This article first appeared in Volume 11, Number 4 of the Carbon and Climate Law Review.

The Paris Agreement was specifically designed to provide sovereign nations with the flexibility they need to craft their own greenhouse gas reduction plans. The cyclical and transparent review of progress toward those goals is established to allow and encourage increasing ambition over time – a global race to the top.

The withdrawal announced by the Trump Administration in June of 2017 has begun to motivate sub-national and non-state actors in the U.S. to strengthen their own commitments. This combined effort, which is building off the tremendous technology advances underway, has the potential to keep the U.S. in a global leadership position in the near-term. States and cities are continuing to craft legal frameworks to enable these transitions and the cost of clean power has evolved to make most public service commissions in the U.S. comfortable with decarbonization plans.

To achieve a very low carbon economy, federal policy to further unleash market forces will be needed in the longer-term. In light of the flexibility of the Paris Agreement regarding domestic policy, the likely continuation of technological advancement in key areas, and the momentum demonstrated by sub-national and non-state actors, the Administration is presented with an opportunity to take a new approach and claim a “better deal” on the Paris Agreement. Looking at this groundswell of non-state and sub-national action and the opportunity for market-based approaches that have bipartisan support, there is no reason the Administration could not reformulate the U.S. NDC in a way that contributes to resolving the climate problem.

I. Start with the Facts

U.S. media and government have labored under a fog of misunderstanding over the nature of and responsibilities under the international accord adopted at the 2015 United Nations Framework Convention on Climate Change (UNFCCC) climate conference in Paris, France. From President Obama’s signing in September 2016 to President Trump’s inauguration in January, confusion has fertilized a number of myths about the Paris Agreement. The President’s June 1 announcement of the intended withdrawal of the United States from the agreement was preceded by officials in the Administration, Congressional and other opponents asserting that the Paris Agreement was not in the interest of the U.S.

Critics often cited “draconian financial and economic burdens,” intrusions into U.S. sovereignty, and “massive legal liability” as pressing reasons for exiting the agreement. In fact, the Paris Agreement represents a carefully negotiated mix of approaches: the “top-down,” differentiated and enforcement-oriented approach of the 1997 Kyoto Protocol and the parallel, “bottom-up” voluntary framework established by the 2009 Copenhagen Accord and 2010 Cancun Agreements. The end result is a common framework that commits all parties to put forward their best efforts and strengthen them over time.

The Paris Agreement commits parties to several procedural obligations. Namely, to “prepare, communicate and maintain” successive nationally determined contributions (NDCs), or national targets; to “pursue domestic mitigation measures” aimed at achieving their NDCs; and to regularly report on their emissions and progress on implementing their NDC.

None of these binding commitments mandate financial contributions from the United States. Contributions made to the Green Climate Fund are voluntary. Some critics of the Paris Agreement read the obligation for parties to report on progress towards their NDC as a legal requirement to achieve the U.S. target of reducing greenhouse gas emissions 26 to 28 percent below 2005 levels. The concern expressed was that this would hinder efforts to dismantle the Clean Power Plan, which the Obama administration touted as integral to the achievement of the U.S. target.

The achievement by a party of its NDC is not a legally binding obligation, nor is a country bound to particular policies by which to achieve its target. It can, at any time, revise those targets and policies without legal ramifications. A key principle of the Paris Agreement, evidenced by the term “nationally determined contribution,” is national determinedness, or respect for national sovereignty. Unlike the Kyoto Protocol, which negotiated targets for individual countries, parties are free to choose their NDCs and how they will achieve them.

Rather than rely on punitive legal enforcement measures, the Paris Agreement provides a framework that creates a continuous cycle to take advantage of peer and public pressure to motivate countries to raise their ambition over time through several linked processes. Embedded in the agreement is the expectation that each party’s NDC will “represent a progression” beyond its previous one, and “reflect its highest possible ambition,” a non-binding aspiration that parties will increase action over time. Two important processes are on five-year cycles: the global stocktake, a periodic moment to assess collective progress towards meeting the Paris Agreement’s long-term goals, and the submission of new or updated NDCs, “informed by the outcomes of the global stocktake.”

