The global framework articulated in the Paris Agreement and announced in December 2015 (the Agreement) by the United Nations was adopted by 195 countries around the world. The Agreement is the first-ever universal and legally binding global climate deal which is due to enter into force in 2020. The Agreement lays the foundation for countries to work together in order to put the world on a path to keeping global temperature rise well below 2 degrees Celsius and sets an ambitious vision to go even farther. The Agreement launches a long term, durable global framework to set the world on a course to reduce global greenhouse gas (GHG) emissions. Furthermore, the Agreement is the climax of a broader effort by nations, businesses, cities, and citizens to reorient the global economy to a path of low-carbon growth – progress that will accelerate as a result of the Agreement’s provisions on mitigation ambition, transparency, and climate finance.
The Agreement is designed to send a strong signal to the private sector, stating that the global economy is moving towards clean energy, and that through innovation and ingenuity, we can achieve our climate objectives while creating new jobs, raising standards of living and lifting millions out of poverty.
A report, The New Climate Economy – Better Growth Better Climate, published recently on the subject of climate action, illustrates 10 recommendations for governments and other decision makers around the world which can deliver both significant economic benefits and reduce the risk of dangerous climate change. These recommendations or actions offer the prospect of better economic growth that yield multiple benefits including:
- More energy, water and food security;
- Improved rural livelihoods;
- Better protection of the natural world;
- Less traffic congestion; and
- Improved air quality and public health;
- As well as lower GHG and more climate-resilient growth.
A key insight of the New Climate Economy study is that these actions make good economic sense, even before their climate benefits are considered. Countries can gain a net benefit from implementing the proposed actions, when these full advantages are considered. Another main benefit of implementing these actions can achieve at least half of the cuts in global GHG emissions required by 2030 to stay on a 2°C pathway, and potentially up to 90 percent, if they are implemented in the right way.
Taken together, the proposed actions would illustrate that the world economy is poised to follow a low-carbon direction. They would reduce uncertainty for investors, businesses, farmers and consumers, and so reduce the transitional costs of change. The more countries, cities and businesses that move in this direction, the easier it is for everyone to join in. But the right policy signals and actions are needed urgently. If this does not happen now, there is a serious risk that we will lock in a growth path with significant risks of climate change and weak economic performance. Delaying action will also increase the costs of changing course later on.
The 10 recommendations of the report are divided into the following two categories:
- CATEGORY ONE: This category of recommendations define the necessary conditions for better, low-carbon, climate-resilient investment and growth.
1.1 Accelerate a low-carbon transformation by integrating climate action and risk into strategic economic decision-making.
In order to implement and support this recommendation:
- All governments, major businesses, investors, development, commercial and investment banks, international organizations and leading cities should work to integrate climate risks and opportunities into their economic and business strategies;
- Climate and other environmental risks should be integrated into core decision-making tools and practices, such as economic and business models, policy and project assessment methods, performance indicators, discounting approaches used to estimate the present value of longer-run costs and benefits, risk metrics and models, resilience tests, and reporting requirements;
- Businesses, working through associations such as the World Business Council on Sustainable Development and with government regulators, should adopt and implement a standardized Integrated Reporting Framework for financial and non-financial performance that includes the assessment of climate risk and risk reduction strategies. Investors and stock exchanges should require companies to disclose this information;
- Investors, working together with government financial regulators, should develop an approach to report transparently on the carbon exposure of their assets, and the potential risk of stranded fossil fuel assets. Banks should deepen their assessment of environmental and carbon risk in transactions; and
- The G20 should make climate risk assessment and reduction a standing agenda item in its meetings. Major international organizations concerned with the management of the global economy, such as the International Monetary Fund, the Organization for Economic Co-operation and Development, and the multilateral development banks, should reflect climate risk assessment and reduction in their surveillance processes and policy assessments as relevant to their mandates.
1.2 Create the confidence needed for global investment and climate action by entering into a strong, lasting and equitable international climate agreement.
