6
The easy part of imagining a global response to climate change is picturing the trajectory of jurisdictions that are already highly motivated to act. Most of Europe, the politically blue coasts of the United States, and a few countries—such as Japan, New Zealand, and Uruguay—have committed to industrial and agricultural policies that are broadly consistent with deep decarbonization. And at the federal level, at least for now, the United States has made climate change a central policy priority.
The trouble is that these efforts span only a small part of the global problem. Most of what these jurisdictions are doing remains focused on home markets, and only about a fifth of global emissions today come from places that are investing heavily to push the technological frontier, and apply the latest technologies and practices.1 There are several reasons why we must fill this gap with a robust new vision of international cooperation—one that makes good on the promises of experimentalist governance.
First, international cooperation can accelerate and extend the reach of innovation. At the knowledge frontier, cooperation broadens the scope of parallel search. When Swedish policy makers and the nation’s steel industry commit massive resources to experiment with essentially zero-emissions steel production technology, they can at best test one idea. By itself, Sweden’s steel industry isn’t big enough to invest in a more diverse portfolio.2 Teaming up with others—in Austria, France, the Netherlands, the United States, and Japan—can expand the zone of exploration by testing other methods for decarbonizing steel.3 Nobody knows which approach to cleaning up steel production will be most viable, but cooperation can ensure a broader range of experimentation. International cooperation can also create bigger markets for innovative products, such as by setting standards for products like aircraft that trade and operate globally.
Second, when innovation takes the form of contextualizing technologies for local markets—as California and other places are doing with renewable power (chapter 5)—cooperation helps other jurisdictions explore and learn about their own place-based solutions faster. Thus grid operators in Australia, California, Germany, and Ireland can (and do) compare strategies for integrating renewables; each faces a common problem and common points of comparison, even as each must find its own local solutions.
Third, cooperation is vital even in areas where solutions do not depend on technological innovations from advanced countries. Take deforestation. As we saw in the last chapter, stopping illegal logging and the burning of forest lands by squatters in the Amazon or Indonesia requires new, local practices, especially support services to small landholders who might otherwise encroach on forests. But these practices are also nested in national and international standards, backed by a penalty default: the threat of exclusion from markets where forest-related products are sold. International cooperation therefore helps make local reform work.
Fourth, international cooperation is essential for maintaining action in regions that are already doing the most. Innovators will check their efforts if they must compete with firms allowed to avoid the costs of decarbonization, and the prospect of such free riding weakens the political pressure for technological experimentation. Consider how this is playing out in Europe. Even in the greenest countries with the longest track records of innovation, governments regularly insulate those industries most exposed to global trade from especially burdensome regulatory requirements.4 Sweden, for example, is pushing for cleaner steel production even as the government mostly exempts its domestic steel industry from the nation’s stiff carbon tax so it can compete abroad.5 This is where international cooperation—across the whole global steel market—has a crucial role to play. Until innovation makes cleaner steel production viable and strict rules in all markets make it commercially competitive, Swedish policy makers won’t much disadvantage their national champions. As countries adopt costly boundary-pushing policies at home, industries press for trade policies—such as border carbon adjustments—to help level the playing field for cleaner but higher-cost European producers.6
For all of these reasons, no response to climate change will succeed without international cooperation. In this chapter, we explore how to achieve more cooperation of the kinds needed to accelerate decarbonization.
We are mindful that the quest for cooperation comes at a time of pervasive uncertainty in the world order. To the uncertainty already inherent in problems like climate change now is added uncertainty about how cooperation is to be achieved in today’s international system—and even whether, in crucial areas, cooperation is possible at all. Yet despite these real obstacles, our story is a positive one. The practical need to learn from others, often combined with political coalition building, is already giving rise to a new climate change regime—one that looks to the Paris Agreement and other such international accords to provide legitimacy for experimental and locally engaged efforts and to create the penalty defaults that help give them force. But the real work occurs far beyond the strictures and procedures of Paris, in sectoral organizations and specialized federations of localities.
To see why, we must start by considering the state of cooperation today.
The Current State of International Cooperation
International climate cooperation does not begin with a blank slate, of course. As we described in chapter 2, there is a long international history of institution building for climate cooperation, most of it under the aegis of the UNFCCC. Formal failure in Copenhagen, long after the de facto failure with the Kyoto Protocol, opened up space for new ideas, which took preliminary form in the Paris Agreement of 2015.
