Market Forces

Multiple Roads to the 1.3T Goal: Integrating Quality Finance for Climate Action

This blog was authored by Suzi Kerr, Senior Advisor, Economics and Carbon Pricing, EDF and Juan Pablo Hoffmaister, former AVP, Global Engagement and Partnerships, EDF.

Last November at COP29 in Baku, countries agreed on the New Collective Quantified Goal (NCQG) and set a target of mobilizing $1.3 trillion annually by 2035, including a commitment of at least $300 billion from developed countries. This decision was a turning point for the climate finance conversation—allowing us to move the conversation from “how much” to “how effectively” these funds can be deployed.

New research from EDF’s Economics team and partners show that to close the gap, we need to revolutionize our approach to climate finance. With innovative and diversified approaches, we can repair the fragmented and roadblock-riddled finance system currently in-place – while putting developing countries in the driver’s seat to design solutions that meet their needs.

Environmental Defense Fund’s research on quality climate finance highlights three critical dimensions that must be addressed: concessionality, access, and impact. Our new research adds important nuance by illustrating the multiple pathways needed, and available, to close the climate finance gap. This analysis, visualized in the compelling graph below, demonstrates that no single source of finance can meet the enormous need:

As we can see from the visualization, the 2022 baseline (panel a) shows a massive gap between current finance levels and what’s needed. The ‘Business As Usual’ scenario for 2030 (panel b) still leaves a significant shortfall even with expanded public and private finance. By integrating international carbon markets (panel c) and achieving higher leverage ratios through holistic strategies (panel d), we could come closer to bridging the gap.

This layered approach resembles what Kerr and Hu call the “mitigation avocado” framework, where effective climate finance requires:

  1. Diversified funding sources – Public finance, private capital, international carbon markets, and domestic carbon pricing must all grow substantially and be used in complementary ways to meet climate goals.
  2. Enabling environments – Host countries must take the lead in creating holistic national plans that align climate action with development priorities and provide the regulatory certainty investors need.
  3. Leverage ratios – Together, more effective combinations of capital sources, clear incentives through carbon pricing and strong enabling environments can mobilize more private capital for each dollar of public or carbon market financing.

All those engaged in negotiating and providing climate finance must embrace a multifaceted approach to blended finance while ensuring quality considerations remain central. Climate finance isn’t effective if it creates unsustainable debt burdens, fails to reach those who need it most, or doesn’t deliver measurable climate impacts.

While carbon markets offer substantial potential, they are not a silver bullet or simple fix—rather, true progress demands innovative blending mechanisms that catalyze private sector investment and domestic resource mobilization through carefully designed policy frameworks tailored to local contexts.

It is unfortunate that the current climate finance landscape remains so fragmented and riddled with barriers. We urgently need creative financing solutions that genuinely empower developing countries to craft pathways that work alongside their unique economic realities, governance structures, and development priorities rather than forcing them to conform to external terms.

As work progresses towards the Baku to Belém Roadmap to 1.3T,, developing country Parties should be in the driver’s seat of transition planning. This requires moving beyond traditional donor-recipient relationships toward true partnership models where climate and development goals are pursued together.

The future of climate finance depends not just on hitting numerical targets, but rather on ensuring every dollar mobilized works harder and smarter to deliver real climate action while supporting sustainable development.

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Empowering Chile’s Climate Action: A Citizen’s Guide to Article 6

This blog was authored by Francisco Pinto and Rodrigo Bórquez, economists of the Climate Action Teams (CAT) initiative, and by Environmental Defense Fund economist Luis Fernández Intriago.

Source: Climate Action Teams

Reducing emissions is imperative to address climate change. The mechanisms established in Article 6 of the Paris Agreement can serve as vital tools in our quest to stop the impacts of climate change and safeguard the future of our planet—but navigating its complexities can be tricky.

To tackle this challenge, between June and August 2023, the Climate Action Teams (CAT-Chile) initiative, co-founded by EDF, and the Consensus Building Institute (CBI) conducted a dialogue process in Chile. We aimed to convene key players in a discussion to better understand Article 6’s potential to boost Chile’s climate ambition.

