The Paris Climate Agreementand Coming GlobalImplementation

CLE Seminar for In-House CounselJune 8, 2016Chicago, Illinois

Jeffrey C. FortPartnerChicago+1 312 876 2380jeffrey.fort@dentons.com

1. The Facts and the Structure: The UN Framework Convention onClimate Change

2. The Key Elements of the Paris Agreement(and is it binding or enforceable?)

3. Intended Nationally Determined Contributions- 195 national plans, a bottom up approach- An overview of selected plans

4. "Side events" around the Paris COP and selected NGO and IGO inputs

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The Paris Climate Agreement and Coming GlobalImplementation

• Chicago's Rank Among World's Most Competitive Cities

• International headquarters -- #7

• Shared services center -- #6

• Software development -- #8

• Financial services -- # 4

• Life sciences R&D and production -- #7

• Changing Climate and its Threat to Food Security

• Chicago Council on Global Affairs 2014

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Managing Legal Risks for Chicago and Illinois Entities

Home to global entities and local entities with global ambitions

• Entire agreement and Annex approved, word for word

• 195 countries -- all who had joined the UN Climate Framework

• Over 190 country plans for addressing climate issues

• Intended Nationally Determined Contributions -- a first for many countries

• Developing countries assumed obligations, including BRICS

• Non-Kyoto Annex I countries assumed obligations (US and Canada)

• Goal increased to +1.5°C, from the +2°C that had been the goal; even

though first INDCs calculated to about half of the amount needed for 2°C

• Non-Parties' roles encouraged

• Renewable energy sources and finance to developing countries

• Replaces Kyoto by 2020, increases commitments for next 5 years

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Remarkable Elements of Paris Climate Agreement

• Before UN took on Climate

• Rio Treaty (1992): United Nations Framework on Convention on ClimateChange (195 Parties)

• Kyoto Protocol (1995): Binding commitment to reduce emissions for"Annex I" Countries

• Conference of the Parties ("COP") held annually

• Paris COP succeeded Kyoto Protocol

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The Structure of the UN Climate Framework

• 1970 Clean Air Act in the US

• Required "emission budgets" for "criteria pollutants" (health basedstandards with localized impacts; not GHGs)

• Required "offsets" for major new emission sources in "dirty air" areas

• Permanent, Enforceable, Real, Quantifiable and Surplus ("PERQS")

• In 1990 added as Title IV the "Acid Rain Program"

• Title IV gave away "allowances", established aggressive required reductions

• Expected regulated utilities to trade credits or reduce emissions

• Resulted in greater air quality improvement than expected and at a fraction ofthe projected cost.

• Environmentalists and industry cheered this "market-based" regulatoryapproach

• Results were becoming evident as Kyoto Protocol being crafted

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A Short History

Before the UN took on Climate

• Developed countries ("Annex I") obligated to reduce GHG emissions

• European Trading System (ETS) created; the largest carbon market in the world.Used "Cap and Trade" and extensive use of "offsets" from the Clean DevelopmentMechanism to meet commitments of Annex I countries

• Other major economies (e.g. Japan) fashioned their own approaches

• Canada joined; thought US would too

• US refused to ratify the treaty; BRICS viewed as economic competition

• "First Commitment Period":

• 2008-2012: 5% reductions from 1990 baseline; wild variations in price as supplyand demand varied from predictions

• "Second Commitment Period": 2013 to 2020

• The world's two largest economies and emitters of greenhouse gases are notregulated by Kyoto

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Short History

Kyoto Protocol

• Those highlighted on the UNFCCC web-site

• The Bali Road Map

• The Cancun Agreements

• The Durban Platform for Enhanced Action

• The Doha Climate Gateway

• Warsaw Outcomes

• Conspicuously absent from site: Copenhagen COP:

• "Voluntary" reduction commitment by US; vague China statement;

• Compare to Lima "Gateway to Action".