In parallel with UNFCCC diplomacy, many other arrangements have been created for or repurposed to climate change functions. These include funding programs through multilateral development banks (e.g., the Global Environment Facility), new funding mechanisms (e.g., the Green Climate Fund), and institutions centered on particular regions (e.g., the Arctic or Amazon), sectors (e.g., the International Civil Aviation Organization), and pollutants (e.g., the Climate and Clean Air Coalition, which concentrates on soot and methane). Before Paris, governments pledged to direct at least $100 billion annually in new climate-related funds to developing countries, and the Paris Agreement extended that political commitment through 2025. At a meeting in Glasgow, Scotland in late 2021, donor countries were still falling short so they made new diplomatic commitments to spend more and check progress. Outside the ambit of the UNFCCC, there are also established regimes in forestry, palm oil, and other agricultural commodities as well as many nascent international regimes that coordinate actions in industrial sectors, such as cement, steel, renewable power, and oil and gas—all industries where a critical mass of firms has learned that it must collaborate on climate change.7
In short, a regime complex of partially cooperating, partially competing organizations has emerged. Its components are so numerous and varied, however, that it is a matter of intense debate which of them actually help solve joint problems and protect the planet.8 The challenge for international cooperation on climate change isn’t about creating new institutions on a blank slate so much as identifying and coordinating the efforts of those that do or could work.
This is where the Paris Agreement enters the picture—or at least where it was supposed to. The expectation (including, for a time, ours) has been that Paris was destined to become the central node in this regime complex, loosely coordinating both national programs and international organizations.9 (Some saw a bigger and more directive role for Paris—as the master orchestrator, formally or de facto, of action dispersed across many organizations.) The reality, as we see it, is that Paris is and for the foreseeable future will remain less central than hoped. What little orchestration and coordination it does is of loosely coordinated clusters of efforts.
How are we to explain this situation? The adoption of the Paris Agreement in 2015 was met with widespread enthusiasm, including by us.10 That support reflects, in part, success in abandoning elements of earlier failed efforts at cooperation outlined in chapter 2, such as the setting of global, binding emission targets and timetables for every country.11 Compared with Kyoto, Paris adopts a much more flexible approach, based on national pledges known as nationally determined contributions (NDCs). These NDCs, the result of domestic politics, are to be restated every five years, reviewed individually through a “facilitative multilateral consultative process,” and assessed collectively through a “global stocktaking.”12
In principle, this structure has several things to recommend it. It creates a process that could align commitments with what national governments think they can implement.13 (Parallel processes aim to elicit pledges from businesses, subnational entities, and NGOs—although there is no organized review and assessment of those actions that has much impact on behavior.)14 It appears to dispense with a bright-line distinction between industrialized and developing countries by allowing countries to determine what they want to commit. It also includes large commitments for new funding—a critical element of the success of Montreal. Relinquishing old Kyoto-like efforts to create integrated global agreements was a big accomplishment, and Paris marked an end to those failed efforts. On the surface, then, many elements of the Paris Agreement appear to be aligned with the forms of experimentalist governance that we have been advocating. Indeed, in many ways Paris, especially at the start, seemed reminiscent of the experimentalist approach of the Montreal Protocol in its reliance on the periodic revision of national goals, review of ongoing efforts, and stocktaking of national plans and results.15
But in contrast to Montreal, Paris’s initial framework has not been allowed to evolve, formally, toward experimentalism. Indeed in important ways it has not been allowed to evolve at all. National governments, protective of their autonomy, quickly recast Paris’s initially permissive institutional rules into reporting and review procedures before any practical experience with them had been gained.16 These procedures, known as the “rulebook,” were hammered out through painstaking diplomacy that mostly ended in 2018.17 The rulebook determines the minimum content for NDCs and emission inventories as well as the maximum granularity of reviews of NDCs and inventories, facilitative multilateral consultative process, and stocktaking. Fear of potentially intrusive processes kept reporting and reviewing mechanisms weak and general so as not to endanger consensus.18
In our view, these features of the Paris rulebook make it impossible for the machinery of Paris to serve most of the major functions of experimentalism. If NDCs are thin to begin with, no system of review can supply the missing content, let alone render assessments compelling enough to go beyond encouragement or chiding.19 Take the case of Norway, a country highly committed to combating climate change and highly supportive of the Paris process. Indeed, adjusted for its size, Norway probably invests more in serious climate change policy than any other nation on the planet. The country issued its second NDC in 2020, strictly following the rulebook guidance. The document is almost completely procedural. Its sixteen pages are silent on the topics where Norway has taken the biggest risks and learned the most—such as efforts to push the adoption of electric vehicles, massive programs to advance carbon capture and storage among other pivotal technologies, and a pathbreaking effort to fund the protection of tropical forests, starting in Brazil. Its NDC likewise says nothing about balancing international engagements with the cost of efforts at home—a crucial consideration for a country like Norway, which is already so clean that reduction of domestic pollution is at the point of diminishing returns.20 This reticence does not result from fear of disclosure. The country has nothing to lose from a thorough discussion of its plans; in several other forums, Norway has been highly transparent about its climate changes initiatives.21 If a committed actor and eager learner like Norway sees no purpose in engaging deeply with the NDC process, what should we expect from those less committed to the industrial transformation needed to reduce emissions?