The Paris Agreement rests heavily on enhanced transparency, or reporting and review, processes as a means of holding countries accountable. In addition, the facilitative, non-punitive implementation and compliance mechanism and voluntary long-term emissions reductions strategies also contribute to an agreement that is more than just a moment in time to cheer climate action. The agreement creates a durable cycle that provides the signal to the international community to increase ambition, incentivize technological innovation, and invite collaboration. It tacitly recognizes that as our technology and efficiency improve, ambition grows – perhaps not uniformly, but globally.

Opponents of the Paris Agreement often portray other major emitting countries as being able to “do whatever they want for 13 years” (China) or “double its coal production by 2020” (India) unless they receive “billions and billions and billions of dollars in foreign aid from developed countries.” Often opponents imply other countries are increasing reliance on fossil fuels and ignore the relevance of transparency while failing to acknowledge already shifting international energy market forces.

The reporting and review processes under the UNFCCC already address this concern regarding the actions of other countries. Far from doing nothing, China is likely to achieve its nationally determined target of peaking its greenhouse gas emissions by 2025 – five years earlier than its commitment. India boasts an impressive array of ambitious solar and other renewable energy targets and policies aimed at reducing poverty and expanding access to electricity while slowing greenhouse gas emissions. China and India have been relaying this information to the UNFCCC, as well as investors. Moreover, under the Paris Agreement, the new transparency framework ends the strict differentiation between developed and developing countries. All countries are required to submit emissions inventories and the “information necessary to track progress made in implementing and achieving” their NDCs.

The agreement also reflects and provides a major signal to the international market, which is already in the process of shifting away from relying on coal and oil to natural gas and renewable energy sources. Such a shift is encouraging investment in new and innovative technology that promotes energy efficiency, lowers the cost of renewable energy, and decreases greenhouse gas emissions. In fact, climate diplomacy provides a fertile ground for collaboration between governments on a host of related issues: energy, trade, and technology. In the lead-up to the adoption of the Paris Agreement, the United States entered into and enhanced bilateral agreements with China and India that focus on clean energy research and clean energy finance.

The Administration has also discounted the fact that businesses and U.S. cities saw the Agreement as serving their interests. A groundswell of pledges and initiatives to support the Paris Agreement mushroomed from being showcased on an ad hoc web portal to an entire non-party process that has since been formally linked to the climate negotiations. The Paris “package” consists of three parts: the Paris Agreement, the nationally determined contributions, and thousands of voluntary contributions and initiatives offered by companies, states, cities, and civil society organizations.

Unprecedented, global non-state climate action is now addressed by the Marrakech Partnership for Global Climate Action. The Partnership establishes two High-Level Climate Champions to manage the initiatives of the Global Climate Action Agenda, support the Non-State Actor Zone for Climate Action (NAZCA) web portal showcasing non-state action projects, highlight successful and impactful initiatives, and to connect those initiatives and coalitions with national action plans. These efforts are discussed later in this paper.

With the federal government in the U.S. moving away from action on climate change a wave of support for the Paris Agreement throughout the U.S. that shows that businesses, cities, states, universities along with other organizations continue the push for climate action. Federal policy will be needed and is a necessary element to achieve the deeper decarbonization goals of the agreement, but in the near-term business, cities, and other sub-national actors can support select policies and continue to take action themselves.

II. Flexibility for Domestic Policy

Policymakers in the Trump Administration have an opportunity to outline a new strategy to reduce U.S. emissions if they are persuaded that the Clean Power Plan would have imposed excessive costs on U.S. industry. Certainly, there are several domestic policy options to achieve the U.S. NDC, including market-based approaches that have some bipartisan support.

