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Despite the withdrawal of the US, the global community of states keeps fighting to make the Paris Agreement work. However, the World Climate Summit in December failed to set some crucial incentives to promote investment in climate friendly technologies.

By Frederike Krebs

The European political committed to fight climate change, is an aspect which industrial companies must take into account for their long-term plans. However, commitment among the global community is more diverse - a factor with heavy consequences for the planning reliability of mechanical engineering companies.

Last year's announcement by the President of the United States, Donald Trump, that the US was quitting the Paris Agreement created serious doubts concerning the longevity of the plan, particularly in light of the fact that the USA is the second biggest polluter in the world. That the UN Climate Change Conference (COP24) in December was organized in the Polish city of Katowice, a former hot-spot of the national coal industry which has slowly reduced its production over the years, was symbolic in displaying that the road towards global unity with regards to climate policy is still long.

In Katowice, the community of states agreed on a common rulebook to implement the Paris Agreement, however, this ruling is slightly disappointing, as from VDMA's point of view, the results could have indeed been more ambitious. Members shall follow the joint IPCC guidelines, but are also allowed to implement ‘nationally appropriate methodologies', which, if combined with ‘creative reporting’ could depict the situation in these countries as being more positive than in actuality.

Mechanical engineering companies will play a key role when it comes to reducing CO2 emissions. In the end, the development and distribution of efficient (production) technologies will be decisive in creating a climate-friendly economy and society without endangering economic growth. This is why the rulebook – with all its strong and weak points – will directly or indirectly affect the businesses of the industry.

Trust and transparency for states and companies

When talking about the advantages of the results from Katowice, the broad commitment among states to common rules for the implementation of the Paris Agreement has to be mentioned. This decision is important for industrial companies, as trust and transparency are key factors when it comes to investing in modern technologies. Additionally, a global approach is a prerequisite for creating a level playing field between countries that compete on the world market. "There must be no dodging by individual states", says VDMA's Executive Director Thilo Brodtmann. "A pioneering role for Europe is justified, but only if the world market clearly develops in the direction of climate protection." If this case should occur, there will be a huge demand for low-carbon technologies.

Every country under the Paris Agreement needs to make a contribution. The main tools are the domestic action plans (Nationally Determined Contributions, NDCs) which contain specific steps for climate-friendly policies. While an NDC is mandatory for each country, the extent of it, especially when it came to the question of how to monitor and calculate greenhouse gas emissions, could be different depending on the country - until now.

The agreed rulebook applies a single set of rules for all countries. It sets out a framework containing rectified requirements for monitoring and verification systems, including timely and reliable data and estimates of greenhouse gas emissions. This framework creates transparency and clear and binding rules for all parties involved, thus allowing progress to be measured accurately. In turn, this strengthens the confidence between the parties involved in the international process and thereby also the global market for modern technologies.

Market mechanisms - a missed opportunity in Katowice

A setback for industry was that the community of states failed to set some concrete incentives for countries to actually invest in efficiency. The Paris Agreement allows countries to meet a certain amount of their domestic reduction goals for greenhouse gas emissions by lowering emissions in other countries, for example, by trading climate friendly technologies. Exporting states would be allowed to count these reductions towards their own emissions reductions - market mechanism known as emissions trading specified in the Paris Agreement. However, negotiations in Katowice failed to find an agreement on this specific topic.

This area appears to require much work, as details to operationalize these market mechanisms have not yet been sufficiently explored. One crucial aspect is to discover a method to avoid mistakenly counting these actions, single projects or transfer of technologies twice. This is joined by the debate on possible replacements for current carbon offset mechanisms (offset schemes and methodologies), or whether to limit their use for meeting the goals outlined in the Paris Agreement.

The failure to agree on market mechanism rules is disappointing, as it is one of the corner stones for future processes. However, avoiding weakening this crucial point was vitally important. At next year’s conference, the members will need to make decisive advancements in this topic. This would not only open the door to making joint efforts both easier and more numerous, but also help develop new collaborations. It would also promote the use of more efficient and climate-friendly technologies.

There is definitely still work to be done when the community of states meets for the next climate conference. It is of great importance that the Paris Agreement continues to be implemented as broadly as possible. In the end, there will be no alternative for concentrated action against climate change. As VDMA's Executive Director Brodtmann put it: "Waiting is more expensive in the medium term than taking consistent and coordinated countermeasures."

Frederike Krebs, VDMA European Office.