The same consensus-driven orientation that plagued the rulebook also impedes exchanges with nongovernmental and subnational actors—among the most important sources of political pressure and practical action on climate change. In the run-up to Paris, many governments wanted to acknowledge explicitly the potential contributions of firms and subnational jurisdictions to cutting emissions. In response to their concerns, a registry—the Global Climate Action Portal—was developed, in which nearly thirty thousand “actions” by more than eighteen thousand subnational actors have been declared.22 But the climate change secretariat that manages Global Climate Action has no authority or capacity to help registrants advance their projects and coordinate with others. Even when the secretariat orchestrates reviews of the NDCs, following the procedures set forth in the rulebook, it is explicitly barred from looking at the Global Climate Action Portal information unless sovereign governments themselves include those actions in their national plans.23
There are other limits of these kinds as well that make the break with the past less clean than first appeared and constrain the promising articulation of promising initiatives. While the Paris Agreement does away, to some degree, with the categorical distinction between developed and developing economies, vestiges of the division persist.24 Paris has created some technical cooperation mechanisms, like a series of Technical Expert Meetings, that look, on the surface, like the experimentalist bodies of the Montreal Protocol.25 But these bodies—organized by a secretariat that was expert in negotiations, not the frontier testing of new technological ideas—have achieved little because they have neither the authority nor capacity to organize the consequential searches for information that characterize Montreal. Mostly they rehash what is already known.26
As for large pledges for new funding, Paris imposes weak, uneven controls and accountability on the exact level of actual contributions—and no mechanism for countries to report what they have attempted to achieve with the funding, where they have fallen short, and where they have learned they can do more.27 Such mechanisms have been left to other institutions to develop and for national governments to innovate, as they please, on their own. Unlike Montreal, moreover, little of the funding mobilized with reference to Paris has been (or will be) spent through institutions formally governed by Paris.
For all of these reasons, we no longer think it is likely that governments could demand highly informative NDCs, extensive peer review, and detailed stocktaking under Paris. However appealing the vision, the rulebook is the reality; Paris’s consensus procedures will not give coherent direction to deep cooperation needed to manage climate change. But that does not mean that Paris has no role to play in serious efforts at cooperation. Indeed, international coordination must leverage the legitimacy of the Paris institution and its role as the de facto climate conscience of the global community, with its corresponding capacity to punish parties that drag their feet.28 To make the most of Paris means relying on the agreement as a source of authority and penalty defaults while performing nearly all the work of experimentalism on the outside.
The central challenge for governments, firms, and NGOs seeking to advance effective cooperation on climate change is thus to sustain the legitimacy of Paris while not becoming mired in the machinery. Achieving that will not be easy—in the eyes of many, the machinery is the legitimacy—and the rest of this chapter offers a framework for how to manage the challenges. We focus on the central, experimentalist functions needed for effective cooperation to be performed.
Our discussion is based around two poles of industrial organization. At one extreme are globalized industries that both source and sell in world markets; examples include industries for aircraft, solar panels, aluminum, petroleum, and oil-drilling and production equipment. At the other extreme are industries that sell intrinsically place-based products, such as fruits or vegetables characteristic of particular regions, residential homes, or local electric supply.29 At the former extreme, most change comes from frontier innovation and penalty defaults linked to international standards; the role for cooperation revolves around standards setting and the application of penalty defaults. At the latter extreme, contextualization—local building codes, say, or seed varieties optimized to particular soils and climates—plays a bigger role, even when local production relies on technologies that are sourced in global markets, such as heat pumps to increase energy efficiency, precision irrigation systems to economize on water, or advanced solar cells and wind turbines. Here the gains to cooperation come largely from accelerated local learning—motivated by penalty defaults eventually in combination with international standards that level the competitive playing field.30
We consider these two cases in turn. First, extending the arguments in chapter 4, we look at international standards-setting actions that can push the technological frontier. Second, we explore the contextualization of technologies, building on the arguments in chapter 5. Third and last, we examine the penalty default incentives that intersect with both of these efforts—and the important role Paris has to play in them.