In order to implement and support this recommendation:
- All governments should set clear, ambitious medium-term national GHG emission targets or actions which reflect their common but differentiated responsibilities as part of the global agreement. They should agree a global goal which would achieve annual GHG emissions of near zero or below in the second half of the century. The agreement should include a mechanism for regular strengthening of national commitments; financial and technical support for developing country action, and strong commitments to take adaptation action. It should also provide as much transparency as possible to build confidence. The principles of equity and a just transition should underpin the agreement, reflecting the current and changing circumstances of countries;
- Developed countries should commit to a clear pathway for meeting the Copenhagen commitment to mobilize US$100 billion annually by 2020 in public and private finance, combined with greater transparency of financial commitments and identifying new sources of finance; and
- Businesses, cities, states, national governments, international institutions and civil society organizations should complement an international agreement by strengthening (and where appropriate, creating) cooperative initiatives to drive growth and climate risk management in key sectors, including major commodities and energy-intensive industries, and to achieve the phase-out of hydrofluorocarbons (HFCs).
1.3 Phase out subsidies for fossil fuels and agricultural inputs and incentives for urban sprawl.
In order to implement and support this recommendation:
- National governments should develop comprehensive plans for phasing out fossil fuel and agricultural input subsidies. These should include enhanced transparency and communication and targeted support to poor households and affected workers. Governments should explore innovative approaches with multilateral and national development banks on how to finance the upfront costs of reducing the impact on low-income households, and enhancing service delivery as or before the subsidies are phased out;
- Export credit agencies should agree to restrict preferential terms for new coal power stations to supercritical or more efficient technologies, and then to a timetable for phasing out these preferential terms, initially for middle-income countries, and then for low-income countries; and
- Regions, cities and urban development ministries should phase out incentives for urban sprawl. Multilateral and national development banks should work with countries to redirect infrastructure spending away from projects that enable urban sprawl and towards more connected, compact and coordinated urban development.
1.4 Introduce strong, predictable carbon prices as part of good fiscal reform.
In order to implement and support this recommendation:
- National governments should introduce a strong, predictable and rising carbon price as part of fiscal reform strategies, prioritizing the use of resulting revenues to offset impacts on low-income households and finance reductions in other distortionary taxes;
- Major companies worldwide should apply a “shadow” carbon price to their investment decisions and support governments in putting in place well-designed, stable regimes for carbon pricing.
- Efficient regulations, standards and other approaches should be used to complement pricing; these can also help to put an “implicit” price on carbon for countries where a low level of carbon pricing is politically difficult, preferably with flexibility built in to facilitate the introduction of explicit pricing later; and
- National governments should seek to reduce policy risk and uncertainty by enacting domestic climate legislation, modifying their national plans and developing the institutional arrangements needed to meet their commitments under an international climate agreement.
1.5 Substantially reduce the cost of low-carbon infrastructure investment.
In order to implement and support this recommendation:
- Donors, multilateral and national development banks should review all lending and investment policies and practices, and phase out financing of high-carbon projects and strategies in urban, land use and energy systems, except where there is a clear development rationale without viable alternatives;
- Governments and multilateral and national development banks should help provide new and existing financing institutions with the right skills and capacity to provide finance for low-carbon and climate-resilient infrastructure, and to leverage private finance towards this goal. This would include finance for distributed off-grid and mini-grid renewable energy solutions, as a contribution to achieving universal access to modern energy services;
- In rapidly developing countries facing high interest rate environments, governments should shift their support models for low-carbon infrastructure more towards low-cost debt, and away from price subsidies such as feed-in tariffs. This could reduce the total subsidy required, bring down the cost of energy over time, and in some cases, may reduce the need to buy imported fuel; and
- Governments, working with investor groups, should help develop well-regulated asset classes, industry structures and finance models for renewable and other low-carbon energy investment which match the needs of institutional investors, and identify and remove barriers that may hamper these investments.