This fruitful dialogue, called “Climate Dialogue: Strengthening Chile’s Ambition through Article 6 of the Paris Agreement“, explored three specific areas:

  1. The feasibility of implementing Article 6 in Chile,
  2. The application of safeguards, and
  3. The short-term actions and tasks to progress in this field.

The dialogue’s outcomes were delivered to Chile’s Ministry of the Environment to consider as they prepared to host their own public-private sector dialogue on ideas around the development of a Chilean Article 6 policy. Read More »

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“Nothing about us without us: The case of JREDD+ in Colombia.” The importance of including all stakeholders, especially affected communities, at the decision-making table.

This blog was authored by Environmental Defense Fund economist Luis Fernández Intriago and Universidad de Los Andes professors Jorge García López and Julián Gómez Gil.

The saying “Nothing about us without us” is widely used among Indigenous Peoples and Local Communities to emphasize the importance of involving them in policies that govern their territories and communities. The expression serves as a call to action, highlighting that those affected by specific issues should be included in making policy decisions around them.

However, policymakers and researchers consistently decide on policy design and construct models without consulting and considering the opinion of the affected communities and key stakeholders. Efforts to stop deforestation are a clear example of this: new policies go into place without any input from communities that rely on forests for their livelihoods, cultures, or basic survival. These local and Indigenous communities are an untapped source of wisdom, leadership, and capacity to support efforts to conserve rainforests.

To remediate this, Environmental Defense Fund, Universidad de Los Andes, and the Centro de Estudios Manuel Ramírez, right since the beginning of the project, started an engagement process in Colombia to demonstrate how engaging key local and Indigenous stakeholders could lead to better policy design to protect forests in the country.

Why Colombia?

Colombia faces enormous challenges with deforestation: 184,000 hectares per year of natural forests were destroyed between 2017 and 2021. Deforestation accounts for 33% of the country’s total climate-warming greenhouse gas emissions. Thus, halting deforestation is critical for achieving the country’s Paris Agreement commitments (called “Nationally Determined Contribution” or NDC).

As in many other countries, the AFOLU (Agriculture, Forestry, and Other Land-use) sector is not subject to regulations in Colombia. However, this presents an excellent opportunity for the Colombian government to leverage private finance from national sources—such as through the upcoming Colombian Emissions Trading System[1] , which must be implemented by 2030—and international sources —such as the LEAF Coalition— using jurisdictional REDD+ (JREDD+) crediting. JREDD+ programs extend the REDD+ framework for sustainable forest management and conservation by addressing deforestation at the regional or ‘jurisdictional’ level—protecting forests across wide regions instead of plot-by-plot and even resources.

Climate mitigation is now a top priority for many individuals, governments, and corporations, creating strong demand for ways to stop deforestation in tropical forest countries in high-integrity ways rapidly. Our research finds that government funding required to reduce deforestation levels consistent with Colombia’s NDC could drop from $900 to $75 million when national and international private finance is harnessed.

The Study

Our study aimed to identify inclusive, equitable ways to include JREDD+ in Colombia’s climate mitigation policies. We established three parallel and interconnected pillars: first, we focused on engagement with primary stakeholders. Second, we constructed a model to illustrate how JREDD+ may help Colombia meet its NDC target cost-effectively while benefiting local communities. Third, we prepared a policy design that government can use as a guideline to integrate these approaches.

Engagement

At the beginning of the project, we knew we had to start by engaging with stakeholders to explain JREDD+. Our ultimate goal was to include the feedback and reflect relevant stakeholders’ needs—including the national government and public institutions, Indigenous groups, smallholder’s associations, NGOs, and educational institutions—in our results. We knew that communication between our research group and people who could be interested or potentially affected by the research project was crucial if we were to produce and share credible and legitimate knowledge. The knowledge acquired through these interactions can set the stage for an effective and equitable JREDD+ program in Colombia.