Cooperation and the Technological Frontier
We begin with international standards setting, where the incentives for cooperation are the strongest and the lessons are the clearest. By our estimate, about half of the world’s emissions are directly subject to international standards linked to rules of market access. That includes almost all emissions from industry (21 percent of the global total emissions), most emissions from transportation (24 percent), and about half of food and land use emissions (24 percent of the world total).31
Deep decarbonization in these markets requires deep innovation. As a measure of the level of the challenge, a recent study by the International Energy Agency found that up to three-quarters of the technologies needed for deep decarbonization do not exist today, and in every major cluster of technological innovation—except for solar power—the global frontier for the testing and deployment new technology is far from where it must be if global emissions are to be cut dramatically to zero by midcentury.32 Here cooperation has an essential role to play. As we saw in the preceding chapters, regulators use technology-forcing requirements to induce firms and research organizations to exchange information about what is becoming feasible. And because their exchanges percolate into national and international standards—for example, CARB’s vehicular emissions goals initially shape the EPA’s national standards, and then standards elsewhere, especially those in the European Union and Japan—the prospect that local standards will spread motivates other firms and jurisdictions to try to innovate, or at least keep pace with innovation, lest they be left out.
Sector-based innovation is driven of course by firms and governments motivated to push the frontier. Those efforts, as we have seen, benefit from regular stocktaking to tighten or loosen goals and help identify opportunities for new investment.33 As we noted, international cooperation to encourage frontier innovation faces two closely related challenges.
The first and most central challenge is striking the right balance of commitment with openness. The goal is to build a coalition of governments and firms all motivated to invest in experiments, review results, and codify standards while remaining open to new participants from outside the circle of innovators. These coalitions might be what the literature in economics and political science calls a “club”: a group that provides a collective good, but only to members.34 Or they might be looser federations of like-minded actors pursuing broadly similar goals. (We think that there is a large role for clubs in advancing climate change action—a topic that we revisit below with our discussion in the next chapter of trade measures.) The challenge is to begin with a coalition small enough that the incentives to innovate and the insights are focused yet prospectively broad enough to secure a measure of legitimacy. Nearly all existing sectoral institutions have large memberships and decision rules that together can easily replicate the consensus gridlock that plagues the UNFCCC and Paris.35
New approaches—which allow small groups to start innovating while keeping their membership open—are beginning to play out in aviation and shipping. In both sectors, organizations with global membership (such as the International Civil Aviation Organization and International Maritime Organization) are being pushed from within by smaller clubs of firms and governments mainly based in Europe.36 These small groups recognize that the global adoption of more demanding standards depends on demonstrating the technical and economic feasibility of new, more effective technologies and methods. Thus Maersk, the world’s largest container shipping company by fleet size and cargo volume, coordinates a series of technology demonstration programs inside the International Maritime Organization cofunded by governments and linked to proposals for new standards.37 Those demonstrations are evaluating different fuels such as natural gas, biofuels, hydrogen, and ammonia in combination with internal-combustion and electric-drivetrain propulsion systems. Because Maersk’s capital stock is long-lived and hard to change once built—onboard systems and shore-based infrastructures are codependent—the company also works with those same governments to gradually align equipment and local standards to superior solutions. This process shows the workability of many paths to improvement and makes it easier, eventually, for other International Maritime Organization members to join in and riskier for members to drag their feet.
There is thus a tension between a compact vanguard and a rearguard whose inclusion ultimately determines the legitimacy of the overall effort. And as we will see in the next chapter, this tension poses a generic challenge in international cooperation—especially given the decline of hegemonic leadership and deference to technocracy. In many stalemated domains of world politics, including trade and the WTO, innovative cooperation has shifted to smaller groups operating at the margins of consensus rules and constantly aware of the need to make new norms acceptable to outsiders threatened by them. A vanguard therefore pulls a rearguard along, and in time, the two perhaps merge.38 In climate change, where new technologies are costly, and require testing and nurturing in protected markets, the strains of maintaining broad consensus while establishing the autonomy to experiment—and then making the results of innovation broadly accessible—are particularly severe.
The second major challenge for more innovation-oriented cooperation is granularity. What is the right scope for a “sector”? Experience leads in contradictory directions.
On the one hand, many examples suggest that the narrower the focus, the greater the progress. In the North Sea, pollution from incineration was handled distinctly from ship dumping and agricultural runoff. In the Montreal Protocol, fire extinguishers and other halon users were evaluated separately from the use of CFCs, carbon tetrachloride in dry cleaning, and methyl bromide in fumigation. Even within sectors, the focus could shift under Montreal as the nature of “the” problem subtly changed; the first generation of CFC refrigerants were phased out on a different schedule from the second and third generation, for instance, with distinct clusters of experimental innovations that pushed the frontier in each of these chemical classes.39 And as we saw in chapter 4, when utilities and regulators first sought to control sulfur pollution, they adopted distinct approaches to experimentation around each control option—linking the efforts together into a more nearly industry-wide program only after the potentials for progress on each narrow frontier were better understood. Underlying this drive to ever-sharper focus and narrower sectoral definitions is the need to compare plausible alternatives in peer review. That entails fine-grained comparisons of rival solutions for a known commercial function (e.g., low-emission yet highly reliable jet engines) and setting standards for tangible products that actually move across borders.