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Short History

COPs of note for current understanding

• Canada withdrew from Kyoto; Australia adopted and then removed its carbon tax andoffset law

• Canadian provinces have fashioned robust climate programs

• Europe has carried forward with emission reduction targets to 2020

• RGGI states (northeastern US) adopted a allowance auction program for electricgeneration capacity at a low price; reinvested in efficiency

• California adopted "Global Warming Solutions….Act" ("AB32")

• Began with power sector, expands to oil & gas, and other industrials.

• Includes cap and trade, but with price floor

• Includes offset projects from US

• Linking to Canadian and other provinces

• China has created 7 province-based cap and trade pilot programs; national cap andtrade system in 2017

• Also hosts a number of CDM projects

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Short History

In the meantime:

Projected Precipitation by End of Century

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Science• Sea levels in next 100 years with different scenarios

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Science• Acidification of oceans

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• November 3 - December 12: two weeks after 11/13/15 killings

• Official actions at Le Bourget

• High security and police presence at Conference and throughout Paris

• GOF decided to proceed

• 20,000 delegates in the "Blue Zone"

• 60,000 attendees overall at COP-related functions

• GOF determined to avoid Copenhagen COP disappointment

• COP functioned for final week as a "committee of the whole" to resolvelanguage; strong leadership from GOF and UN

• Several distinct negotiating positions:

• The island nations; the Africa nations; the Gulf States; EU; B-R-I-C; LatinAmerica, US and Canada

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The Paris Climate Agreement

The Setting

• Preamble with emphatic language

• "Recognizing that climate change represents an urgent and potentiallyirreversible threat to human societies and the planet and thus requires thewidest possible cooperation by all countries, and their participation in aneffective and appropriate international response, with a view to accelerating thereduction of global greenhouse gas emissions;"

• "Acknowledging that climate change is a common concern of humankind,Parties should, when taking action to address climate change, respect, promoteand consider their respective obligations on human rights, the right to health,the rights of indigenous peoples, local communities, migrants, children, personswith disabilities and people in vulnerable situations and the right todevelopment…"

• "Emphasizing with serious concern the urgent need to address the significant

gap between the aggregate effect of the Parties' mitigation pledges…with holding

the increase in the global average temperature to well below 2°C above pre-

industrial levels and pursuing efforts to limit the temperature increase to 1.5°C

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The Paris Agreement

• "Recognizing the urgent need to enhance the provision of finance,technology and capacity-building support by developed country Parties,in a predictable manner, to enable enhanced pre-2020 action bydeveloping country Parties",

• "Emphasizing the enduring benefits of ambitious and early action,including major reductions in the cost of future mitigation and adaptationefforts",

• "Acknowledging the need to promote universal access to sustainableenergy in developing countries, in particular in Africa, through theenhanced deployment of renewable energy",

• "Agreeing to uphold and promote regional and international cooperationin order to mobilize stronger and more ambitious climate action by allParties and non-Party stakeholders, including civil society, the privatesector, financial institutions, cities and other subnational authorities, localcommunities and indigenous peoples."

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The Paris Agreement (cont’d)

• Section II of the Paris Agreement

• "Welcomes the intended nationally determined contributions that have beencommunicated by Parties…;"

• "Notes with concern that the estimated aggregate greenhouse gas emissionlevels in 2025 and 2030 resulting from the intended nationally determinedcontributions do not fall with least-cost 2°C scenarios … and also notes thatmuch greater emission reductions will be required…;"

• "Also notes, in this context, the adaptation needs expressed by manydeveloping country Parties in their intended nationally determinedcontributions;"

• …

• "Invites the Intergovernmental Panel on Climate Change to provide a specialreport in 2018 on the impacts of global warming of 1.5°C above pre-industriallevels and related greenhouse gas emission pathways;"

• "Market mechanisms" included in final days, becomes a tool for tradingemission credits among countries.