Tax reform has been mentioned by both the President and Congressional leadership as a priority. In this context, there are many ways to create a price on carbon. In February 2017, James A. Baker III and George P. Schulz (both former U.S. Secretaries of State) and Henry M. Paulson, Jr. (a former U.S. Treasury Secretary) announced a proposal based on free market and small government principles. The proposed carbon tax would be established at $40/ton, replacing the Clean Power Plan and yielding an estimated $200 billion to $300 billion per year to be returned to consumers as a “carbon dividend.” More companies are publicly expressing their support for a carbon tax, including this particular proposal; in June 2017, BP, Exxon, Royal Dutch Shell, and Total S.A. announced that they supported the Baker-Schulz proposal. It should be noted that there are several other published concepts for using tax structures to place a price on carbon to facilitate market solutions.

Alternatively, there is a supply-side proposal for “clean tax cuts,” which would reduce marginal tax rates on decarbonizing investments, products, and practices. The proposal does not involve tax credit subsidies but instead would reduce the marginal tax rate on capital gains, corporate, dividend, individual, and interest income for qualifying investments. Using auditable metrics related to efficiency and emissions reductions, the hope is that a marginal tax rate reduction would encourage profitable companies to invest more capital into clean energy innovation and growth. This proposal is supported by libertarians because it would encourage emissions reductions with limited government intervention.

Policymakers should carefully consider these proposals and others as market-based alternatives to regulations that would help achieve the U.S. NDC (or an adjusted version).

III. Technology and Innovation

In addition to flexibility for overarching domestic policy, a signature strength of the Paris Agreement is its long-term trajectory towards greater emissions reductions. Article 3 of the Paris Agreement states that the “efforts of all Parties will represent a progression over time” which can be read to reflect an understanding that technology will continue to improve, enabling higher ambition.

In the U.S., there has been remarkable innovation in wind and solar energy. The cost of wind energy has declined by 66 percent since 2009 and average nameplate capacity of newly installed wind turbines in 2015 increased 180 percent since 1998-99. These improvements have led to an installed wind capacity of 84,405 MW in the U.S. These wind energy milestones in cost reduction, performance improvements, and scale of deployment were supported by the Production Tax Credit (PTC), a federal deployment incentive. It is reasonable to assume that the PTC would have been even more successful if it had been maintained consistently instead of experiencing periods of uncertainty regarding its fate, leading to boom-and-bust wind power development cycles.

Solar photovoltaic (PV) technologies experienced similar dramatic cost declines due to economies of scale and improved manufacturing and performance. The cost of utility-scale solar has fallen 85 percent since 2009. The efficiency of all PV cells steadily improved between 1975 and 2010, supported by multi-decade research and development programs.

These cost declines and performance improvements were facilitated by the Investment Tax Credit and the Section 1603 Treasury program, a federal loan guarantee mechanism to support project financing. Strong state policies like the California Renewables Portfolio Standard enabled developers to enter into above-market power purchase agreements.

U.S. domestic policies that supported technological advancements in wind and solar energy were an essential first step. The Paris Agreement sent a critical market signal to global investors that the nations of the world will continue to transition to a lower-carbon future. A long-term market signal is important because there are often shifts in domestic politics that result in short-term variations in policy. In the U.S., even though overall there is strong support for Federal and state incentives, some tax credits have lapsed in the past and some states have repealed Renewable Portfolio Standards. The Paris Agreement enables nations to adjust their domestic strategy in response to short-term concerns while remaining committed to climate action.

Looking ahead, it is clear that with domestic policy leadership on investment incentives, we can continue to see technological advancements in many areas of clean energy even in the absence of a more comprehensive global federal policy on climate change. For example, analysis suggests that carbon capture use and storage technology (CCUS) could provide between 12 – 13 percent of global emissions reductions needed by 2050. CCUS technology is the only practical way to achieve deep decarbonization in the industrial sector, such as at steel, cement, and fertilizer plants, natural gas processing plants, and refineries because many carbon dioxide emissions from this sector are process emissions.

