With the USA rejoining the Paris Agreement, the country updated its Nationally Determined Contribution (NDC) to hold the global average temperature increase well-below 2°C above pre-industrial levels. After having no set emissions reduction target followed by its withdrawal from the Paris Agreement in 2017, the US has set a rather ambitious target: to reduce its net greenhouse gas (GHG) emissions by 50-52 % below 2005 levels by 2030 and achieve net-zero emissions by 2050, with net GHG emissions including carbon sources as well as sinks, such as sequestration from land use change and forestation. Action to achieve this target include a 100% carbon free electricity sector by 2035, policies to promote “zero emission” passenger vehicles, incentivization of carbon capturing and alternative sources of hydrogen, and investments in reforestation and forest management.
Meanwhile, Germany’s Constitutional Court ruled Germany’s NDC to be insufficient to hold the increase in global temperature to well-below 2°C above pre-industrial levels. The German government responded to the ruling by announcing to cut GHG emissions by at least 65% below 1990 levels by 2030 and achieve net-zero emissions by 2040 (compared to the previous target of a 55% reduction from 1990 to 2030 and net-zero emissions by 2050). The country’s NDC is yet to be updated and details on how this will be achieved are yet to be presented but will surely include similar efforts as in the case of the USA.
Impact on Carbon4 Finance’s overall rating for these countries
These announcements impact the two countries’ Carbon Impact Analytics (CIA) ratings. CIA is a methodology to measure the carbon footprint and assess the contribution to climate change mitigation of companies as well as sovereigns. For sovereigns, the CIA overall rating (ranging from 1 = best to 15 = worst) consists of four indicators:
- The climate pledge based on the estimated temperature increase associated with the NDC
- The current decarbonization trend based on the temperature increase associated with the evolution of past emissions
- The carbon intensity based on territorial & consumption-based emissions per unit of GDP
- The fossil fuel dependency based on fossil fuel subsidies and fossil fuel weighted rents
Thanks to the US’ updated NDC, it significantly improved its climate pledge score from the worst possible to the best possible score, which results in an improved overall rating from and an improved ranking compared to its OECD peers (improving its rank from 31 to 20 of 37 OECD countries) . Considering the more ambitious emission target for Germany, also results in the best possible climate pledge score. However, the update has a less significant impact on the country’s overall rating and none on its ranking among its OECD peers (7 out of 37 before and after the update), as the country did already have a relatively ambitious NDC.
There is still work to do:
While the updated emission reduction targets do improve the countries’ overall ratings (and in the case of the US the ranking among other industrialized countries), there is still plenty of room for improvement regarding the other indicators, most notably the dependency on fossil fuels and current performance trend (especially in case of the US).
This becomes clear when comparing the US and Germany to Sweden, a country with a similarly ambitious emission reduction target, and a country that significantly reduced its emissions since its first commitment to the Paris Agreement and is less dependent on fossil fuels. Sweden is currently ranked on top of all OECD countries.
Whether the US and Germany will be able to fulfill their ambitious commitments to mitigate climate change is still in the open, so for now, it remains important to keep track of the countries’ emission evolution and other indicators, namely the current decarbonization trend, the carbon intensity relative to a country’s GDP, and the dependency on fossil fuels. A more detailed view publication on the climate change related performance of counties, based on the CIA methodology is intended to be published at the end of 2021.