Source: Photos by Julián Gómez Gil.

In 2022, we hosted four engagement sessions in Tena (April 23 & 24, Cundinamarca), Florencia (May 5 & 6, Caquetá), Bogotá (October 14), and Mocoa (October 26 & 27, Putumayo). These sessions focused on the participation of representatives of the Amazon Indigenous peoples (OPIAC, OZIP, ACILAPP, etc.[2]),  other local communities and land users (farmers, cattle ranchers, and smallholders associations), NGOs (Amazon Conservation Team, WWF, Natura Foundation, Fondo Patrimonio Natural, etc.), private organizations (Emergent, Amazon Global, Permin Global, ALLCOT, Asocarbono, etc.) and national and subnational government institutions (Ministry of Environment and Sustainable Development, Sinchi Institute, Corpoamazonía, etc.). During these community meetings, we worked hard to improve participation but also set realistic expectations, and engaged in open-ended discussions where training was provided to the attendees regarding the formulation of projects of conservation, carbon markets, REDD+ projects, JREDD+ programs, guidelines of the ART-TREES standard and the operation of the LEAF call for proposals, through technical presentations and educational activities, and promoting the constant participation of the actors to create scenarios for debate and resolution of doubts.

In the same way, these spaces were used to formulate questions to the different actors, which were resolved both through open debate dynamics and through collaborative work activities, taking advantage of a closer and more direct dialogue with each one of them and a greater availability of time to delve into topics of interest. This form of participation was very well received by the Indigenous Peoples, who invited the work team to implement similar activities more frequently and in the most remote territories so that capacity building can be held and the local context is better perceived.

Given the scale of a JREDD+ program, the interaction and negotiation between local actors, institutions, intermediaries, and current individual REDD+ projects are essential. According to the discussion with stakeholders, a common problem associated with the participation of key actors and interested parties in individual REDD+ projects is that these actors tend to be treated as beneficiaries rather than partners. As a result, local communities and interested parties perceive that the design of incentives, local capacity, delivery mechanisms, transparency provisions, and distribution are only partially fair. This led us to consider fairness, representation, and transparency as critical components of policy design.

Modeling

We modeled a mechanism to integrate the potential funds generated with a JREDD+ and a national emissions trading system (ETS) to accelerate the reduction of emissions from deforestation. Mainly, we considered a scenario under which Colombia applies the LEAF coalition model on a national scale of a JREDD+ at the national level. At the same time, to ensure representativeness, bargaining power, effective resource administration, and a fair distribution of benefits, we proposed an internal administrative division of Colombia into five jurisdictions: 1. Caribbean region; 2. Andean region; 3. Pacific region; 4, Orinoquía region; and 5. Amazon region.

Our modeling revealed that integrating a JREDD+ program with a National ETS could be a cost-efficient mechanism to reduce the externality costs and disincentivize the overall GHG emissions of Colombia following the country’s regulatory framework, the emissions trajectory, and the mitigation objectives. These mechanisms could be used to generate and allocate economic resources to ensure efficient emissions mitigation, the incorporation of safeguards (such as environmental education), and the minimization and/or compensation of adverse socio-environmental interventions. In addition, the modeling results imply the generation of co-benefits (economic, social, and environmental) that contribute to the development of ethnic communities, local communities, and other private land users.

Policy Design (Results)

After receiving input from stakeholders and results from our model, we prepared a policy design that the government can use as a guideline to integrate JREDD+ inclusively and equitably. Here are our results:

