Seven key lessons from the US-China Climate Pact

Today, months of secret negotiations between the US and China culminated in a major new climate change agreement, underlining both countries' commitment to decarbonisation. For the first time, China has publicly committed to peaking its greenhouse gas emissions, setting a goal to cut emissions from around 2030 at the latest. Meanwhile, the US has said it will accelerate its emissions reduction efforts, building on its goal to cut emissions 17 per cent against 2005 levels by 2027 by cutting emissions 26 to 28 per cent against the same baseline by 2025. Crucially, both governments state that they "intend to continue to work to increase ambition over time".

The historic agreement promises to provide a significant boost to the global green economy and the chances of finalising and international climate deal in Paris next year.

BusinessGreen looks at the key implications for green businesses:

1. This is a big deal

"Historic", a "game-changer", a "major political breakthrough" - for once the hyperbole seems justified. Green groups and climate scientists have already warned that the agreed emission reduction targets are still not compatible with a 2C world, and their complaints are legitimate. But equally, critics of international climate negotiations have spent years arguing they are pointless without bolder commitments from the US and China, now we have both.

Claims by climate sceptics and opponents of green investment that the world's two biggest emitters are not serious about climate change and as such other nations cannot construct an economic case for their own decarbonisation have never looked more discredited.

2. The odds on a Paris Climate Agreement just shortened significantly

The US-China agreement states clearly that the reason for announcing it now is to "inject momentum into the global climate negotiations and inspire other countries to join in coming forward with ambitious actions as soon as possible, preferably by the first quarter of 2015".

No one is expecting the pollutocrat policies being pursued by the likes of Australia, Canada and Saudi Arabia to be suddenly reversed, but the US-China agreement puts a lot of pressure on other major emitters such as Japan, Brazil, South Africa, India, and even Russia to strengthen their own position ahead of the Paris talks. It also raises questions for the EU after it finalised its plans to cut emissions by "at least" 40 per cent by 2030. Those European states that wanted a bolder target will argue that if the bloc wants to retain its position as a clean tech leader it may have to respond to the US-China commitment with its own pledge to deliver still deeper cuts.

In addition, the US-China agreement, coupled with the EU energy and climate change package, provides a safety net should the Paris talks falter. Green businesses can now invest in new low carbon projects, knowing that regardless of what happens in Paris the world's biggest economies will continue to pursue decarbonisation policies.

3. A huge increase in demand for green goods and services is on the cards

China has accompanied its commitment to ensure emissions peak with a new goal to source a fifth of its energy from clean sources by 2030. According to some estimates that means a further 800GW to 1,000GW of clean energy capacity will have to come online in China over the next 15 years. As the International Energy Agency confirmed again today, China is already the world's biggest clean energy market and it is about to get a whole lot bigger.

The US target similarly represents an acceleration on the decarbonisation trajectory it had intended to follow to cut emissions 17 per cent by 2017, meaning that the rollout of clean energy, green automotive, and energy efficiency technologies are all set to increase sharply over the coming decade.

Market signals highlighting the wisdom of green investment have just got clearer, as the world's two biggest markets let businesses know that they are doubling down on the low carbon agenda. Moreover, the governments of both the US and China have explicitly endorsed an analysis that demonstrates how climate action is in their economic interests, stating that "economic evidence makes increasingly clear that smart action on climate change now can drive innovation, strengthen economic growth and bring broad benefits - from sustainable development to increased energy security, improved public health and a better quality of life". They add, not insignificantly given we are talking about the world's only two superpowers, that "tackling climate change will also strengthen national and international security".

Further reading

US and China agree to act on climate change: the reaction

• Policy
• 12 November 2014

USA and China climate change agreement - in full

• Climate change
• 12 November 2014

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