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Intended Nationally Determined Contributions

• Mitigation

• Adaptation

• Loss and Damage

• Finance

• Technology Development and Transfer

• Capacity Building

• Transparency of Action and Support

• Global Stocktake

• Facilitating Implementation and Compliance

• Article IV: Enhanced Action Prior to 2020

• Article V: Efforts of Non-Party Stakeholders

• Article VI: Administrative and Budget matters

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Section III: "Decisions to Give Effect to Agreement"

• Annex is also entitled "Paris Agreement", consisting of 29 "Articles"

• More specific statements of the elements in the main document;

• Some statements are "shall", others are "should".

• "Not a treaty" within Constitutional requirement for Senate consent inArticle II, Section 2, Clause 2 according to Administration:

• INDC is US decision; not a burden imposed by foreign agreements;

• Responsibilities are on executive, in same manner as many other inter-governmental agreements require executive actions for US.

• First "Global Stocktake" in 2023, and every 5 years thereafter unlessCOP specifies otherwise:

• Outcome to "inform Parties in updating and enhancing, in a nationallydetermined manner,… as well as in enhancing international cooperation forclimate action." See Article 14.

• "Name and shame" the enforcement tool.

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Is this a Treaty? Is this Enforceable?

• Urgent need in many countries, not just the Island Nations

• Broad definition includes "changes in processes, practices or structure inorder to moderate potential damages or to benefit from potential changesassociated with climate change":

• Hurricane Sandy and re-construction of New York harbor;

• Florida flood protection and salt-water incursion into groundwater;

• DoD manual on adaptation to protect strategic bases;

• "Resilience" measures in urban areas, such as storm water control and heatisland mitigation in planning, design and construction;

• Insurance underwriting;

• Diversification of crops and food supply;

• Supply chain disruption and supply chain criteria.

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"Adaptation" may be included in INDCsMay present opportunities for US businesses

• Approach endorsed in prior COPs.

• Bottom up approach, unlike Kyoto Protocol

• US - China agreement in November, 2014 a break-through:

• A commitment to reduce, on a schedule China willing to state;

• Disclosure of actions against targets;

• Investments in renewable energy sources and reduction in coal usage.

• Criticized as too weak, not ambitious enough.

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Intended Nationally Determined Contributions

• International Initiatives - Global Methane Initiative, Energy and ClimatePartnership of the Americas, Clean Energy Ministerial;

• Joint statements with China and Canada;

• Doubling of investment supporting vulnerable countries;

• Clean Power Plan and 26-28% reduction from 2005 baseline;

• Department of Energy - Clean Energy Impact Center and reducing carbonpollution;

• Department of Agriculture - "Building Blocks for Climate Smart Agriculture &Forestry";

• Treasury Department - guidance on impact investing issued to charitablefoundations and continued tax credit incentives;

• Improving financing options from the US Small Business Administration forprivate investment funds.

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The United States INDCUS - Producer, Consumer, Exporter and Importer of Energy

• EPA adopted regulation requiring every state to adopt a StateImplementation Plan for the reduction of carbon dioxide emissions fromthe power sector (and only the power sector). Expected 26-28%reductions from 2005 baseline, through a combination of efficiencyimprovements, credits for renewables and nuclear power, and dispatchrules.

• Challenged in federal district and appellate courts. While pending in D.C.Circuit Court, Supreme Court issued a stay of enforcement, 5-4, on February13, 2016;

• Allows states to take credit for renewables based on portfolio standards, andtax credits for nuclear power, coal plant upgrades and increased natural gasdispatch;

• Administration asserts that the tax credit extenders for renewable powermay result in reaching emission reductions.

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Update on Clean Power Plan

• Oil production expanded, driving prices down:

• US fracking capacity continues;

• Coal production replaced by cheap gas and with few resources for carboncapture and sequestration solutions.

• California:

• Extend cap and trade program to 2030;

• Challenge to "tax/auction" dispute to be heard by appellate panel soon;

• Low Carbon Fuel Standard with federal Renewable Fuel Standard.

• States acting on Clean Power Plan and not waiting on EPA/Courts:

• Canadian hydropower into US;

• Even "dormant states" still considering how to use a market system (massmeasures v rate measures).

