On November 11, 2014 President Obama announced an agreement with China’s President Xi Jinping setting targets to reduce greenhouse gas (GHG) emissions. President Obama announced a new target to cut net U.S. greenhouse gas emissions 26-28 percent below 2005 levels by 2025. China announced targets to cap CO2 emissions around 2030, with the intention of peaking early and then reducing emissions as 2030 neared. China also intends to increase the non-fossil fuel share of energy consumed to around 20 percent by 2030.
According to the White House, the new U.S. goal will double the pace of carbon pollution reduction from 1.2 percent per year, on average, during the 2005-2020 period to 2.3-2.8 percent per year, on average, between 2020 and 2025. Previously, in 2009 President Obama issued a goal to cut emissions roughly 17 percent below 2005 levels by 2020. In setting the targets, the White House indicated the Administration will rely on existing laws in enacting regulations to achieve these targets. The United States will submit its plan to achieve the 2025 target to the U.N. Framework Convention on Climate Change as an “Intended Nationally Determined Contribution” no later than the first quarter of 2015.
Beyond the numerical targets, the announcement sends significant signals regarding future regulation of GHGs in both the United States and China. Here are five key elements relevant to companies operating in both nations:
- Opening the door to GHG regulation of industrial and manufacturing sectors in the near term: Perhaps the most significant, but understated, element of the announcement is the likelihood that the Administration will seek controls for industrial sectors not currently covered by GHG regulations. To date, the Obama Administration has focused on regulation of cars, trucks and electricity generating units to drive GHG reductions. Importantly, the targets announced by President Obama implicitly would require greater reductions than current proposals for these sectors. That necessarily means that the Administration will need to regulate new sectors. Although the two years remaining in the Obama Administration are likely not long enough to propose and finalize new requirements, in practice the Obama Administration could attempt to make a series of commitments, either publicly or with non-governmental organizations, for a schedule to promulgate GHG rulemakings covering additional sectors that aims to bind the next Administration.
- A symbolic pivot for China, with significant uncertainty in practice. China’s willingness to agree for the first time to a future cap on GHGs (although not necessarily a reduction) represents a departure from past positions that as a rapidly developing nation it should not be subject to GHG constraints as it grows its economy and transitions hundreds of millions of citizens to the middle class. However, given the extended timeline for the commitment, it is difficult to assess near term on the ground impacts for facilities operating in China. The real significance may be the symbolic pivot toward expressing accountability for the nation’s GHG footprint and a commitment to take actions to address it.
- An Agreement in Principle, Without Enforceability. Ultimately, while the agreement was reached through discussions between the Obama Administration and China, the targets are not legally binding nor enforceable within or by either nation. On the United States’ side, the agreement does not require congressional ratification and does not create legal obligations. President Obama plans to employ his executive powers and agency rule-making to meet the pledge, converting the targets to enforceable requirements domestically by invoking the Environmental Protection Agency’s (EPA) existing authority in the Clean Air Act to achieve reductions from GHG emitters in the United States.
- Political and Legal Challenges Stand in the Way. Republican leadership in Congress quickly denounced the agreement as a one-sided commitment that will burden the American economy with no meaningful consequences in China. The agreement likely will embolden the newly empowered Republican Congress, which is likely in January to focus on derailing the President’s climate change initiatives —although most tools available to Congress are legislative actions subject to Presidential veto. Meanwhile, in the next several months EPA will finalize the most significant element of the President’s climate change agenda—regulation of new and existing coal and natural gas electricity generating units. Litigation against these rules also will commence in the next twelve months, presenting a significant test in the courts on key components of the President’s proposal. (For an assessment of the legal challenges confronting the GHG regulations, please see http://www.eenews.net/tv/videos/1893.)
- An opportunity to grow new technologies. Regardless of the extent of implementation, the agreements in the United States and China emphasize the growing interest of both nations to promote technologies that advance renewable and alternative energy, encourage energy efficiency and limit GHG emissions. In the case of the United States, such policies are driven by a goal of reducing the nation’s GHG footprint on the international stage and the co-benefits of reducing other conventional pollution. In China, the policies are focused more on the need to conserve limited natural resources for the nation’s ongoing ability to sustain economic growth and to mitigate the ongoing risk of severe pollution driving away foreign investment and intellectual resources. The announcement will provide China in particular with an opportunity to become one of the world’s leading testing grounds for novel technologies utilizing new energy sources and improving energy efficiency.