As reported elsewhere in this edition of The Climate Report, on December 12, 2015, 195 countries, including the U.S., adopted the "Paris Agreement," which creates a framework for reducing global greenhouse gas emissions in an effort to address climate change. Among the Agreement's primary goals is to limit the increase of the global average temperature to below 2ºC over pre-industrial levels. Paris Agreement Preamble, December 12, 2015, art. 2. The Parties also agreed to "pursue efforts" to limit the increase to only 1.5ºC above pre-industrial levels. Id. To accomplish these goals, each country will submit an Intended Nationally Determined Contribution ("INDC"), or emissions pledge, it intends to achieve. Id. art. 4.
Developed countries will strive toward absolute emissions reductions targets, while developing countries are encouraged to move to absolute targets over time. Id. Currently, 180 countries have already submitted INDCs. Since the current plans are not sufficient to keep the global temperature increase below the stated goal of 2ºC, the Agreement contains a ratcheting mechanism under which each country must review its INDC every five years, beginning in 2020, to determine if it can achieve more stringent reductions. Id.
The Agreement also calls for a transparency system. The system requires countries to supply, every two years, a national inventory of emissions and other information necessary to track progress in achieving their INDC. Id. art. 13. The specific reporting and monitoring measures have not yet been determined, but the mechanism provides for an independent and a public review of countries' reports.
Status of the Agreement and Issues Moving Forward. Among the Agreement's more notable features, particularly in the U.S., is that it contains mechanisms to help assess and monitor the emissions reductions of developing countries such as China and India, which are among the world's largest sources of greenhouse gas emissions.
First, the ratcheting mechanism requires each country to review its INDC every five years to determine if it can achieve more stringent emissions reductions. The ratcheting mechanism was a point of contention because large developing countries did not want to be pressured into establishing more stringent emissions reductions. The U.S. supported the mechanism, and it was ultimately included in the final Agreement.
Second, the Agreement creates a transparency system under which countries' progress toward achieving emissions reductions can be monitored. Again, large developing countries like China and India opposed this provision, but it was ultimately included in the final Agreement.
The ratcheting mechanism and the transparency system thus help to alleviate, at least in theory, the concern that large developing countries will not do their fair share to achieve emissions reductions.
The Agreement leaves many questions regarding implementation, particularly in the U.S. For example, the U.S. submitted a target of reducing emissions by 26 to 28 percent below 2005 levels by 2025. Whether the U.S. can accomplish this will largely depend on the fate of the recently enacted Clean Power Plan ("CPP"). The CPP, which is aimed at reducing emissions from existing coal-fired power plants, is facing numerous legal challenges in the U.S. It is unclear how the U.S. will achieve its target emissions reductions if all or part of the CPP is struck down or modified. Further, there is widespread concern over the economic and technical feasibility of the measures that will be required for the U.S. to meet its target emissions rate.
On a more global scale, as mentioned above, the current INDCs are insufficient to meet the Agreement's goal of a 2ºC limit on temperature increase, meaning further commitments will need to be made. The Agreement also does not make it clear from where the funding required to support target emissions reductions, particularly in developing countries, will come.
Finally, because the Obama administration took the position that the Agreement is not a treaty, it has not been approved by the U.S. Senate. Progress toward target emissions reductions will therefore depend on measures taken during the remainder of the administration's term. The next administration may decide to withdraw from, or simply not implement, the Agreement.
From a business perspective, in addition to the Paris Agreement, U.S. business interests are also watching a number of potential developments insofar as they relate to U.S. disclosure obligations. Recent regulatory and legislative developments are indicators of increased public interest in climate disclosures after the New York Attorney General's recent investigations into company statements regarding climate change and the newly penned Paris Agreement.
During a January 28, 2016 conference at the Northwestern University Law School conference in Coronado, CA, Securities and Exchange Commission ("SEC") Chairman Mary Jo White stated that the SEC is considering requirements that would increase the frequency of public company disclosures about climate change. According to a January 28, 2016 subscription service report by Bloomberg BNA, the change in climate change disclosure requirements is a part of a larger effort by SEC to evaluate the state of disclosures. Furthermore, the Government Accountability Office released a report that reviewed "(1) the types of climate-related supply chain risks companies are disclosing in their SEC filings and other channels through which companies may disclose climate-related supply chain risks; (2) how SEC considers climate-related supply chain risks when monitoring and enforcing compliance with disclosure requirements; and (3) what actions, if any, SEC has taken to identify climate-related supply chain risk information that investors may need." On Capitol Hill, Jack Reed (D-R.I.) introduced an amendment (S. Amdt. 2990 to S. Amdt. 2953) to a larger energy package, known as the Energy Policy Modernization Act (S. 2012), aimed at requiring SEC to update oil and gas industry guides and consider disclosure recommendations of the World Resources Institute. In the private sector, investor groups are asking public energy companies to disclose statements regarding climate change and activities to affect climate policy. Each of these developments marks efforts to increase the amount and substance of climate change disclosures for public companies.
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