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United States - Beyond the Stay and CongressionalStalemate

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Change in Power Pollution in the Power Sector

Visuals provided by the Georgetown Climate Center. Data: EIA, 2015.

• Policies:

• Thirteenth - Five year plan 2016: National Action Plan on Climate Change:• Lower coal consumption, reaching a peak;

• Subsidies for natural gas and shale gas;

• Investment in wind and solar power.

• Challenges: lack of subsidies, regional and sector conflicts.

• Opportunities: promotion of PPP on investment in carbon emissions:• Preferential taxation, favorable pricing, green credits;

• Renewable energy and corresponding infrastructure.

• Market Way: China's Carbon Trading Scheme:

• No carbon tax;

• Use of allowances and CCERs; a suggested price; 10,000 parties involved;

• Carbon emission transaction regulations, draft 2016;

• Financial supports -- green bonds, collateral for emission allowances;

• Lack of institutional and professional expertise on MRV.

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The INDC for ChinaChina - Largest Energy Consumer and importer

• Canada:

• 30% below 2005 levels by 2030;

• More stringent standards for heavy duty vehicles;

• Reduce methane from oil and natural gas sector;

• Gradually phase out HFCs;

• Reduce GHGs from natural gas fired electricity, chemicals and fertilizer;

• Provinces led show at Paris COP. New regulations and controversies in:• Ontario, Quebec, Alberta, BC, Saskatchewan and new federal government leadership

• Mexico:

• 22% reduction in GHGs; 25% reduction in carbon black;

• Adaptation and resiliency measures (focus on extreme weather and poverty).

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Other INDCs in North America

• Norway

• International Climate and Forestry Initiative

• UN's REDD Programme

• Carbon dioxide tax and Greenhouse Gas Emission Trading Act

• RENERGI (ENERGIX) and CLIMIT

• Saudi Arabia

• National Energy Efficiency Programme

• Nuclear and solar projects

• Ministry of Water and Environment capacities strengthened in sustainabledevelopment and water resource management

• IPO planned for Aramco

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INDCs for Other Major Energy ProducersNorway and Saudi Arabia - both major petroleum exporters

• India - producer and consumer

• Goals: National Action Plan on Climate Change and Twelfth "Five-Year plan"

• Renewable Energy and Energy Efficiency• National Solar Mission

• Generation based Incentive

• National Smart Grid Mission

• Financial support: needs $2.5 trillion for clean energy

• Market way: credits to trade for energy efficiency, renewable energy, pilottrading plan in cities, carbon tax on coal

• Japan - nuclear power producer; import natural gas, coal and oil

• 4th Strategic Energy Plan, 2014, Reintroduction of Nuclear Energy 2015

• Bilateral joint crediting mechanism for carbon credits

• Feed in tariff subsidies for renewable energy and distribution networks

• Global warming tax

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INDCs (Continued)

India and Japan

• Europe committed to 40% reduction

• Germany reducing coal and nuclear, investing in renewables;

• Poland maintains need for coal; pursuing wind and solar;

• Russia - producer and consumer of energy

• 25% reduction from 1990 levels by 2030

• Economic contraction

• "Foreign policy" tools on natural gas to Europe

• Boreal forests cited as capturing and sequestering carbon

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INDCs (continued)Contrasts - Europe and Russia

• Indonesia - producer, consumer and exporter of petroleum

• Policies• Limit the Change of Land Use of Forest Area

• Promotion of Renewable Energy

• Legal/regulatory measures• Moratorium on change of use of Primary Forest Area and Peat Land

• National Energy Policy - increase the use of renewable energy

• Introduction of various feed-in tariffs

• Opportunities• Development in renewable energy by private sector

• Assistance in controlling the change of land use and forest fires

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INDCs

Indonesia

• Can be used on a voluntary basis to meet INDC objectives

• Can be transferred to another party, but then cannot be used by theoriginating country

• Larger countries and economies did not specify use of these internationalcredits in INDCs

• Smaller developing economies often did, as well as specify need forfinancial support [Green Climate Fund, and other tools]

