University of Bayreuth, Press Release No 189/2022 - 18. November 2022
Those who leave the climate protection agreement do triple damage to the climate
Countries that withdraw from the Paris Agreement not only weaken global efforts to reduce CO2 emissions. As a result, their industries have better competitive conditions and increase CO2 emissions again. This is according to a study that has just been published in a "Kiel Working Paper" under the title "The Consequences of Unilateral Withdrawals from the Paris Agreement". The authors are Prof. Dr. Mario Larch, Chair of Economics VI: Empirical Economic Research at the University of Bayreuth, and Prof. Dr. Joschka Wanner, Junior Professor of Quantitative Economics at the University of Potsdam.
If all countries keep their pledges, the so-called "nationally determined contributions" (NDCs), emissions fall by an estimated 25.4% below the level that would occur in a "business-as-usual" (BAU) scenario by 2030. A country's exit would reduce this sum of promised emission reductions by the country's NDC share. Example USA: Its exit would reduce the global emission reduction to 17.3% and consequently by 31.8%. Although China is the No. 1 CO2 emitter, its exit would reduce the global reduction by "only" 11.9 % - because the country had set itself a less ambitious reduction target, and the loss of this target would be correspondingly less significant.
However, the damage caused by unilateral withdrawals from the agreement would be much greater than the mere loss of CO2 savings, because: Countries that leave "Paris" have strong incentives to increase their emissions even beyond the BAU level. On the one hand, these countries gain competitiveness in emission-intensive industries because they can produce more cheaply, as they do not have to pay CO2 taxes, for example. "After leaving the agreement, these countries will therefore increasingly specialise in emission-intensive industries and emit more CO2 accordingly," Larch predicts.
The dropout benefits, the climate suffers
On the other hand, they will benefit from the changed energy market: if most countries in the world reduce their emissions according to their NDCs, the demand for fossil fuels will fall, which will depress their prices. Countries that break their reduction pledges will respond to the lower price by demanding more fossil fuels, which further increases their emissions. Larch explains, "So the higher emissions in countries that have left will additionally wipe out some of the savings that are still being achieved in the remaining Paris member countries."
Taking the USA as an example, according to Larch and Wanner's calculations, this would mean that in the simulated case of its withdrawal, it would not follow its BAU emissions path, but would increase its emissions by 9.5 % due to the change in competitiveness and lower prices for fossil fuels. Of the 17.3 % global reduction reduction that was left after the US reduction target was deducted, a further 9.4 % is lost as a result. This share of emission reductions lost due to carbon leakage is also referred to as the leakage rate. The leakage effect is even stronger than for the USA in the case of a Chinese exit. Here, the leakage rate is 13.8%, i.e. significantly more than every tenth tonne of CO2 that is saved in the remaining member states is additionally emitted in China instead.
In a recent research paper, Mario Larch (left/above) and Joschka Wanner asked how much the effectiveness of the agreement would be damaged by unilateral withdrawals and which countries would do particularly great damage by leaving the agreement.
The example of India in particular underlines the importance of the indirect effect via carbon leakage: The Indian NDC does not go beyond the promise not to emit more CO2 than already assumed in a BAU scenario. The loss of such a "zero target" has no impact on global reduction mitigation in the exclusive consideration of the direct effect. However, a look at the leakage rates underlines that an Indian withdrawal from the agreement would nevertheless be very problematic because it would drive Indian emissions above the BAU level and thus cancel out parts of the other countries' efforts.
"To assess in aggregate how damaging a country's unilateral withdrawal from the Paris Agreement would be for global emissions, the direct effect from the NDC loss and the indirect leakage effect must be combined," the two authors sum up. Figure 1 presents for all countries the total effect of their unilateral withdrawal from the Paris Agreement on global emissions reductions. Overall, the results underline the importance of global cooperation for effective international climate policy.
The full research paper, "The Consequences of Unilateral Withdrawals from the Paris Agreement" can be found here: https://www.ifw-kiel.de/de/publikationen/kieler-arbeitspapiere/2022/the-consequences-of-unilateral-withdrawals-from-the-paris-agreement-17765/