On the other hand, fine-grained approaches may not always be best. Under conditions of technological uncertainty, where solutions are often derived from innovations in other, unrelated sectors, it is costly to design institutions for closure and narrowness; instead, an openness to developments beyond the usual boundaries is frequently indispensable, even as solutions to particular problems take shape. A fine-grained sectoral group will have neither the experience nor the authority for open-ended exploration. Indeed, within the Montreal Protocol the technological options committees were sector based but not rigorously sectoral; they could shift their scope as needed to address a cluster of related ODS. For example, efforts to phase out hydrochlorofluorocarbons (one of the first substitutes for CFCs) and hydrofluorocarbons (a later substitute that is more benign for the ozone layer, but still harmful for global warming) have coevolved. The regulation of hydrochlorofluorocarbons depends in part on the options for switching to hydrofluorocarbons, and that in turn depends on the next tranche of superior alternatives along with the equipment to use them.40
Similarly, in the area of zero-emission steel, nascent efforts to organize the sector have identified a small array of possible solutions: some involve electricity, others involve carbon capture and storage technologies, and still others involve the use of hydrogen in steel production. The steel industry and supporting governments can organize experiments, review results, assure procurement and protection for early movers, and set standards for the industry. But success of the enterprise also requires actions outside the fence line of the steel industry and its regulators. Electric methods for making green steel require clean electricity, carbon capture and storage approaches would benefit from prior demonstrations of industrial carbon capture and storage systems, and hydrogen-based strategies hinge on adequate infrastructure for making and supplying hydrogen at a reasonable cost.41
The granularity problem underscores why strategies for innovation and standards setting must, following this example, be sector based but not sector bound: anchored in the concrete concerns of a certain sector, but not by the boundaries of the sector in the search for solutions. One model of this kind of directed but open-ended innovation is ARPA-E, as we discussed in chapter 4. The agency specializes in solving hard problems that block progress in a given sector by looking simultaneously inside and outside for solutions. Its early stage project funding connects ideas across sectors to open up new possibilities. Better technologies for bulk energy storage, for instance, require thinking about the frontier for innovation not as “energy storage” but rather as combinations of skills drawn from areas such as nanomaterials and chemical engineering.42 A similar sector-based logic applied when EPRI helped the power industry learn about scrubber innovations. To ensure widespread deployment, EPRI, its member utilities, and the industry’s equipment vendors had to look beyond the performance of different chemical engineering systems to the supply chains for critical materials (e.g., limestone) and disposal.
While most of these examples come from within countries, the same logic applies to international efforts. Here, the EU experience with hydrogen is emblematic. Most studies find that deep decarbonization is best achieved by converting as many energy uses to electricity as possible and then decarbonizing the electric power system.43 But that approach faces extreme difficulty in a few sectors for which electric solutions seem unlikely to appear, such as the manufacture of low-emission plastics, steel, and aircraft.44 In these cases, and possibly many others, hydrogen could be the key to eliminating emissions. The crucial unknown on which the entire strategy turns, of course, is the cost of making hydrogen. The European Union has organized a multinational effort to answer that question. It includes ARPA-E-style funding for early stage research and also (unlike ARPA-E) direct funding for promising experiments at scale. Aggressive peer review at each stage is keeping tabs on which production routes seem most promising, while also keeping an eye on the political backing needed to sustain the program.45 Within international organizations, this kind of sectoral approach requires navigation around the inevitable blocks that arise when the interests of a particular member change. The bigger the group and the more consensus-oriented the decision authority, the harder that navigation will become.46
At this writing, a lot of boundary pushing is underway in nearly every major emitting sector.47 Nearly all of this investment is occurring with reference to Paris—in the name of Paris—yet none of it is organized “under” the Paris Agreement.48 It is happening in small coalitions of governments and firms focused on key challenges, such as improving the performance of light-duty electric vehicles, building better nuclear reactors, or lowering the cost of hydrogen production. The configuration of each group varies with the task at hand. The best performers operate in experimentalist modes with active peer review, evaluation of results, and adjustment of central rules—all motivated by penalty defaults.49
Cooperation and Contextualization
We have argued that sector-based international standards can have direct, powerful impacts on the direction of technological change. But the reach of sectoral standards is often limited, especially when technologies, products, or investments don’t move much across borders. Even where firms and governments are under intense pressure to act on climate change—as evident in the many cities and regions that are now making bold policy announcements in forums like C40, ICLEI, and “we are still in”—what happens locally depends on local factors revealed through contextualization, not international standard setting. When the electric utilities in California were under pressure to integrate more renewables, for example, they didn’t look to the International Renewable Energy Association, a global body, for help in solving problems. Rather, they consulted other state utility regulators, grid operators, and politicians and aligned their own investments and operations with local expectations. The local context determines almost everything about how these technologies get applied. International organizations can supply data—for instance, how California’s efforts compare with others—and suggest how California’s track record might be applied in other localities keen to replicate California’s successes.