Certainly, in the process of commercially deploying new technologies like CCUS, complications may arise that industry can learn from while policymakers continue to focus on multiplying project successes. This year, for example, Southern Company suspended gasification at the Kemper County project. At the same time, NRG Energy began operation of the Petra Nova project, which was on-time, on-budget, and is now the largest post-combustion retrofit of a commercial-scale coal-fired power plant in the world. This year also witnessed a second industry milestone: the agricultural processing company ADM began operation of the world’s first commercial-scale ethanol plant with carbon capture technology.

Currently, the cost of most CCUS technologies inhibits investment in projects. However, with domestic policy leadership, financial investment could accelerate deployment and help achieve the cost reductions and performance improvements similar to those that the wind and solar energy industries experienced. The National Enhanced Oil Recovery Initiative (NEORI) is a coalition of environmental groups, labor unions, and industry focused on accelerating deployment of carbon dioxide enhanced oil recovery (CO2-EOR) using manmade CO2 to offset the costs of investment in CCUS technologies. The NEORI coalition supports an extended and expanded Section 45Q tax credit and the use of Private Activity Bonds for carbon capture projects. Like with wind and solar energy, multiple overlapping policies will be essential to drive the scale of deployment needed to reduce costs and improve performance. Expanded tax credits and reducing the costs of carbon capture will also help galvanize the nascent carbon dioxide utilization industry.

There are numerous opportunities for energy efficiency improvements across all economic sectors. Since the 1990s, the growth rate of electricity consumption has steadily declined and decoupled from overall economic growth, demonstrating that investments in energy efficiency in buildings, industry, commercial and residential equipment, and other applications have been effective.  Options to further accelerate deployment of energy efficiency include: 1) improving standards for vehicle fuel efficiency and other sector equipment; 2) advancements in “the smart grid” (applying digital technologies to the electric power grid) which would allow measurement of end user activity; and 3) improved rate structures using decoupling policies to better align utility incentives with emissions reductions goals.

Domestic policy can also help drive similar cost reductions and performance improvements in energy storage technologies and in the transportation sector. In 2016, Senators Dean Heller (R-NV) and Martin Heinrich (D-N.M.) introduced a bill to create an Investment Tax Credit for energy storage systems. Wholesale electricity markets can also better integrate battery storage. In November 2016, the U.S. Federal Energy Regulatory Commission issued a Notice of Proposed Rulemaking to remove barriers to the integration of electric storage resources and distributed energy resource aggregations in organized wholesale electric markets. If finalized, the rule would require regional transmission organizations and independent system operators to revise their tariffs. Tariffs that are modernized in this way would facilitate greater investment in energy storage systems, which could ultimately help to achieve cost reduction and performance improvements. This would also be beneficial for electric vehicles. Wholesale

electricity markets can also better integrate electric storage resources with bidirectional power flow, such as from electric vehicles. With respect to conventional vehicles, maintaining Corporate Average Fuel Economy (CAFE) standards developed under section 202(a) of the Clean Air Act44 would provide certainty for additional product planning and technology development in advanced aerodynamics, engines, transmissions, light-weighting, improved accessories and air conditioning systems, and low rolling resistance tires to increase the fuel efficiency of light duty vehicles. In August 2017, the Administration announced a public comment period to reconsider the greenhouse gas emissions standards for light duty vehicles of model years 2022-2025. The Administration also announced that it will revisit Phase 2 greenhouse gas emissions and fuel efficiency standards for medium- and heavy-duty engines because of concerns raised by the trailer and glider industry. It is worth highlighting that the key to sustaining technological advancement is establishing stable policy signals and modernized wholesale electricity market rules.