  • Inclusive negotiating for benefits-sharing: To build a JREDD+ in Colombia, stakeholders demand a significant role in negotiating the benefit-sharing system. In this regard, national and subnational agreements should be established to achieve at least the following three main objectives: 1) provide effective monetary and non-monetary incentives; 2) contribute towards building legitimacy through a fair and equitable distribution of resources, responsibilities, and bargaining power; 3) include local actors in the decision-making process and recognize them as partners rather than beneficiaries.
  • Use vertical and horizontal benefit-sharing to equitably distribute benefits and negotiating power: A vertical benefit-sharing approach uses national voluntary and regulated market funds (ETS) to distribute benefits among national and subnational governments, non-governmental actors, intermediaries, NGOs, and facilitators. These transactions are carried out to ensure the operability of the program. On the other hand, horizontal benefit-sharing seeks to distribute the remaining benefits as incentive payments among and within communities, households, and local stakeholders. A fair design of benefit sharing must be vertical and horizontal to guarantee the bargaining power of the actors involved in deforestation and conservation activities.
  • Centralize decision-making, but include regional representation: Our main policy proposal is to centralize the decision-making with a single National Board of Directors. This board would be responsible for making central decisions and directly managing the resource flow. On the other hand, a Jurisdictional Board of Directors composed of representatives from each of the six jurisdictions must be created to guarantee the representativity and bargaining power of the different actors. This board will function as a participatory body overseeing operational decisions that a respective Jurisdictional Operating Unit should execute. With this management structure, it is possible to use the three sources of funding (JREDD+ results-based payments, the ETS, and the carbon tax) and to effectively distribute the benefits among implementing partners (NGOs, private sector, etc.) and land users (Indigenous Peoples, local communities, farmers & ranchers, etc.)
  • Leverage allowances from emissions trading system to support efforts to conserve forests: In our study, we assumed that much-needed finance for forest protection may come from two different sources: a nationally managed fund constructed using resources from the international voluntary market and from a locally regulated market (a national ETS), where regional and local public and private institutions intermediate implementation with local communities; and a project-based fund where national or international funding goes directly to projects, with resources from both the national general budget and payment by results or other international cooperation (JREDD+). To integrate both mechanisms and be consistent with Colombia’s climate law, we propose that 20% of the cap established by the ETS can be offset with forestry emissions reductions using a jurisdictional approach. In that way, the allowances allocated by the ETS to the forestry sector will generate an additional source of income to reduce deforestation.

You can read more about our study and policy design here. In general, our recommendations in this project were derived and enriched from the participatory processes we carried out. The participants’ comments helped us to refine, redefine, and validate these recommendations.

As Colombia works toward implementing its Emissions Trading System by 2030, we encourage them to consider these recommendations to inclusively and equitably incorporate JREDD+. We encourage them to consult with stakeholders such as Indigenous and locally affected communities to develop climate policy.

 

[1] The Colombian Emissions Trading System is scheduled to be implemented by 2030 according to the Law 1931 of 2018 and Law 2126 of 2021.

[2] OPIAC- National Organization of the Indigenous People of the Colombian Amazon, OZIP- Organization of Indigenous People of Putumayo Department, ACILAPP- Association of Traditional Authorities of the Indigenous Peoples of Leguizamo Municipality and Upper Predio Putumayo Territories

 

 

 

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What a small country’s successes and mistakes can teach us about emission pricing

I’m from Aotearoa, New Zealand, and I really love its land and people, but I am fully aware that from a global perspective it appears pretty insignificant – that’s actually one of its charms.  But being small doesn’t mean you can’t make big contributions including toward stabilizing the climate. This recently published article highlights some lessons New Zealand’s experience with emissions trading can offer other Emissions Trading System (ETS) designers at a time when effective climate action is ever more urgent.

Talking intensively to ETS practitioners and experts around the globe about their diverse choices and the reasons why they made them has made me acutely aware of the need to tailor every ETS to local conditions.  In a complex, heterogeneous world facing an existential crisis, diversity in climate policy design makes us stronger and frankly, improves the odds that the young people we love will live in a world where they can thrive.

New Zealand created the second national emissions trading system in 2008, and the system established a number of firsts, some of which have been repeated widely, like output-based allocation of allowances to combat leakage risk.  Others offer cautionary tales, like linking a small country’s emissions trading market to a large emissions trading market over which you have little control.

Simplicity helps make an ETS more manageable and effective

New Zealand’s small scale makes simplicity a key virtue. Our regulators are well educated, but there just aren’t many of them.  This simplicity would also be a strength in a country with capability constraints, or where corruption is a problem and simplicity naturally increases transparency and reduces opportunities for manipulation.