The role for international cooperation in directing and accelerating contextualization will thus be a lot messier than in the highly tradable sectors discussed in the previous section. The incentives for joint action on contextualization are more diffuse. Innovators are not automatically compelled, through foreign competition, to drive international standards higher or align their operations with those standards. Instead, many of the gains from cooperation will come from joint learning from the successes and failures of contextualization strategies. Ideas developed elsewhere can seldom be transferred unchanged from one place to another. Effective learning requires an active effort. And almost invariably, such learning must look beyond the exchange of best practices to joint efforts to understand, through joint review and other means, how solutions are reconceived as they are transferred.
Fortunately, there is a rapidly expanding set of institutions that may provide models for this kind of review. One example is the National Association of Regulatory Utility Commissioners (NARUC) in the United States. NARUC provides detailed peer review and the sharing of best practices on electric utility regulation. Through committees on topics from rate design to the reliability of natural gas supply and recovery of investments in innovation, NARUC helps North American regulators learn how other North American regulators have innovated—what has worked, what hasn’t, and why. These reviews help set local agendas for contextualization. When the US National Academy of Sciences outlined a vision for how the electric grid can be kept reliable and affordable while addressing new societal goals such as deep decarbonization, it pointed to NARUC in particular as one of the critical institutions that will need to help each state contextualize the lessons being learned in other venues around the nation.50
Increasingly, NARUC plays similar roles overseas. It collaborates with foreign regulators, themselves also often organized into collectives for assessing experience with contextualization. Such assessments begin by identifying a frontier topic in electricity regulation and establishing direct partnerships with regulatory counterparts to investigate it together. Where NARUC collaborates with peers that are also grappling with the same issues—notably in Europe—the information flows are in two directions. Where NARUC operates more to build capacity overseas, such as in emerging and least developed economies, the information flows are more unidirectional. NARUC members also often fund direct capacity building—authorizing that effort through institutions formally outside NARUC such as the Regulatory Assistance Project that specialize in the regulation of monopoly industries.51 Through this kind of detailed spadework, the lessons learned through contextualization, frequently at great local cost, spread more rapidly and widely overseas.
While NARUC runs peer reviews within place-based sectors, a similar logic applies to certain cross-border problems such as the peer review of national North Sea pollution. The Netherlands led the other littoral nations in taking the North Sea pollution problem seriously and creating effective peer review by volunteering to go first.52 Similarly, the United States and China volunteered themselves for the peer review of their policies on fossil fuel subsidies as a way of laying a foundation for mutual cooperation on energy and climate.53 Each government appointed its own experts, who along with other internationally recognized peers, published a mutual review of subsidy policies and identified the need for further reforms.54
Most contextualization, to repeat, occurs within countries—often far from capitals and highly localized. It is tempting to avoid the complexity and cost of these processes by relying on centralized interventions, including foreign pressure and support, to secure the desired local outcomes. These efforts reflect the triumph of hope or wishful thinking over experience, as attempts to control uncertain situations from afar repeatedly fail. Stalled efforts to create a viable program for protecting the Amazon in Brazil are an object lesson of the high costs of such apparent shortcuts.
At the same time, as we have emphasized throughout, local direction is hardly sufficient. The experience of many US municipalities that have recently committed to ambitious programs of decarbonization is one of many illustrations. They have announced bold goals and built alliances to pursue this end.55 But for the most part, local capacities remain modest, and efforts to pool experience are likewise in their infancy. Ambitions to greatly expand joint learning are robust, but the capabilities to do so are limited—precisely because most of the pioneer jurisdictions have not framed the climate change problem in this way. Many states and cities have sustainability offices that have taken on the climate change agenda, but these institutions don’t have the capacity to contextualize new technologies and best practices. Many have set goals and then struggled to figure out how to meet them.56 In some domains, local city or county actors often have no authority to alter the practices that cause emissions—for example, the industrial production of imported products or the configuration of the electric grid. In other domains, the leverage is greater—for instance, regional mass transit planning, infrastructure for electrifying vehicles, and building codes. In the absence of decisive action on climate change at the federal level, it seems that municipalities and states in the United States, like those in Brazil, need to develop their own solutions where they can, learning from each other, and eventually using what they learn together to leverage action at the federal and international levels.