In all of these areas, investment by the U.S. Department of Energy in research and development will be critical. In November 2015, over 20 nations launched Mission Innovation committing to double each country’s investment in clean energy research over five years. Leading global investors like Bill Gates created the Breakthrough Energy Coalition to match these efforts with private capital. In 2016, leading oil and gas companies launched the Oil and Gas Climate Initiative with a goal of investing $1 billion over the next decade in developing technologies to reduce emissions. Public-private partnerships and international collaboration can accelerate the gains from government-funded research. Maintaining a meaningful federal commitment to innovation through stable funding of research can also be a building block for a U.S. NDC. This year, there was a debate between the Administration and Congress on U.S. Department of Energy funding levels for research and development. The focus of the debate between these co-equal branches of government should be on how much to increase the research and development budget rather than on potential decreases.

In light of the potential for technological innovation in so many important areas, the Paris Agreement was wisely structured to anticipate greater ambition over the long-term. It builds on the fact that our domestic environmental laws have been structured to anticipate and benefit from continued technological advancements. For example, under the Clean Air Act New Source Review (NSR) Program, in non-attainment areas, existing sources must use Reasonably Available Control Technology (RACT) and major new or modified sources must achieve Lowest Achievable Emission Rate (LAER), while in clean areas, major new or modified sources must use Best Available Control Technology (BACT). On a case by case basis, state and local permitting agencies determine which technologies constitute RACT and BACT and which rate constitutes LAER. The U.S. Environmental Protection Agency (EPA) created a central database known as the RACT/BACT/LAER Clearinghouse of past RACT, BACT, and LAER decisions in NSR permits to help permitting agencies with these decisions. This structure ensures that as technology changes, new facilities adopt the latest technology. In this way, the law enables environmental protection ambition to keep pace with technological change and the gains are passed on to American citizens.

Another example is the regulation of hazardous air pollutants under Section 112 of the Clean Air Act, which requires that EPA establish Maximum Achievable Control Technology standards, which are technology-based emissions standards for certain stationary sources. Like with the NSR program, this structure ensures that as technology changes, new facilities must adopt the latest technology.

The Paris Agreement builds on the experience of U.S. domestic environmental law and enables national ambition to keep pace with technological innovation. This, and the Paris Agreement’s structured flexibility for domestic policy, will help ensure that it will remain resilient to short-term disruptions in national political climates.

In the current absence of overall federal policy leadership on climate change, progress is still being made on many of these technological fronts. With some Congressional support in the budget and strong advocacy by stakeholders, a very modest amount of attention in the national budget for research and innovation along with simply staying out of the way can allow the trends to continue. When the time is right, that in turn could be a foundation for a U.S. NDC if the Administration re-engages.

Earlier in this paper we described, in general, the growing efforts of sub-national and non-state actors in the U.S. These efforts also can, and most likely will gain the attention of the international community. The Administration could build on these efforts to formulate a revised NDC that could be characterized as a “better deal,” on the basis that it would take a bottom-up approach to emissions reduction.

IV. Notes on Sub-National and Non-State Action

Broadly speaking, the sub-national actors in the U.S. are the states, cities and other local governments. Non-state actors are predominately businesses, but also include institutions such as universities and medical centers. Businesses in particular have been acting on the fuels market, the advances in technologies, incentives, corporate commitments to sustainability and consumer expectations.

In the last 10 years, changes in the electric power industry are responsible for a substantial portion of U.S. reductions in greenhouse gas emissions. As an industrial sector, their emissions have declined by over 20 percent since 2005. Key factors have been retirement of several of the aging fleet of coal fired plants that would require large capital investments if they were to remain open and using coal, the dramatic change in the availability of natural gas and the flexibility of gas turbines, and the rapidly declining cost (along with tax incentives) of wind and solar generation. There is every indication that these trends will continue. Some examples of recent public announcements:

• In May of 2017, DTE Energy announced plans to reduce greenhouse gas emissions from their entire power operations by 80 percent by 2050 (from 2005 levels). The company set interim goals of 30 percent by the early 2020s, 45 percent by 2030, and 75 percent by 2040. The goal includes the transformation to over 70 percent of the electricity from renewable sources, commitments for nuclear and efficient natural gas generation as well as overall efficiency.
• Xcel Energy has established a near term goal of reducing greenhouse gas emissions 45 percent from the 2005 levels by 2021. A large commitment to wind energy is making this possible.
• First Energy has expressed publicly an even stronger target, a 90 percent reduction from 2005 levels by 2045. The combination of wind, nuclear, and gas makes this pledge economical and technically doable.