Regulating fossil-fuel production and imports (that inevitably lead to predictable amounts of emissions – in the absence of effective carbon capture and storage) at the first point of commercialization, another first, made monitoring simple and, in the New Zealand context, minimized the number of regulated agents needed to cover almost 100% coverage of energy-related emissions including all domestic transport.

An ETS needs to match a country’s profile and culture

New Zealand’s small scale and our unusual emissions profile (around half our emissions are biological emissions from agriculture – cow burps and other unmentionables – and lots of land ripe for reforestation) led New Zealand to aim for an ‘all sources – all sectors’ coverage of emission pricing – and this worked well for our politics.  In New Zealand ‘fairness’ is a critical cultural valueNew Zealand’s ETS covers energy, transportation and industrial process emissions but also deforestation, reforestation, and fugitive emissions from fossil fuel production and landfill waste management.  We are still working out how to cover those challenging cows in a way that allows rural communities to thrive – with the current intention being to regulate with emission pricing at the farm level starting in 2025.

The cultural value of fairness also led to a strong linkage between the motivations for free allocation and th methods chosen.  Sectors and companies (sometimes pretty much the same thing in NZ) who lobbied for free allocation had to make a logical case that was publicly scrutinized. Lump-sum allocations were given as compensation to those who were losing the value of stranded assets – e.g. owners of pre-1990 forests, including Māori Iwi (tribes) who lost some of the value of forests they had recently received in Treaty settlements when deforestation began to attract carbon liabilities.  Output-based allocation is still provided for industrial activities that are emissions intensive and trade exposed and therefore face a risk of leakage of these economic activities to other countries where climate policy is weaker.  By effectively subsidizing the activities that might move, output-based allocation reduces that risk.

Political instability can negatively impact markets

Not all experiences have been positive however.  As the report highlights, New Zealand’s ETS has suffered from a lack of policy stability and hence lack of emission price stability.  This was partly because our emissions price was largely determined by international markets (from 2008 to mid-2015, New Zealand companies could buy and surrender unlimited amounts of international Kyoto units such as those from the Clean Development Mechanism and Joint Implementation).  New Zealand’s emission prices bobbed like a cork on the international market. Another critical flaw: not embedding our ETS firmly in a long-term vision for low-emissions transformation and within a wider non-political institutional framework that gives predictability of purpose in the inevitable ETS evolutionary process.

The ability to guide, enable and incentivize dynamic efficiency (e.g. efficient low-emissions investment) has always been a key argument for emissions pricing, but, as a profession we economists have paid too little attention to the political and cultural stability that is critical to enable this. Policy makers need to regularly adapt and update policies. That process of policy evolution can help guide us efficiently through a low-emissions transformation, or, in the face of powerful vested interests and strong temptations to globally free-ride, it can open up repeated opportunities to undermine ambition.

New Zealand is now engaged in the next step of its ETS evolution, learning from others and through critical reflection on our own positive and negative experiences, but continuing to innovate and tailor ETS solutions to our own unusual circumstances. The direct impact on global emissions will be small whatever New Zealand does with its ETS, but the lessons and the example that even small yet significant  countries can act and find new solutions, will hopefully help and inspire others.

Kia kaha Aotearoa

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Policy Design for the Anthropocene

There’s no denying we humans are changing the planet at an unprecedented pace. If carbon dioxide in the atmosphere is any guide, that pace is increasing at an increasing rate. For those so mathematically inclined, that’s the third derivative pointing in the wrong direction.

Enter The Sixth Extinction, The Uninhabitable Earth, Falter, or simply the “Anthropocene”—us humans altering the planet to the point where the changes are visible in the geological record, ringing in a new epoch.

A team led by Earth systems scientists Johan Rockström and Will Steffen developed the concept of “planetary boundaries” in 2009. They identified nine major systems where humans are altering fundamental Earth systems—from climate change to land-system change to stratospheric ozone, and gave us now infamous spider graphs summarizing the all-too dire warnings (Figure 1).