We know it is much easier to say all this about contextualization than to do it—and in fact, it too often is said rather than done. Above all, we wish to emphasize that contextualization requires local learning. Institutions for international cooperation can be helpful only to the extent that they focus local efforts by sharing information and experience across jurisdictions.
This is where the current efforts can stand to be improved. Subnational actors that have invested the most in figuring out how to put emission controls into their local context have tried to learn from efforts elsewhere by forming several associations. C40 and ICLEI are, at this writing, the most prominent—both large clubs of subnational units that have pledged actions on their own, typically in line with deep cuts in emissions as needed to meet the Paris goals. They are expressions of passion and desire. But neither operates a serious peer review program, and neither administers a capacity-building program—either through multilateral funding akin to what is offered under the Montreal Protocol or by direct regulator-to-regulator collaboration along the lines of NARUC.57
Cooperation and Penalty Defaults
We began this chapter by emphasizing why international climate cooperation must look beyond Paris. But in our view, Paris still has an indispensable role to play, albeit in an area that Paris participants, bound by the founding commitment to national sovereignty, are reluctant to discuss: penalty defaults. Paris is essential to allowing the imposition of penalties—more exactly, to marshaling support for the kind of penalty defaults without which experimentalist regimes won’t work.
Climate change diplomacy has been dogged by the question of whether to enforce compliance by penalties, and if so, how. In one camp are those scholars who view climate change as a giant collective action problem—a prisoners’ dilemma on a global scale that will thwart collective action unless obligations can be comprehensively agreed on and enforced. In the other camp are those diplomatic pragmatists who see agreement on enforcement as impractical, along with those academic theorists who see many problems of “compliance” as resulting not from willful violations but instead from incapacity—for which the best response is support for capacity building rather than penalties.58
Experimentalist governance splits the difference. It sees penalty defaults as necessary to undermine confidence in the stability of the status quo—thus encouraging hesitant innovators and reluctant compliers—and raise the cost of persistent obstinacy or indifference. But experimentalism stresses that countries strapped for resources will frequently struggle to master tasks that challenge rich countries as well; that noncompliance will therefore often result from incapacity, not selfish guile; and that the response in such cases should be support rather than sanctions.
Where does Paris fit into all this? On the one hand, the Paris Agreement lacks the formal power to establish penalty defaults because mitigation goals are set by the various parties in their respective NDCs. In other words, Paris does not have goals of its own that are applicable to individual members, and cannot penalize parties for ignoring requirements it has not imposed. The agreement’s ambitious collective goals—stopping warming well below 2°C above preindustrial levels and achieving roughly net-zero emissions by midcentury—were acceptable precisely because they were collective; they did not make particular demands of particular parties. But on the other hand, Paris enjoys unique legitimacy among international organizations as the authoritative voice of public opinion in global climate affairs. This legitimacy is rooted in the very legacy of consensus decision-making that otherwise hamstrings the Paris process in so many ways. Its role in threats to climate is like that of the United Nations in threats to peace: whatever the shortcomings of the institution, there is practically nowhere else to turn in a crisis.
This arrangement explains why appeals to Paris are made when a government or firm is seen as willfully undermining decarbonization. That was the reaction when Brazil all but boasted of invading the Amazon after years of varying efforts to protect the forest; almost instantly, European governments threatened trade retaliation against a flagrant violation of the goals of Paris. For similar reasons, the European Union treats membership in Paris as a kind of prerequisite to entry into the fellowship of responsible nations and has declared that it will not enter into trade agreements with nonmembers.59 EU members have also suggested they should sanction the United States for its failure to honor Paris under Trump.60 The Biden administration’s plan for climate action, which envisions much stronger policies at home, has at times included broad measures and sanctions to push the rest of the global economy along too—all in the name of advancing the Paris Agreement.61 For their part, NGOs with decades of experience shaming corporations into climate action, from Friends of the Earth to Extinction Rebellion, now refer to Paris to help legitimate their demands and campaign for Paris itself to act more boldly. In both efforts, they acknowledge Paris as the climate conscience of the world.62
Trade measures are all but certain to play an important and growing role in inducing action as well as contributing to the legitimacy of Paris and efficacy of climate governance.63 Sanctions, actual and threatened, make the stewards of globalization, especially trade lawyers, nervous. What will keep sanctions and other types of penalty defaults focused on appropriate goals (boosting the legitimacy of Paris and mitigating climate change) while preventing them from spinning out of control into instruments of protectionism and geopolitics? One answer is that sanctions will have to respect the existing trade norms, which require nondiscriminatory application that advances legitimate environmental goals, including goals established through international cooperation.64 The precedents that gave rise to these norms will constrain the use of trade measures and make threats to apply them more credible.
