not specify what those contributions should be, but the expectation is that countries will over time accept ever more stringent targets. There will be a global 'stock-take' in 2023, and every five years thereafter, to assess progress toward the aims of the Paris Agreement and to encourage countries to make deeper pledges.

Compliance and monitoring

There is no legal requirement on countries to comply with NDCs, and so there are no enforcement or penalty mechanisms to address non-compliance. However, the Paris Agreement does propose a transparency framework to verify whether countries are complying with their pledges and to inform the global stock-take.

Countries will have to disclose an emissions inventory and information on progress towards pledges. There will also be a 'technical expert review' to check progress and identify any improvements required, which it is hoped will bring some diplomatic and political pressure on governments that fail to comply with their targets.

Differentiation 

Perhaps the most contentious issue has been that of differentiation i.e. the relative responsibilities of developed and developing nations in addressing climate change. The Paris Agreement does not address this issue directly but merely states: "Parties aim to reach global peaking of greenhouse gas emissions as soon as possible, recognising that peaking will take longer for developing country Parties."

Developed countries should "continue taking the lead" in terms of emissions reductions, while developing countries "should continue enhancing their mitigation efforts" and are encouraged to move over time towards economy-wide emissions reduction or limitation targets.

Financing

Another issue, related to differentiation, is that of financing climate change mitigation and adaptation. Developing countries were seeking more funds and arguing that developed countries had not met existing pledges made in Copenhagen in 2009 to 'mobilise' $100bn of finance a year to help developing countries.

The Paris Agreement does not impose any legally binding obligations with respect to financing, but urges developed countries to "scale up their level of financial support, with a concrete roadmap to achieve the goal of jointly providing $100 billion annually by 2020". It is clear, however, that there remain fundamental hurdles towards achieving that objective, and in particular over the relative contribution of large economies, notably China and India, which are still defined as developing countries for climate change purposes. Developed countries will, however, be required to disclose information on the finance they are providing.

The Paris Agreement also includes an article concerning 'loss and damage' which endorses ongoing work by the UN to consider possible approaches to addressing loss and damage suffered by developing countries as a result of climate change. The text makes clear, however, that the Paris Agreement does not involve or provide a basis for any liability or compensation.

Reaction and implications

Given the failure of previous negotiations, reaching any international agreement on the need to cut greenhouse gas emissions has been welcomed as an achievement in itself, and the 187 INDCs submitted to date, while not sufficient to meet the 2°C, are still significant.

Professor Lord Nicholas Stern, chair of the Grantham Research Institute, has commented:

“In many ways, this summit has already been a success with more than 180 countries having submitted pledges for action. Over 150 world leaders participated in the opening of the summit and announced a range of initiatives such as Mission Innovation. There has been good will and a spirit throughout these two weeks of negotiation. All these are signs of success. Of course, the question is how we accelerate from here - be it on innovation, finance, creativity, investment and so on.”

The reaction from business has been positive. The director-general of the CBI, Carolyn Fairbairn said: "We now have a climate deal agreed by the world's leaders that puts us on a sustainable low-carbon path and which can provide the framework for business to invest with confidence". During the negotiations, new climate carbon reduction targets were adopted by over 100 international companies, together with additional deforestation pledges and commitments to use renewable energy.

Mark Carney, the chairman of the Financial Stability Board, announced that a new climate change disclosure taskforce, headed by Michael Bloomberg, will be established to highlight the financial exposure of companies to climate change risks. The FSB advises the G20 economies on financial regulation, and so this move may influence the development of future regulation in this area. The announcement comes as authorities in the US show increasing interest in past and future disclosures made by fossil fuel companies on the potential business risks presented by climate change.

On any view, the Paris Agreement is notable as the first comprehensive international climate agreement, under which all countries have agreed to take action, even if the nature and extent of that action is yet to be determined.