Informing Transparency in the Paris Agreement: The Role of Economic Analyses

The Paris Agreement (2015) established a long-term architecture based on five-year cycles to review progress and renew national pledges (nationally determined contributions, NDCs). Clearly, the initial portfolio of NDCs (covering periods to 2025 or 2030) will produce only modest results. Achieving long-term goals will require future NDCs to be far more ambitious. For that to happen, an effective transparency regime will be essential to build trust and confidence that nations are meeting their current pledges, making efforts comparable to those in similar circumstances, and are prepared to take stronger action going forward.

In a study now available online in Climate Policy, coauthors Henry Jacoby and Y.-H. Henry Chen (both of MIT) and I discuss the vital role that unofficial processes led by academics, business, think tanks, and other non-state actors will play, especially in these early years of the Paris Agreement, long before the formal rules can be agreed upon and implemented. For example, research teams using integrated assessment models (IAMs) have already analyzed anticipated outcomes over periods through 2030, 2050, or longer, based on current NDCs and assumptions about future efforts. Some studies focus only on the resulting emissions gap that must be overcome if the world is to achieve ambitious long-term goals. Others also examine the effect of national efforts on economic growth, international trade and other socioeconomic consequences. Both will be essential input to inform debate as nations consider future pledges as the agreement unfolds.

Negotiators are now fleshing out rules and procedures to implement the agreement, with many to be agreed upon next year at COP-24. These include methods for measurement, reporting and verification in several aspects of the agreement, the transparency framework to assess national actions and support, and sources of information and procedures for a facilitative dialogue to consider collective progress to achieve long-term goals and inform future NDCs. It will take several years to agree upon and implement decisions. In the meantime, analyses by academic experts and others outside of national governments or formal operations under the agreement will be critical to inform officials and the public concerning progress and relative efforts by nations.

Our study considers challenges faced by such economic assessments, the insight and value they can bring, and opportunities to improve them. The main challenges can be summed up along the lines below:

• Differing time frames: While most initial NDCs end in 2030, others end in 2025, and they use different historical years as a reference for future improvements.
• Accompanying information: Most NDCs are silent regarding many essential assumptions required for economic analyses, e.g., regarding future population, economic growth, labor productivity and availability, and the cost and performance of technologies to mitigate emissions. In large part, the NDCs contain little or no information on policies and means to achieve outcomes. Yet economic and social impacts differ dramatically depending on the use of efficient or inefficient policies.
• Quantification of outcomes: Many developing nations proposed NDCs that make it difficult to quantify outcomes. For example, they refer to improvements, such as in energy intensity, relative to an unspecified business-as-usual baseline. (The outcomes of developed nations, by contrast, can be quantified because their NDCs were required to specify improvements to economy-wide emissions.) Moreover, many NDCs specify a target only for the final year—a level in 2025 or peaking emissions by 2030, rather than a trajectory over time—again making it difficult to assess whether projected or, later, observed trends are on track.
• Financial and other assistance to developing nations: When the agreement was established, developing nations sought information on financial aid and other assistance. Many made pledges they could undertake on their own, and conditional pledges depending on aid. However, developed nations insisted that NDCs should focus on climate change mitigation, and most developed-country NDCs provide no indication of aid they will provide to others.
• Time lags: It takes time to prepare and approve official national reports and inventories for a given year. Publication typically falls 16 to 18 months after the reported year, and international reviews take additional time. So, in 2018 nations will have available results through 2016—at best. Also, since initial NDCs cover a period through 2025 or 2030, review of actual outcomes will not be available until 2027 or 2032. Interim reviews must be based on progress and trends. Available data will not be well-matched to the timing for near-term decisions to establish the transparency and other frameworks, or to the five-year cycles to review and renew NDCs.

In our new article, we present examples that illustrate how analyses depend on the structure and assumptions in different modeling simulations and describe the challenge of interpreting results. As submitted, NDCs provide inadequate information to initialize and undertake ex ante simulations, which are based on forecasts and available data, not actual results. Research teams must supply the missing information using their own assumptions, which may differ from one model to another. Being explicit about missing information in NDCs provides valuable insights to negotiators in their effort to define information that should accompany development and submission of future NDCs.

A major advantage of utilizing IAMs is that they are able, in principle, to account for ubiquitous economic interactions within and among sectors and nations in the globalized economy. It is inappropriate simply to add up results for sectors and nations as though they can be treated independently. However, modeling teams simulate outcomes using different mathematical formulations, national and regional groupings, sectoral disaggregation, and technology assumptions. Consequently, different IAMs produce different results, even when ostensibly simulating the same set of NDCs. For example, those with more detail—about nations, sectors, and technologies—tend to show higher costs to mitigate emissions than those with more simplified structures. Additionally, IAMs today cannot represent the large variety of policies that nations actually employ to address climate change, or all the other issues and policies that will affect environmental, economic, and social outcomes going forward.

Challenges aside, IAM studies have important roles to play. They offer value and insights, many of which we highlight in our study. IAMs will continue to be important for assessing progress toward NDCs because they do the following and more:

• Identify missing information that is required for quantitative simulations, thus helping researchers, negotiators, observers, and stakeholders to understand individual NDCs.
• Clarify projections. IAMs simulations can display results for all nations for a variety of initial baseline and later years, as well as evaluate a variety of metrics to compare performance and socioeconomic impacts.
• Account for economy-wide and cross-border interactions. These can have a significant effect on socioeconomic efforts required to achieve NDCs. Models that can evaluate changes to international terms of trade often find that these effects can swamp all other economic impacts in some nations. For example, nations with economies that depend heavily on exports of fossil fuels and energy-intensive goods may find that they receive less for their exports and in turn pay more for imports from nations with stronger climate policies.
• Illustrate the importance and lack of clarity concerning the potential role of international markets for carbon and greenhouse gas emissions under the Paris Agreement (e.g., nations with higher costs to reduce emissions may benefit by purchasing emissions credits from those with lower costs).
• Highlight opportunities and challenges associated with policies to achieve pledges that are more—or less—efficient.
• Provide future insight into progress through ex post analyses of trends and outcomes as data become available in coming years. Reality will certainly unfold in ways that differ from assumptions underlying the NDCs or current analyses (e.g., tsunamis, technological breakthroughs or setbacks, and elections). Assessments using IAM simulations will be helpful going forward to inform the shape and ambition of future NDCs.

Although unofficial and outside of the formal Paris Agreement processes, credible and authoritative analyses by non-state actors will play a crucial role in the broader transparency regime that informs governments, citizens, and other key actors in the debates that shape understanding of progress under the agreement. Dialogues among producers and users of the results will help to inform all actors of the relevant issues and concerns that emerge based on experience with the portfolio of NDCs as actually implemented.

These informal processes likely will be more timely, comprehensive, and freewheeling than the more staid and constrained official reports and reviews inside the Paris Agreement. Open, public discussion can help to identify ways to improve not only the simulations but also the transparency regime itself. Civil society, including institutions like Resources for the Future, can play an important role convening stakeholders from academia, businesses, think tanks, governments, and elsewhere to dig more deeply into these issues and build better approaches for the design and implementation of domestic NDCs and the international framework.