The Economic and Institutional Foundations of the Paris Agreement on Climate Change: The Political Economy of Roadmaps to a Sustainable Electricity Future

Abstract

Three recent “roadmap” analyses outline routes to a low-carbon economy that model the decarbonization of the electricity sector and the pervasive electrification of the transportation and industrial sectors. Two of these also impose a pollution constraint on electricity resources that rejects the use of nuclear power and fossil fuels with carbon capture and storage. Using independent cost estimates and sequentially “relaxing” the constraints on resource selection, this paper compares the resource costs of the resulting portfolios of assets needed to meet the need for electricity. Reflecting the continuing decline of the cost of renewable resources, the paper supports the claim that the long run costs of the 100% renewable portfolios are not only less than business-as-usual portfolios, but that the “environmental merit order” of asset selection is quite close to the “economic merit order.” Neither fossil fuels with carbon capture and storage nor nuclear power enters the least-cost, low-carbon portfolio. As long as a rigorous least-cost constraint is imposed on decarbonization, the pollution constraint is superfluous. The paper evaluates the Paris Agreement on climate change in light of these findings. The Agreement is described as a progressive, mixed market economic model with a governance structure based on a polycentric, multi-stakeholder approach for management of a common pool resource. The paper argues that this approach reflects the underlying techno-economic conditions and the fact that national governments have authority over local energy policy. It also notes that the political economy of the Agreement is consistent with current academic analysis of policy responses to the challenges of climate change and management of a large, focal core resource system.

Keywords: Climate Change, Paris Agreement, 100% Renewables

JEL Classification: Q40, Q42, Q48, P45