On May 19, 2015, California Governor Jerry Brown entered into a Memorandum of Understanding on Subnational Global Climate Leadership (the “MOU”) with eleven other leaders from jurisdictions in North America, South America and Europe. In addition to Governor Brown, the 11 other signatories represented: Acre, Brazil; Baden-Württemberg, Germany; Baja California, Mexico; Catalonia, Spain; Jalisco, Mexico; Wales, UK; Ontario, Canada, British Columbia, Canada, Oregon, U.S.A., Vermont, U.S.A., and Washington, U.SA. The MOU’s general objective is to limit increases in the global average temperature. The MOU sets forth a list of policy initiatives with the hope of keeping the average global temperature from rising no more than 2° Celsius.

The MOU is not a contract, nor is it a treaty, and it has no binding effect on the signatories, or on businesses operating within those jurisdictions. Importantly, the MOU does not change the California carbon trading market. So what is the big deal?

There are two very significant aspects to this agreement.

First, it is the harbinger of what will likely be a growing trend in the lead up to COP 21 in Paris: an indication of “bottom-up,” subnational global support for greenhouse gas (GHG) emission reductions. This follows the growing trend to move from what was viewed under the Kyoto Protocol as a “top down” approach to international climate agreements to a more bottom-up approach – and one which is considered much more likely to succeed. Further, while this support does not mandate any particular mechanism to reduce GHGs, it could potentially bolster support for the existing and an expanded carbon market.

Second, with a stated goal of keeping the average global temperature from rising no more than 2° Celsius, this aim of a “super low emission future by the second half of the century” is not just signaling support for any GHG emissions reduction, but, rather, flat out support for a climate goal much more stringent that many intended nationally determined contributions (INDCs) are on track for – a--call for significant action. INDCs are non-binding, self-imposed goals and policy undertakings for reducing GHG emissions that are communicated to the United Nations Framework Convention on Climate Change. These INDCs are generally a tepid reduction in comparison to the MOU. By entering into the MOU, the signatories adopt a goal of reducing GHG emissions 80 to 95 percent below 1990 levels by 2050, or reducing the per capita annual emission in their respective jurisdictions to less than 2 metric tons by that same year.

The MOU has no impact on California’s Cap and Trade Program, the carbon credits and offsets exchange that started under AB32 in 2013. It also does not affect Governor Brown’s recent Executive Order No. B-30-15, which sets GHG emission goals for 2030 at 40 percent below those emissions in 1990. There is no current legislation in the California State Senate or Assembly that would give the MOU any binding effect. The other signatories to the MOU merely reaffirmed their commitment to climate change through this non-binding agreement, adding no binding requirements for their respective jurisdictions.

Through the MOU, each signatory agreed to certain concepts and policy objectives aimed at achieving emissions standard goals by 2050, including to:

• “share information and experience on redesign of the power supply and grid, technical solutions and advances in promoting large-scale switch to renewable energy and the integration of renewable energy sources”
• “encourage land use planning that supports alternate modes of transit, especially public transit, biking, and walking”
• “share information about management techniques to sequester carbon and protect natural infrastructure” and “share technologies to reduce waste or convert waste to secondary raw materials or to energy”
• “collaborate and coordinate on messaging, transparency, public outreach around climate change, mitigation of GHG emissions, adaptation”
• “collaborate and coordinate on scientific assessment efforts, and share information and experience in technology development and deployment” and “help others learn from experience to maximize success of technological transitions and avoid potential obstacles”
• “collaborate on the reduction of short-lived climate pollutants such as black carbon and methane”
• “to work towards consistent monitoring, reporting, and verification across jurisdictions”
• “promote best practices in modeling and assessment to understand projected climate impacts, especially at the regional and local scale”
• “work together to build metrics and indicators that can help to track progress in reducing the risk of climate change to people, natural systems, and infrastructure”
• “work to share innovative models for financing and supporting climate adaptation, including public-private partnerships, resilience funds, and competitive approaches” and
• “to share technology to the extent feasible, such as through open source information”

Although the MOU is non-binding on the signatories and does not set new regulatory requirements, the MOU is part of a broader subnational approach to climate change. This movement is gaining momentum for the upcoming United Nations Climate Change Conference to be held in Paris later this year, and shows that the local governments are concerned with climate change. Such concern and broader support for quantifiable and enforceable GHG emissions standards may also have an impact on California’s carbon trading market. Those participating in the market may benefit because the MOU expands the number of jurisdictions that are committed to finding ways to incentivize GHG emission reductions, possibly through market mechanisms. Additionally, renewable energy development and green-minded infrastructure projects may increase in response to the MOU’s policy objectives.

Client Alert 2015-133