1.6 Scale up innovation in key low-carbon and climate-resilient technologies and remove barriers to entrepreneurship and creativity.
In order to implement and support this recommendation:
- Governments of the major economies should at least triple their energy-related research and development expenditure by the mid-2020s, with the aim of exceeding 0.1 percent of GDP; in addition, all countries should develop coordinated programmes to support the development, demonstration and deployment of potentially game-changing technologies, such as energy storage and carbon capture, use and storage;
- Governments should strengthen the market pull for new low-carbon technologies, in particular through carbon pricing, performance-based (technology-neutral) codes and standards, and public procurement policies;
- Governments should work individually and together to reduce barriers to the entry and scaling of new business models, particularly around “Circular Economy” and asset-sharing mechanisms, and trade in low-carbon and climate-resilient technologies;
- Donors, working with international agencies such as the Consultative Group on International Agricultural Research (CGIAR), the UN Food and Agriculture Organization and national research institutes in emerging and developing countries, should double investment in agriculture and agroforestry R&D, with the aim of boosting agricultural productivity, climate-resilient crop development and carbon sequestration; and
- Learning from the CGIAR experience, governments should collaborate to establish an international network of energy access “Incubators” in developing countries. These should enhance public and private R&D in off-grid electricity, household thermal energy, and micro- and mini-grid applications. They should also boost business model development for new distributed energy technologies.
- CATEGORY TWO: This category of recommendations focus on the potential for sectoral change which drives future growth and lower climate risk, specifically in urban, land use and energy systems.
2.1 Make connected and compact cities the preferred form of urban development.
In order to implement and support this recommendation:
- Finance and urban planning ministries, national development banks, and city mayors should commit to a connected, compact and coordinated urban development model, centered on mass transport and resource-efficient service delivery;
- City authorities, working with national and sub-national governments, should identify ways to increase locally generated revenues to finance and incentivize smarter, more compact and resilient urban development – for example, through greater use of congestion charging, parking fees, land development taxes and land value capture mechanisms;
- Governments, multilateral and national development banks should work with major cities and private banks to strengthen the creditworthiness of cities. They should work together to set up a global city creditworthiness facility; and
- Networks of cities, such as the C40 Cities Climate Leadership Group and ICLEI (Local Governments for Sustainability), working with international organizations and the private sector, should create a Global Urban Productivity Initiative aimed at significantly increasing the economic and resource productivity of the world’s cities. The initiative could start by developing, quantifying and disseminating best practices in boosting urban productivity, and support countries’ efforts to put sustainable urbanization at the heart of their economic development strategies.
2.2 Halt the deforestation of natural forests by 2030.
In order to implement and support this recommendation:
- Developed countries should scale up payments for Reducing Emissions from Deforestation and forest Degradation (REDD+) to at least USD $5 billion per year, focused increasingly on payments for verified emission reductions;
- Forest-rich countries should take steps to correct the governance and market failures undermining natural forest capital, including actions to improve land use planning, secure tenure, strengthen enforcement of forest laws, and increase transparency concerning the condition and management of forests; and
- Companies and trade associations in the forestry and agricultural commodities sectors (including palm oil, soy, beef, and pulp and paper) should commit to eliminating deforestation from their supply chains by 2020, for instance through collaborative initiatives such as the Consumer Goods Forum and its Tropical Forest Alliance 2020 and in cooperation with banks willing to incorporate environmental criteria into their trade financing instruments.
2.3 Restore at least 500 million hectares of lost or degraded forests and agricultural land by 2030.
In order to implement and support this recommendation:
- National governments, working together with farmers, development banks, non-governmental organizations (NGOs) and the private sector, should commit to and start the restoration of at least 150 million hectares of degraded agricultural land, to bring this back into full productive use – for example, through agroforestry measures. This target could be scaled up over time, based on learning from experience. It is estimated that such action could generate additional farm incomes of US$36 billion, feed up to 200 million people and store about 1 billion tonnes of CO2e per year by 2030; and
- Governments, with the support of the international community, should commit to and start the restoration of at least 350 million hectares of lost or degraded forest landscapes through natural regeneration or assisted restoration by 2030. This could generate an estimated US$170 billion per year in benefits from ecosystem services, and sequester 1-3 billion tonnes of CO2e per year.
