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Thilo Schaefer IW News 4. October 2016

Paris climate agreement: A gain for the German economy

The Paris Climate Agreement is expected to meet all criteria to enter into force on Wednesday if the European Union submits its ratification papers to the United Nations. This is an important signal in the fight against global warming – and good news for German companies.

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When the European Parliament decides to ratify the Paris climate agreement on Tuesday a last important threshold to its implementation will be met: The supporting countries will stand for 55 per cent of global emissions. Most importantly, with the US, China and India, the biggest CO2 emitters are on board as well. Even if the intention expressed in the agreement is no common climate action yet, it is a major step towards leveling the playing field on CO2 prices. This is good news for German companies who take part in the EU emissions trading system and face comparatively high levies on energy. So far, competitors outside the EU do not have to cope with the same burden.

While the agreement itself is an important signal in the fight against global warming and for climate action, the decisive factor will be the policies implemented on a multinational level. CO2 emissions should be priced globally, and sanctions need to be installed for those countries ignoring the global system. The European Council will give its final approval and present it to the UN on Wednesday, just in time for the deal to take effect 30 days later, the start of COP 22, this year’s climate conference in Marrakesh. The negotiators will then be able to concentrate on how – rather than if – to develop common instruments against greenhouse gas emissions. Nevertheless: It will possibly take several years until the major CO2 emitters can agree on a common CO2 pricing mechanism.

Of significant importance will be the burden sharing between developed and developing countries. The experiments with CO2 cap and trade systems in China for example are at least reason for cautious optimism. Still, the deal hangs in the balance regarding the US presidential elections, making the strong signal which the ratification of the agreement sends ever more important.

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