Nonetheless, the current use of penalty defaults is unstable, and from the point of view of experimentalist governance, incomplete. Instability in the use of penalty defaults arises from the ease with which accusations of noncompliance and threats of sanctions can be made, and the lack of any structure within Paris for responding to those claims. When serious threats are easy to make and hard to challenge they will be made too often, draining them of meaning.
The current arrangements for the use of penalty defaults are incomplete, at least from the perspective of experimentalist efforts, because the growing risk of a violation does not trigger an offer of technical support to help facilitate compliance. As we argued in chapter 3, under uncertainty, where learning will typically be necessary to meet changing requirements and yet those learning capabilities are costly for many nations to obtain, a complete system of incentives for encouraging compliance must include not only penalties for incorrigible laggards but also support for those who do or could lag for want of help in mastering new tasks. Yet the funds linked to Paris today include only modest capacity building. Moreover, because the Paris rulebook prohibits a close look at country performance beyond the information provided by countries in their NDCs and regulatory transparency reports, there is no formal way to target more capacity building to those parties whose performance shows they need help.65
A modest reform can begin to address both of these concerns. In cases where incapacity is clearly the cause of poor performance, parties to Paris could agree to recognize noncompliance penalties only if they are accompanied by promises from the accusing countries to provide technical and financial support. To demonstrate the need for support, countries charged with noncompliance could volunteer for a peer review with an outside partner that would establish whether incapacity caused the shortfall, and if so, indicate the first steps toward a remedy. Parties that egregiously undermine Paris goals, like Brazil, would never put their misdeeds on public display in a peer review; rich countries would be reluctant to participate too, either for pride or fear that a thorough review would expose politically explosive lapses and delays. Instead, the beneficiaries of such a reform would be the intended ones: developing countries most likely to need support and make good use of it, along with those most likely to reject financial obligations for Paris as a whole. With this change—pairing accusations of noncompliance with promises of help where it is needed—threats would be costly to make and thus more likely to be made judiciously. The incentives for changing behavior would be more complete and credible than the episodic menace of penalty defaults alone. This kind of conditional support could be financed from the $100 billion of new annual assistance confirmed under the Paris Agreement, and if there are pledges of funds beyond the $100 billion, this would be a good way to spend those additional resources. A mechanism quite similar in approach—financial and technical support, in exchange for peer review that roots out the causes of noncompliance—has improved technical capabilities and compliance in the area of customs modernization, as we discuss in chapter 7. It shares many features with the MLF of the Montreal Protocol, with monetary policy reform supported under the International Monetary Fund and in many other domains where the ability to cooperate and comply must be built within countries.66
The legal authority for such an approach already exists, broadly, in the Paris Agreement.67 The European Union is in a good position to lead the way here, for it is already threatening trade measures against countries that make inadequate efforts. That kind of penalty default could be coupled with incentives for countries that are willing to explore needed changes in national policy.
The Future of Cooperation: Beyond Paris, with Paris
Most progress on international climate cooperation, we have argued, will come through standards setting at the frontier of technological innovation and, to a lesser extent, contextualization that pools local learning. The roles for Paris in performing these functions is small yet vital; it can serve as a point of focus and conscience that helps make each of these three major functions more effective. The jurisdictions that are most motivated to act on climate change know that making progress requires international collective action. By putting an end to Kyoto-style diplomacy and declaring the beginning of an alternative order, Paris became the constitutional foundation of that global cooperation. But in interpreting Paris’s role, it is useful to keep in mind journalist Walter Bagehot’s distinction between the “dignified” part of a constitution, whose function is “to excite and preserve the reverence of the population,” and the “efficient” part, which serves to “employ that homage in the work of government.”68 No global consensus organization, even one as flexible in its system of pledges as the Paris Agreement, will ever be the “efficient” part of an effective integrated system for experimentation and rapid learning. Yet the same need for a continual renewal of consensus that disqualifies Paris in this sense equips it uniquely as the dignitary face of global climate cooperation: the climate conscience of the world.
Paris therefore should be celebrated for what it does well: establishing the legitimacy and foci for climate action. The efficient work of international cooperation—pushing the technological frontier in small clubs and investing heavily in contextualization—will be done in the name of Paris, but far removed from the grinding machinery of intergovernmental consensus. Practically, Paris is most important in concentrating effort by other actors—including nations that want to threaten trade sanctions—to apply the penalty defaults that help motivate experimentation. That role for Paris necessarily implicates other international economic institutions, notably the WTO, that are themselves fragile and searching for relevance in a world where institutions of the old globalization are deeply in question. In the next and final chapter, we look at how that search may be leading to a trade regime, built in pieces, that is more hospitable to international efforts to mitigate climate change, and more responsive to demands for transparency and democratic accountability in governance across many levels.