• Interesting comparison of these economies trade profiles to forestry opportunity

• Implementation rules now being crafted

• Consider the market that may co-exist

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Article 6 of the "Annex""Internationally Transferred Mitigation Outcomes"

INDC Market Interest

Marshall Islands

New Zealand

INDC domestic focus

Singapore

INDC includes the use of

International markets

San Marino

Trinidad and Tobago

Comoros

Grenada

Country will considerusing markets

Seychelles

Kiribati

Mauritius

Maldives

Barbados

Vanuatu

Cape Verde

Dominica

Sao Tome andPrincipe

Solomon Island

Monaco

Samoa

INDC Not Submitted

Antigua and Barbuda

www.ieta.org

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Global Coffee Growing Regions

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Forest Carbon Partnership

REDD+ Countries A REDD+ Country Participant is a developing country located in a subtropical ortropical area that has signed a Participation Agreement to participate in theReadiness Fund. Forty-seven developing countries have been selected to join theFCPF (18 in Africa, 18 in Latin America, and 11 in the Asia-Pacific region).

• Argentina • Fiji • Pakistan

• Belize • Gabon • Panama• Bolivia • Ghana • Papua New Guinea• Plurinational State of Bhutan • Guatemala • Paraguay• Burkina Faso • Guyana • Peru• Cambodia • Honduras • Sudan• Cameroon • Indonesia • Suriname• Central African Republic • Kenya • Tanzania• Chile • Lao People's Democratic • Thailand• Colombia Republic • Togo• Congo, Democratic Republic of • Liberia • Uganda

Congo • Madagascar • Uruguay• Republic of Costa Rica • Mexico • Vanuatu• Côte d'Ivoire • Mozambique • Vietnam• Dominican Republic • Nepal• El Salvador • Nicaragua

• Ethiopia • Nigeria

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Rule of Law Statement

To Be Sustainable by Design, REDD andEmissions Trading require smart

investments in Rule of Law reform

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• Corporate Social Responsibility

• Avoided deforestation and community building (REDD+)

• Climate Smart agriculture

• The "Paris Puzzle"

• Enhanced Controls on Coal Usage

• Scaling Green Climate Finance

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Paris was not all Governmental Deliberations

"Side events" during COP: Civil Society, IGOs and NGOs

• Starbucks: Alliance for Sustainable Coffee to address gap betweensupply and demand of sustainable coffee production. Coffee producedby farmers participating in sustainability programs are omitted.

• Aviva: UK insurer using offsets as part of policy to reduce emissions.Benchmarked community benefits from these offsets and found higherratings than their traditional "community support" expenditures.

• Apple: sourcing or generating 93% of energy needs through renewables,including 100% at data centers and in US, China, Germany & Singapore.

• Wilmar: Palm oil producer with objective to be carbon neutral in itsoperations and to avoid all palm oil produced from degraded ordeforested lands. Follows HCV principles and has supply chain demandfrom its customers.

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Side Events

Corporate Social Responsibility - a few examples

• Second largest source of CO2e emissions is from unplanned degradation anddeforestation of forests emits more carbon dioxide than all the world's vehicles.

• A series of steps, known as Reduced Emissions from Degradation andDeforestation ("REDD"), is effective in avoiding such deforestation.

• When combined with measures to provide education, training and principles ofland title such promotes and protects indigenous communities (and provideslivelihood and future opportunities).

• REDD+ is recognized by UN as an eligible INDC strategy and requires results[carbon credits] in order to receive payments.

• Promotes rule of law in property rights and commercial transactions.

• REDD+ depends on governmental and private contributions.

• One of the lowest prices for carbon abatement among recognized methods.

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Side Events

REDD+

• "Low Carbon Technology Partnerships Initiative":

• Rising global population and changing diets

• Extreme weather events acutely affect food production

• Climate scenarios predict greater threats to food security and increasedvulnerability in agricultural systems.

