7 things to know about the U.S.-China climate deal

7 things to know about the U.S.-China climate deal

People with face masks are seen on Dec 8, 2013 in Beijing, China. China has publicly committed to peaking its greenhouse gas emissions by 2030, but has not agreed to any specific reduction target beyond 2030.

Today, months of secret negotiations between the U.S. and China culminated in a major new climate change agreement, underlining both countries' commitment to decarbonization. For the first time, China publicly has committed to peaking its greenhouse gas emissions, setting a goal to cut emissions by around 2030 at the latest. Meanwhile, the U.S. has said it will accelerate its emissions reduction efforts, building on its goal to cut emissions 17 percent against 2005 levels by 2027 by cutting emissions 26 to 28 percent 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 already have 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 U.S. 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 decarbonization have never looked more discredited.

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

The U.S.-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 suddenly to be reversed, but the U.S.-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 percent 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 U.S.-China commitment with its own pledge to deliver still deeper cuts.

In addition, the U.S.-China agreement, coupled with the EU energy and climate change package, provides a safety net should the Paris talks falter. Green businesses can invest in new low carbon projects, knowing that regardless of what happens in Paris the world's biggest economies will continue to pursue decarbonization 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 U.S. target similarly represents an acceleration on the decarbonization 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 U.S. and China explicitly have 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."

4. The targets may represent a continuation of green business-as-usual, but the increase in investor and infrastructure certainty is still a big step forward

In some respects the emissions targets set out in the agreement are not as ambitious as they first appear. There are caveats — China "intends" to peak emissions "around" 2030, while making "best efforts" to cut them sooner; the U.S. "intends to achieve" its 2025 target. Meanwhile, peaking Chinese emissions in 2030 are pretty much in line with the slowing emissions growth trajectory the country has been on in recent years and the U.S. is on track to exceed its 2017 target, making the 2025 goal easier than it looks. The targets look like a continuation with the green strategies both governments are already pursuing.

However, the signal the targets send to investors are still vitally important. They represent an important additional challenge to an already suffering coal market and a clear indication that clean technologies can expect a welcoming policy landscape. Moreover, as with all emissions targets they are a floor, not a ceiling. With policy certainty strengthened the onus is on green businesses and clean tech engineers to exceed the targets the politicians have set.

5. The Republicans are going to raise hell

The howls of outrage from Washington, D.C., sparked by this deal will be heard on the other sides of the Pacific and Atlantic. Republican Senate Leader Mitch McConnell wasted no time Tuesday night, attacking what he described as an "unrealistic plan" that was part of President Obama's "ideological war on coal."

However, the question remains as to what, if anything, the Republicans can do, beyond making a lot of noise. White House officials are at pains to point out that the new agreement and targets can be honored through policies delivered via executive actions, meaning the Republican Congress can be bypassed. The GOP is expected to launch various attempts to block the Obama administration's efforts to place emissions limits on power plants. But each and every attempt to overturn the Clean Air Act ruling that enables the new regulations has to date failed, while many of America's largest states are continuing to pursue ambitious green policies with the support of numerous business leaders.

A Republican president no doubt would attempt to tear up the new agreement with China, but a Democrat victory in 2016 further would entrench these targets, particularly given polls are increasingly showing that a majority of Americans back climate action.

6. The undercard commitments are important, too

The new emissions targets may have grabbed the headlines, but the U.S.-China pact also contains a raft of clean tech commitments that will benefit green businesses. The agreement highlights how the U.S. and China are already working together through the U.S.-China Climate Change Working Group (CCWG) and its work on carbon capture, smart grids, energy efficiency, forest protection, emissions reporting,and forest management, a deal to curb HFCs, and the recently launched U.S.-China Clean Energy Research Center.

Further progress is expected on all these fronts, with the deal stating that the two sides "intend to continue strengthening their policy dialogue and practical cooperation, including cooperation on advanced coal technologies, nuclear energy, shale gas and renewable energy, which will help optimize the energy mix and reduce emissions, including from coal, in both countries."

In particular, the agreement includes specific pledges to expand joint clean energy R&D, co-operate on a major carbon capture project in China, launch a new Climate-Smart/Low-Carbon Cities Initiative, provide further funding to demonstrate emerging clean technologies, and work together at ongoing international talks to promote trade in green goods.

7. The scientists are right: The U.S.-China targets do not go far enough

The agreement is a solid step forward for the global green economy and will increase the chances of decarbonization efforts accelerating over the next two decades. However, policy makers, business leaders and investors all need to remember that the targets set by the U.S. and China are still not in line with those recommended by climate scientists. Barring hugely ambitious emission reduction commitments from India and other large emerging economies currently not in the pipeline, these targets will not deliver the 2020s peak in global emissions scientists claim is needed to keep us on course for a 2C world. Instead, they put us on track for an emissions peak sometime between 2035 and 2050 and a 3-4C world.

Those businesses and policy makers who are serious about tackling climate change have to recognize that the U.S., China and other leading economies all need to overachieve on the emissions targets they have set, at the same time as investing in climate adaptation and exploring how the world may curb greenhouse gas emissions in the atmosphere during the second half of the century.

This article first appeared on BusinessGreen.