Planetary boundaries, tipping points, and policies (Figure 1 from “Policy design for the Anthropocene”)

It is all the more significant, that both Rockström, now director of the famed Potsdam Institute for Climate Impact Research (PIK), and Steffen joined another large, multidisciplinary team ten years later to focus on “Policy design for the Anthropocene.” This team, led by EDF senior contributing economist Thomas Sterner, focused on the solutions.

The good news: there are many.

Table 2 summarizes the crowded field of approaches at the disposal of policymakers. It also shows the decisions to be made when deciding among them.

Policy instruments (based on Table 2 from “Policy design for the Anthropocene”)

How to choose?

Choosing among the many options available quickly moves from policy design to politics.

Take climate change as an all-too prominent example. For one, the obvious first step is to agree that there is a problem in the first place. Denying the problem is not going to get us anywhere near a constructive debate about policy solutions.

One big political decision then is to identify who benefits from acting—or conversely, who pays the costs. If the rights go to the polluter, it’s the victims who pay—all of us, in the case of climate change. If the rights go to society, it’s broadly speaking the polluters who pay. The difference is as stark as between permits on the one hand, and outright bans on the other.

Price or rights-based policies?

Often the decision how to act is among two broad buckets of policies: price or rights-based. The two are broadly speaking two sides of the same coin. Rights generate prices, and prices imply rights.

The difference plays out between carbon pricing and tradable permits. One fixes the price level, the other the amount of emissions. Cue endless academic debates about which instrument is better under which circumstances. Details, of course, do matter.

And this also brings us immediately back to politics. A big difference between price and rights-based policies, is that the latter implies that the political horse-trading doesn’t affect the overall quantity of pollution, at least to a first approximation. Whether tradeable permits are auctioned off—with polluters paying the full price—or whether they are given away for free doesn’t, at first, make a difference. Overall emissions reductions stay the same. I’m saying “at first,” because, any money raised could be spent intelligently on further emissions reductions.

Environmental effectiveness, economic efficiency, political efficacy

The larger point is that (almost) everything is possible. The problems might be dauntingly large. The solution space is similarly large. It’s also clear that no single decision criterion is enough.

Environmental effectiveness is key. Economic efficiency is similarly important.

Achieving the environmental goal is like building a train to the right station. That’s clearly the most important step. Economic efficiency is akin to building the fasted possible train. Just being fast doesn’t help, if the journey goes in the wrong direction. But efficiency implies that one can achieve the same goal at lower cost, or more at the same cost.

But smart policy design, of course, is not enough. It takes political will to get there. Designing policies that pass political muster is clearly one criterion, especially in a polarized environment.

Getting the policy minutiae right is important, but it’s also clear, of course, that politics trumps all. Policies don’t inspire action. Visions of a better future, and a just transition do.

This is party 1 of a 5-part series exploring these policy solutions outlined in broad terms in Policy Design for the Anthropocene in more detail. Part 2 will focus on “Pigouvian” price instruments, taking a closer look at fossil fuel subsidies and carbon pricing.

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What’s behind President Trump’s mystery math?

This post originally appeared on EDF’s Climate 411

By this time, your eyes may have glazed over from reading the myriad of fact checks and rebuttals of President Trump’s speech announcing the United States’ withdrawal from the Paris climate agreement. There were so many dizzying falsehoods in his comments that it is nearly impossible to find any truth in the rhetorical fog.

Of all the falsehoods, President Trump’s insistence that compliance with the Paris accord would cost Americans millions of lost jobs and trillions in lowered Gross Domestic Product was particularly brazen, deceptive, and absurd. These statements are part of a disturbing pattern, the latest in a calculated campaign to deceive the public about the economics of reducing climate pollution.

Based on a study funded by industry trade groups

Let’s be clear: the National Economic Research Associates (NERA) study underpinning these misleading claims was paid for by the U.S. Chamber of Commerce and the American Council for Capital Formation (ACCF) – two lobbying organizations backed by fossil fuel industry funding that have a history of commissioning exaggerated cost estimates of climate change solutions. When you pay for bad assumptions, you ensure exaggerated and unrealistic results.