What these commitments represent is a strong recognition that despite the current inability to act at the federal level, the business community sees the future as being low carbon. Their planning horizon to stay sustainable extends beyond the next election and the broader science and global political economic signals coupled with growing consumer expectations continue to drive innovation.

Large consumers, including tech companies and their growing demand for clean energy, have also been motivating action. Companies like Apple, Google, Amazon and Microsoft have made significant investments in renewable and clean energy across their operations. They are moving toward 100 percent or in some cases they are already there. These corporate commitments to renewable energy have extended beyond the tech sector to include companies such as Wal-Mart, Target, IKEA, and recently financial institutions such as JPMorgan Chase & Company.

At the state level, the continued commitment to clean energy is strong. In July 2017, California renewed its cap and trade efforts through 2030 and the nine states in the Northeast Regional Greenhouse Gas Initiative (RGGI) are reviewing the current cap for extension. At the same time, other states like Virginia are beginning to consider joining RGGI. States that are not part of these efforts are directly capitalizing on the economic opportunities of clean energy. States like Iowa, Texas and Wyoming are among the top wind energy producers and all 50 states now either have wind energy or businesses that supply the industry.

Individual consumers are also making a difference. The Energy Information Administration data shows that residential electricity use in the U.S. is down since 2010 and the per-capita electricity use is down 7 percent in that time period.

In the industrial sector, the ongoing trend towards electrification will reduce emissions going forward. Furthermore, there is a long list of examples of U.S. projects with carbon capture technology already deployed, primarily for commercial reasons as captured CO2 can be compressed and transported to nearby oil fields for enhanced oil recovery. These examples are found in the natural gas processing sector (Terrell plant in Texas operating since 1972 and Core Energy/South Chester plant in Michigan operating since 2003), in fertilizer production (Koch Nitrogen Company Enid Fertilizer Plant in Oklahoma operating since 1982 and Chaparral/CVR Energy Coffeyville Gasification plant in Kansas operating since 2013), at refineries (Air Products Port Arthur Steam Methane Reformer project in Texas operating since 2012), and in ethanol production (Chaparral/Conestoga Energy Partners’ Arkalon plant in Kansas operating since 2009).

Auto manufacturers are innovating with increasingly affordable competitive electric vehicles. Tesla introduced the Model 3 in July of 2017 while GM is rolling out the all-electric Bolt. These vehicles are getting cost competitive and are clearing 200 miles on a full charge. Demand has been slowly picking up but has a way to go. As that begins to happen and as the power sector makes themselves cleaner, the benefits from a greenhouse gas perspective increase. Globally, we are seeing Volvo publicly announce that they will be phasing out of internal combustion engines only vehicles, while Norway, France and the U.K. and some federal states in Germany are looking to prohibit petrol and diesel cars by 2040.

Cities are also on the move. There are over 100 cities that have pledged to a goal of 100 percent renewable energy by 2035 and over 300 cities that have publicly supported the Paris Agreement goals.

Taken together, these examples of non-state and sub-national action reflect a high degree of momentum on emissions reduction and climate action. We expect that this momentum will result in lower emissions of greenhouse gasses in the U.S. through 2025. When non-state and sub-national government actions are combined with expected mitigation cost reductions through advancements and learning in technology, there is an opportunity for even greater momentum. There continues to be bipartisan support for market-based approaches but no clarity that tax reform negotiations will provide a forum for that debate. The Congress and Administration should take note of these developments and the domestic desire for action and consider a solutions-oriented path. As we have discussed, in our view, the Paris Agreement allows ample flexibility for policymakers to adopt any number of approaches to achieve emissions reduction goals.