What is the 'Paris Agreement/COP21'?

The Paris Agreement is an agreement among the leaders of over 170 countries to reduce greenhouse gas emissions and limit the global temperature increase to below 2 degrees Celsius (3.6 F) above pre-industrial levels by the year 2100. Ideally, the agreement aims to keep the increases to below 1.5 degrees Celsius (2.7 F). The agreement is also called the 21st Conference of the Parties to the UN Framework Convention on Climate Change.

The two-week conference leading to the agreement was held in Paris in December 2015. As of November 2017, 195 UNFCCC members have signed the agreement, and 174 have become party to it. The Paris Agreement is a replacement for the 2005 Kyoto Protocol.

BREAKING DOWN 'Paris Agreement/COP21'

One of the most significant results of the Paris Agreement 2015 was that both the United States and China initially signed on although the United States has since reneged. Together, the US and China are responsible for approximately 44 percent of global emissions: 30 percent attributable to China and 14 percent attributable to the United States. All signatories agreed to the goal of reducing greenhouse gas emissions due to rising temperatures and other risks that affect the entire world. Another significant component of the agreement is that it includes countries that rely upon revenue from oil and gas production.

Each country that attended the 21st Conference of the Parties agreed to cut its emissions by a particular percent based on a base year’s emission’s level. The United States, for example, promised to cut its emissions by up to 28 percent from 2005 levels. These promises are called intended nationally determined contributions. It was decided that each participating country would be allowed to determine its own priorities and targets since each country has different circumstances and a different capacity to undertake change.

The United States Withdrawal From the Paris Agreement

On June 1, 2017, United States President Donald Trump announced that the U.S. would withdraw from the 2015 Paris Agreement. Trump reasoned that the Paris accord would undermine the domestic economy and place the nation at a permanent disadvantage. The United States's withdrawal cannot occur before Nov. 2, 2020 according to Article 28 of the Paris Agreement. Until then, the United States may have to meet its commitments under the agreement, such as reporting its emissions to the United Nations.

The decision by the United States to withdraw was met with widespread condemnation from citizens in the United States and worldwide, religious organizations, businesses, political leaders, scientists and environmentalists. Despite the withdrawal, several U.S. state governors have formed the United States Climate Alliance and have pledged to continue to adhere to and advance the Paris Agreement. 

Structure of the Paris Agreement

For the agreement to be enacted, at least 55 countries representing at least 55 percent of global emissions were required to join. The agreement opened for formal commitment in April 2016 and closed in April 2017.  After a country’s leader decided to join the agreement, domestic government approval or the passing of a domestic law was required for that nation to officially participate. The participation of these major players and China was key to meeting the 55 percent mark since the original 24 countries that ratified the agreement only contributed to approximately 1% of global emissions.

Environmental groups, while supportive, have cautioned that the agreement is not sufficient to prevent catastrophic global warming because countries’ carbon emissions reduction pledges will not be sufficient to meet temperature goals. Other criticisms relate to disagreements over climate change science and the agreement’s ability to address climate change-related losses in the most vulnerable countries, such as most African countries, many South Asian countries, and several South and Central American countries.

Signatories are encouraged to develop renewable energy sources and build infrastructure such as sea walls to mitigate the effects of global warming. Every five years, companies must report on their progress toward and plans for cutting greenhouse gas emissions. The Paris Agreement also requires developed countries to send $100 billion a year to developing countries starting in 2020, when the agreement becomes effective. This amount will increase over time.

  1. Kyoto Protocol

    An international agreement that aims to reduce carbon dioxide ...
  2. Cap And Trade

    Cap and trade is a regulatory system designed to provide a profit ...
  3. Carbon Credit

    A carbon credit is a permit allowing the emission of carbon dioxide ...
  4. Carbon Trade

    Carbon trade is an exchange of credits between nations designed ...
  5. Shared Equity Finance Agreements

    Shared equity finance agreements occur when two parties purchase ...
  6. Credit Agreement

    A credit agreement is a legally binding contract documenting ...
Related Articles
  1. Insights

    2016 Will Be the Hottest Year on Record

    2016 is likely to be hottest year on record, WMO says.
  2. Investing

    The Largest Oil Companies Make a Pledge to Climate Change

    Here is how ten of the world's largest oil companies prepared for the UN climate change summit happening in Paris this month.
  3. Investing

    How Does the Volkswagen Scandal Affect GM? (GM, VOW.DE)

    Monitor the reaction of Chinese consumers to the Volkswagen emissions scandal. It could significantly boost the market share of General Motors in that nation.
  4. Insights

    Could a Carbon Tax a Work?

    Nobel laureate and Clinton adviser is pushing for a national tax on carbon dioxide emissions. Could a carbon tax work?
  5. Investing

    The LLC Operating Agreement Template, And Why You Need It

    For some business owners, creating an LLC offers the best of both worlds. But your state's rules might not suit your needs. Hence the Operation Agreement.
  6. Investing

    AirBnB Home-sharing is Good for the Planet

    New Airbnb study claims home-sharing is greener travel and can contribute to COP21 commitments for reduced GHG emissions in the United Stated and Europe.
  7. Personal Finance

    What Does It Cost to Study Abroad in Paris?

    Housing will be your biggest budget challenge as a student in Paris, but the city offers lots of ways for students to save money, too.
  8. Insights

    4 Things to Know About the Future of US Energy

    The fracking revolution has underpinned the U.S. energy industry in recent years, with positive trends likely to continue into the next decade.
  9. Investing

    Trump Admin Says War on Coal Is Over

    The head of the Environmental Protection Agency (EPA) has vowed to repeal an Obama-era rule that was to limit greenhouse gas emissions from coal-fired power plants.
  10. Financial Advisor

    Volkswagen Shares Tank on Emissions Cheating

    Shares of German car maker Volkswagen nosedived by roughly 21% today after the company admitted that they had used falsified software in their cars to give false emissions data.
  1. Which terms should be included in a partnership agreement?

    Understand what specific terms should be included in a business partnership agreement and how each affects the partners in ... Read Answer >>
  2. How do government regulations impact the oil and gas drilling sector?

    Find out how government regulation of the oil and gas sectors is often positive for the large companies, but may be negative ... Read Answer >>
  3. What indicators are used in exchange rate forecasting?

    Learn what economic indicators are most widely used to forecast a country’s exchange rate and how various foreign exchange ... Read Answer >>
  4. Is it possible for a country to have a comparative advantage in everything?

    Learn whether one country can have a comparative advantage in everything and what the difference between comparative advantage ... Read Answer >>
Trading Center