In the past five years alone, NERA has released a number of dubious studies funded by fossil fuel interests about a range of environmental safeguards that protect the public from dangerous pollution like mercury, smog, and particulate matter – all of which cause serious health impacts, especially in the elderly, children, and the most vulnerable. NERA’s work has been debunked over and over. Experts from MIT and NYU said NERA’s cost estimates from a 2014 study on EPA’s ozone standards were “fraudulent” and calculated in “an insane way.” NERA’s 2015 estimates of the impacts of the Clean Power Plan, which are frequently quoted by President Trump’s EPA Administrator Scott Pruitt and others, have also been rebutted due to unrealistic and pessimistic assumptions.

The study does not account for the enormous costs of climate pollution

In his speech about the Paris agreement, President Trump crossed a line that made even NERA so uncomfortable that it released a statement emphasizing that its results were mischaracterized and that the study “was not a cost-benefit analysis of the Paris agreement, nor does it purport to be one.”

The most important point embedded in this statement is that the study does not account for the enormous benefits of reducing the carbon pollution causing climate change. Climate change causes devastating impacts including extreme weather events like flooding and deadly storms, the spread of disease, sea level rise, increased food insecurity, and other disasters. These impacts can cost businesses, families, governments and taxpayers hundreds of billions of dollars through rising health care costs, destruction of property, increased food prices, and more. The costs of this pollution are massive, and communities all around the U.S. are already feeling the impacts – yet the President and his Administration continue to disregard this reality as well as basic scientific and economic facts.

Cherry-picking an impractical and imaginary pathway to emission reductions

The statistics the President used were picked from a specific scenario in the study that outlined an impractical and imaginary pathway to meet our 2025 targets designed to be needlessly expensive, as experts at the World Resources Institute and the Natural Resources Defense Council have noted. The study’s “core” scenario assumes sector by sector emission reduction targets (which do not exist as part of the Paris accord) that result in the most aggressive level of mitigation being required from the sectors where it is most expensive. This includes an almost 40 percent reduction in industrial sector emissions – a disproportionate level not envisioned in any current policy proposal – which results in heavily exaggerated costs.

An expert at the independent think tank Resources for the Future, Marc Hafstead, pointed out:

The NERA study grossly overstates the changes in output and jobs in heavy industry.

Yale economist Kenneth Gillingham said of these numbers:

It’s not something you can cite in a presidential speech with a straight face … It’s being used as a talking point taken out of context.

The NERA analysis also includes a scenario that illustrates what experts have known for decades – that a smarter and more cost-effective route to achieving deep emission reductions is a flexible, economy-wide program that prices carbon and allows the market to take advantage of the most cost-effective reductions across sectors. Even NERA’s analysis shows that this type of program would result in significantly lower costs than their “core” scenario. Not surprisingly, that analysis is buried in the depths of the report, and has been entirely ignored by the Chamber of Commerce and ACCF as well as President Trump.

Study ignores potential innovation and declining costs of low carbon energy

Finally, the NERA study assumes that businesses would not innovate to keep costs down in the face of new regulations – employing pessimistic assumptions that ignore the transformational changes already moving us towards the expansion of lower carbon energy. Those assumptions rely on overly-conservative projections for renewable energy costs, which have been rapidly declining. They also underestimate the potential for reductions from low-cost efficiency improvements, and assume only minimal technological improvements in the coming years.

In reality, clean energy is outpacing previous forecasts and clean energy jobs are booming. There are more jobs in solar energy than in oil and natural gas extraction in the U.S. right now, and more jobs in wind than in coal mining.

The truth is that the clean energy revolution is the economic engine of the future. President Trump’s announcement that he will withdraw the U.S. from the Paris accord cedes leadership and enormous investment opportunities to Europe, China, and the rest of the world. His faulty math will not change these facts.

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