2.4 Accelerate the shift away from polluting coal-fired power generation.
In order to implement and support this recommendation:
- Governments should reverse the “burden of proof” for building new coal-fired power plants, building them only if alternatives are not economically feasible, bearing in mind the full range of financial, social and environmental costs associated with coal power;
- All countries should aim for a global phase-out of unabated fossil fuel power generation by 2050. High-income countries should commit now to end the building of new unabated coal-fired power generation and accelerate early retirement of existing unabated capacity, while middle-income countries should aim to limit new construction now and halt new builds by 2025;
- Governments and multilateral and national development banks should adopt an integrated framework for energy decisions, ensuring a public and transparent consideration of all the costs and benefits of different energy sources, including demand management options, based on consideration of supply costs, energy security impacts, health costs of air pollution, other environmental damage, risks related to climate change and technology learning curves;
- Governments worldwide should steer energy sector investments towards renewable energy sources, energy efficiency improvements and other low-carbon alternatives. Energy efficiency should be prioritized, given the cost savings and energy security benefits it provides; and
- Governments should provide assistance to support workers, low-income households and communities in coal-dependent regions and carbon-intensive sectors that may be adversely affected by these policies, to ensure a just transition with appropriate social protection measures, using where relevant some of the revenues from carbon taxes and subsidy reform for this purpose.
- CONCLUSION:
It is obvious that climate change itself constitutes a significant risk to the nation’s economy. Some of these impacts are being noticed today. Globally, 12 of the 13 warmest years on record occurred within the last 15 years. Some extreme weather and climate events, such as heat waves and wildfires in the West and heavy downpours in the Midwest and Northeast, are becoming more frequent and intense. These changes will continue unless significant action is taken to reduce GHG emissions. For example, the conditions that led to the 2011 Texas heat wave, which cost USD 5 billion in livestock and crop losses, are 20 times more likely to occur today than in the 1960s. Over the longer term, unless action is taken to reduce greenhouse gas emissions, climate-related damages are expected to mount considerably, resulting in up to a 20 percent reduction in per capita consumption globally.
The bottomline is that delaying action to term climate change will result in real costs from greater warming and increase the number of stranded high-carbon investments. A July 2014 report by President Obama’s Council of Economic Advisers concluded that each decade of delay will increase the costs of mitigation by 40 percent on average, with higher costs for more ambitious climate goals. The council further found that with each year of delay “it becomes increasingly difficult, or even infeasible, to hit a climate target that is likely to yield only moderate temperature increases.”
The report’s conclusion is that countries at all levels of income now have the opportunity to build lasting economic growth at the same time as reducing the immense risks of climate change. This is made possible by structural and technological changes unfolding in the global economy and opportunities for greater economic efficiency. The capital for the necessary investments is available, and the potential for innovation is vast. What is needed is strong political leadership and credible, consistent policies.
Resources:
- Climate Action – Paris Agreement;
- The New Climate Economy – Better Growth, Better Climate;
- National Climate Data Center – Global Land and Ocean Temperature – August 2014;
- US Global Climate Change Research 2014 – National Climate assessment – Extreme Weather;
- T. Peterson, P. Stott, S. Herring – Explaining Extreme Events of 2011 from a Climate Change Perspective – National Climate Data Center – May 4, 2012;
- The Stern Review by Nicholas Stern 2006 – The Economics of Climate Change;
- The Cost of Delaying Action to Stem Climate Change – Executive Office of the USA 2014; and
- Better Growth, Better Climate – The New Climate Economy Report – Executive Summary.