• Objectives:

• Make 50% more food available and strengthen climate resilience of farming;

• Reduce agricultural and land-use change emissions from commercialagriculture 50% by 2030, and 65% by 2020;

• 50% more food available from existing land;

• Climate change resilience, incomes and livelihoods;

• Reduce agricultural emissions 30% below 2010 levels by 2030.• Work to halt HCV and HCF forest conversion and all grasslands, wetlands and peatlands

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Side Events

Smart Agricultural practices

• Air travel expected to double by 2050, as overall CO2e emissions areneeded to be cut by 80%.

• International Air Transport Association recommendations:

• Three goals:• 1.5% Improvement in fuel efficiency per year

• Stabilize net emissions from sector by 2020

• 50% emissions reduction from aviation by 2050 (2005 baseline).

• Four actions:• Technology (including sustainable alternative fuels)

• Operations

• Infrastructure

• Global market based measure (offset credits).

• ICAO approved approach.

• Governments are adopting limits on engine emissions; though decried bymany as too weak.

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Side Events

Aviation

• To reach a 2°C target, let alone a 1.5°C goal by 2050, questions asked whether naturalresources such as coal and oil should remain buried.

• "[I]f global energy policies consistent with a 2°C trajectory were adopted, the fossil fuelindustry would stand to lose revenues of some $34 trillion between 2014 and 2040compared to those under the IEA's based case New Policies scenario. Of that total loss,the oil industry would account for $22.4 trillion, gas for $5.5 trillion and coal for $5.8trillion" Barclay's research, reported in Petroleum Economist"

• Panelists from several European "Big Oil" entities described their approaches, whichincluded: bio-fuels, renewables, and physical sequestration of carbon dioxide emissions[carbon capture and sequestration].

• The latter technology which has been viewed as promising, has recently been shut downby the UK government as too expensive, and is under political attack in Saskatchewan forsimilar reasons.

• IPICEA is urging a mix of approaches.

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Side Events

The "Paris Puzzle" by IPIECA

• Take 5 key actions:

• Increase energy efficiency Performance Standards in building, transport andindustry;

• Reduce inefficient coal plants and ban construction of new coal plants;

• Renewables investment increase to $400 billion annually;

• Upstream methane reductions;

• Fossil fuel subsidy reform: phase out.

• Use Paris Agreement to drive short term goals actions consistent withlong-term emission goals.

• Accelerate energy technology innovation to make decarbonization easierand more affordable.

• Enhance energy security by making energy sector more resilient toclimate change impacts.

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Side Events

Energy Information Agency -- Recommendations

• "Pay for performance" a key criteria - extended to developing countriescreates many challenges which grants and donations have avoided.

• Contributions from the developed world for use by developing countriesis the critical measure for requiring INDCs from all countries; typicallycited as a condition in INDCs from developing countries.

• Several financing structures, beyond the World Bank and regionalDevelopment banks.

• Green Climate Fund, accountable to UN; 24 member Board, evenlydivided between representatives of developing and developed countries:

• To mobilize $100,000,000 by 2020, from public, private and philanthropicsources;

• $10,200,000 announced contributions; US is largest amount, but per capita issubstantially less than Japan and nearly all European countries.

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Side Events

Scaling Green Climate Finance

• Remarkable consensus to get to the Paris Agreement. With largemovements by many governments:

• All countries have to make a commitment and plan; can defer makingreductions. But each has a plan when emissions will peak and reduce;

• Financing of renewables, avoided deforestation and other measures whichdeveloping countries can perform;

• Sustainable agriculture and food production;

• Transparency with Monitoring, Reporting and Verification.

• Use of finance models, markets and other private sector skill sets arecritical to the agreement.

• Reporting and enforcement will be by public disclosure and social media.

• Rule of law and fall elections in the US the likely determinative factor onthe Paris Climate Agreement.

• So it is all about US, and rule of law.

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Conclusions

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Thank You!We are very interested in your feedback -please take a moment to leave a note about this class and thepresenter on your evaluation form.

Jeffrey C. Fort

Partner

Dentons

T +1 312 876 2380

jeffrey.fort@dentons.com