We can do the science, so why not the finance?

17/10/2018

The IPCC report issued on October 8 is a triumph of global co-operation among the scientific community, steered through some difficult political currents.

It’s important to understand the background to the report, which was a political “ask” as part of the endgame to COP 21 in 2015.  The topic of 1.5°C was then relatively new for the scientific community, so there wasn’t much literature on it.  The need to meet the UNFCCC’s request drove an enormous amount of research, over three years, with more than 6,000 scientific papers examined and 42,000 comments received from experts and governments. The report is the product of three working groups coming together for the first time, allowing the integrated and comprehensive result that has emerged.

The first thing to say about the report, therefore, is that it demonstrates that co-operative global action is possible on major strategic and planning issues.

This article looks at some of the implications of the report for NDC finance, by reference to the report’s “Summary for Policy Makers”.  If you want a quick introduction to the conclusions, Climate Home have a handy guide in their “37 things you need to know about 1.5 degree warming,” which we publish alongside this article.

The report is not an easy read, not least because every single statement apparently has to come with a fully spelt out confirmation as to whether it is delivered with High, Medium or Low Confidence, which does slow things down.

Nor, of course, is it a comfortable read, especially as we know Paris is much more a 3-degree agreement than a 1.5-degree one, so the reality gap is much wider than the gap to 2 degrees that the IPCC was asked to examine.

In terms of the feasibility to achieving 1.5C instead of 2C, my own reaction to the overall thrust  of the report was “Well, why not?”  For example, to hit 1.5C, the electricity share of energy demand in buildings by 2050 would need to be 55-75%, while for 2C it would need to be 50-70% – surely a barely noticeable difference over such  a long period.  Similarly in transport, low emission final energy share would need to rise from 5% in 2020 to 35-65% in 2050 to hit 1.5C, as against a slightly lower 25-45% to hit 2C.  Given the low base in either scenario, why wouldn’t the higher figure be achievable over a 30 year timeframe?

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In other words, given that the “rapid, far-reaching and unprecedented changes in all aspects of society” the report says will be needed to achieve 1.5 degrees were going to be required to achieve 2 degrees anyway, why not believe we could go the relatively small extra distance to make 1.5C the ambition?  That’s especially the case given that the adaptation costs at 1.5C would be lower than at 2C  – not to mention the millions of human beings and thousands of natural species that would avoid disturbance or even eradication.

Synergies and trade-offs provide a planning framework

There’s an interesting section of the report (section D) on the linkages of mitigation efforts to the SDGs.  Figure SPM4 on p27, reproduced below, shows the ‘synergies’ (positive linkages of mitigation actions with the SDGs) and ‘trade-offs’ (negative linkages).

The chart clearly indicates some ‘no-brainers’ for the concentration of global action and finance.  For example, SDG 7, covering access to affordable and clean energy, is virtually a ‘synergies-only’ (so win/win) category of action.  It’s also a sector where action can be taken across the board from massive grid schemes to very local off-grid ones, and where public and private investment can be melded into effective ‘hybrid’ financing structures.

Similarly, SDG 7 on responsible consumption and production, is another ‘trade-off-free’ zone, and one where there should be heavy focus in the developed world that does most of the irresponsible consumption and production.

At the other end of the spectrum, SDG 15 covering ‘life on land,’ is far more problematic, with a significant preponderance of trade-offs in the area of energy supply, due to the pressures created by generation sources such as biomass and carbon management through afforestation, both of which create competition over land use. Similarly, SDG 6 on clean water creates many trade-offs – for example, on the energy supply front because of issues like the water needs of biomass and the energy costs of a modern clean water supply chain.

Overall, the report notes that  “the number of synergies exceeds the number of trade-offs,” but that “their net effect will depend on the pace and magnitude of change … and the management of the transition.”

Management, governance, direction?

The final paragraphs of the Report (D5 onwards) deal with finance.  D5.1 sets out the challenge and the opportunity succinctly:

“Directing finance towards investment in infrastructure for mitigation and adaptation could provide additional resources. This could involve the mobilization of private funds by institutional investors, asset managers and development or investment banks, as well as the provision of public funds. Government policies that lower the risk of low-emission and adaptation investments can facilitate the mobilization of private funds and enhance the effectiveness of other public policies. Studies indicate a number of challenges including access to finance and mobilisation of funds.”

This statement carries the rubric that it’s made with ‘high confidence,’ and indeed, in many ways, it’s a statement of the obvious.

The problem with it lies in the first very words – “Directing finance … “  Words like this – “management” and “governance” are two others – are littered through the Summary, chiefly where it mentions the potential for conflicts between policy directions, but the fact is that, on the finance side at least, there’s no one out there doing this “directing” or “management.

Where now?

The scientific and political conclusions of the IPCC’s report are intended to inform the Talanoa dialogue in the runup to COP24, and the finalisation of the Paris rulebook.  But what’s to be done with the pointers it provides to the financial implications of an ambition for 1.5C?

The section on the SDGs, for example – as the brief analysis above tries to suggest – could provide some very useful starting points for developing global and regional strategies as to how and where financial resources should be directed.  It shows where the quick wins might be, and where the much more complex inter-relations between policy choices would need the most careful “governance” and “management.”

But who’s to develop those strategies and take responsibility for managing the complexities?  The Paris agreement has a “chief scientific officer” in the form of the IPCC and a “chief operating officer” in the form of the UNFCCC. But it has no “chief financial officer” capable of playing a co-ordinating role at the very least, and even a directing role in certain situations.

Writing in the UK’s Guardian newspaper, economics editor Larry Elliott compares the IPCC report to the great depression of the 1930s in terms of the need for global institutions to respond. (Climate change will make the next global crash the worst, 11 October 2018):

“If the IPCC is even close to being right about its timeline, speeding up the transition from fossil fuels to renewables is vital.

Can that be done? One of the winners of this year’s Nobel prize for economics – William Nordhaus – says it can, if policymakers get serious about a carbon tax set high enough to price oil, coal and gas out of the market.

Here, though, the breakdown in international cooperation and trust becomes really damaging. Ideally, existing global institutions – the IMF, the World Bank, the UN and the World Trade Organization – would be supplemented by a new World Environmental Organisation with the power to levy a carbon tax globally.”

I’d add to that “and to co-ordinate and optimise the application of available financial resources, both public and private, to the implementation of a Paris agreement with a 1.5C degree ambition.”

The institutions Elliott refers to were created in response to a global financial crisis that led to a war.  Everyone agrees that essentially we again face a war, this time against an enemy – climate change – of our own making. Why, then, is all talk of creating a new financial framework to deal with it always dismissed out of hand?

As well as the success of the IPCC in co-ordinating science  actions, there are examples of strategic co-ordination on finance.  The EU’s High Level Expert Group on sustainable finance is one – its very sensible and measured recommendations are now being turned into an action list by and for the EU.  The just-launched Global Commission on Adaptation is seeking to introduce a strategic perspective on that area of action.

Nor would the rewards of improving co-ordination be all about combatting downsides – the recently published New Climate Economy report on the economic effects of climate actions suggest a $26 trillion upside globally by 2030.

If we can do the science so well, why not the finance?

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