Allocation methodology of national climate budgets

All - Sep 06 2018

Research note



While the Paris COP21 and the Marrakech COP22 have sent a strong signal as to the degree of commitment of the different stakeholders to the climate issue, there is still a long way to go. Indeed, much research has shown that the aggregation of commitments to reduce greenhouse gas (GHG) emissions globally would result in an increase in global temperature well above the threshold considered critical of 2 ° C by 2100. The origin of the gap between this threshold and the commitments made in Paris is due partly to the absence of emission targets at national level.

 

Based on this observation, Beyond Ratings proposes a strong methodological innovation to determine the future GHG emission budgets, at the national level, compatible with a target of an overall temperature rise of less than 2 ° C. Our probabilistic approach is based on:

Integrating the constraints imposed by global warming

  • The performances of the various players measured by the terms of the Kaya Equation (GHG emissions, energy consumption, demography, GDP evolution)
  • National demographic projections


The Beyond Ratings methodology considers the quantified climate commitments formulated by the stakeholders of COP21 (INDC). It allows to compare these with the theoretically expected effort to reach a scenario of global temperature of less than 2 ° C. It also makes it possible to compare each of the countries studied to a global benchmark.

By translating a global GHG emission budget nationally, our approach has four direct applications:

  • (i)  Ex-ante assistance to States in the formulation of their climate commitments (INDC)
  • (ii) Ex-post evaluation of these commitments
  • (iii) Signal to investors, especially for Green Bonds emissions
  • (iv) Definition of an innovative sovereign risk analysis framework

Beyond Ratings’ ambition lies in the demonstration of the financial impacts resulting concretely from the climatic constraint and integrating them in the financial analysis.




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