Climate change economics: ‘The biggest capital reallocation since the Industrial Revolution’
This article is an on-site version of our Moral Money newsletter. Sign up here to get the newsletter sent straight to your inbox.
Visit our Moral Money hub for all the latest ESG news, opinion and analysis from around the FT
Breaking: The first draft of the COP final deal was published this morning, and will be debated by countries in a plenary session. The draft sets up a battle between countries over how quickly they should reach certain emissions targets. Leslie Hook has the details here.
Is “BoJo” — to use the media nickname for Boris Johnson — the right man to save the day? His political colleagues might howl “no”, given the recent Westminster dramas about sleaze. But today the British prime minister will dodge rain and protesters (again) to try to kickstart negotiations that have stalled in crucial areas such as aid for developing countries, the planned phaseout of combustion engines for the auto sector, and most crucially national commitments for emission reductions.
This morning the COP negotiators published a draft agreement for the latter, calling for more ambitious targets and more frequent scrutiny of these. But this immediately sparked more fighting (and accusations from activists of greenwashing.) But as the battles continue on the COP stage, debates are intensifying in committee rooms among financiers, lawyers and accountants about how to put flesh on the bones of last week’s pledge from financial groups to use their $130tn of assets for decarbonisation. A recent column that I penned on green audit, for example, sparked a flurry of letters, with some voices arguing that genuine reform is under way — and others dismissing this as greenwashing. Meanwhile, litigation risk is rising — as we write below, along with efforts to unleash blended finance. Take note. — Gillian Tett
Day 9 in brief
Despite all the government pledges to cut carbon emissions at COP26, the Earth’s temperature is expected to rise to 2.4C by 2100, according to the Climate Action Tracker. “Even with the new pledges, global emissions in 2030 will still be twice as high as required for 1.5°C,” said Niklas Höhne, of NewClimate Institute, a CAT partner organisation.
“We are not just back, we are different and we are more just, and we are more open I think to questioning prior assumptions about what is politically possible,” said Alexandria Ocasio-Cortez, speaking yesterday at COP as Democrats sought to reassure participants that the US can fund billions of dollars for climate projects.
The UK government committed £210m to Rolls-Royce to develop small modular reactors. Nuclear technology is “critical to strengthening energy security as we reduce Britain’s dependency on volatile fossil fuels”, the government said.
Amid growing antagonism between China and the west, there is a meagre Chinese government presence on the ground at COP26. But the Chinese-led Asian Infrastructure Investment Bank has been trying to make its presence felt in Glasgow through prominent Britons Danny Alexander and Nicholas Stern, both now working with the institution.
Alexander and Stern — who previously worked as a UK cabinet minister and a top UN climate adviser, respectively — have been trying to hammer home the message that the AIIB and other multilateral institutions can help developing nations in the battle against climate change, and kickstart more blended finance with private sector capital flows.
As Moral Money reported a couple of weeks ago, the AIIB has pledged to deploy $50bn for climate-related assistance by 2030 and promised that climate finance will account for at least half of its financing approvals by 2025. Some developing countries say this approach is far from ideal. Earlier this week former Maldivian president Mohamed Nasheed criticised multilateral lenders’ focus on project financing, saying it would be better to assist governments through direct budget support, and let national governments choose how to spend the funds.
But Alexander argued the project-based approach was crucial to attract private sector capital: aid from institutions such as the AIIB offers a powerful means of “crowding in” private sector investment in climate-related projects, he said.
“This is the biggest capital reallocation since the Industrial Revolution,” added Stern, a highly influential academic on the economics of climate change. “You do it by investing in the right things — and many of these investments have very good returns.”
The focus on debt funding by multilateral lenders and other financial institutions has sparked alarm from some climate activists, who have warned that this approach would force developing countries into ever deeper debt, as they struggle to deal with a crisis caused primarily by rich nations. Unsurprisingly, poor countries prefer grants.
Stern said that such concerns should not be overstated, however, and that large-scale debt finance, with private-sector participation, enabled a greater impact than could be achieved through grants alone. “It is viable if the interest rates are low enough and, in particular, if risk is carried in the appropriate way, ensuring that the revenue flows to the projects are solid. That’s not a debt conspiracy — that is good, solid investment,” he said.
The big question now is how many blended finance projects will materialise — and how will the multilateral lenders ensure the high standards that Stern and Alexander promised? (Simon Mundy)
Quote of the day
British Gas and Ben & Jerry’s are among the companies that joined forces with environmental groups to ask social media companies to stop the spread of misinformation about climate change online.
In an open letter to Facebook, Google, Twitter, Pinterest and others, the organisations said many big technology companies have no policies to combat climate change misinformation.
The group applauded Google, which in October prohibited ads that contradicted “well-established” scientific evidence of climate change. Google’s action should send “a strong signal” to its peers that they must do more too.
“COP26 is a perfect moment to start momentum for decision makers to acknowledge the climate misinformation threat and, through global co-operation, to step up against it,” the organisation said.
Beyond Glasgow: the world view
While thousands are meeting in Glasgow, climate activist Clara Mayer and Greenpeace have taken legal action in Germany against automaker Volkswagen for failing to lower its CO2 emissions.
In a lawsuit filed yesterday at a regional court in Braunschweig, Germany, the plaintiffs called for Volkswagen to end production of internal combustion engine cars by 2030 and to lower carbon emissions by 65 per cent from 2018 levels.
Greenpeace and Mayer said the German group’s current pledges, which include becoming carbon neutral by 2050, are mere “lip service”.
Volkswagen has spent €35bn on electric vehicles and launched several battery-powered models over the past few months in the hope of becoming a competitor to Tesla. But at COP26, the world’s second-largest automaker refused to sign a global deal to eliminate new car emissions by 2040, citing China’s lack of commitment to phasing out coal power.
The rise of climate litigation in recent months adds pressure on companies already facing activist-led campaigns to clean up emissions. Notably, Dutch courts earlier this year ordered Shell to accelerate emission cuts.
It will be months before a verdict is delivered in the Volkswagen suit, but we’re keeping a close eye on this space. (Kristen Talman)
Scoreboard — Key news and analysis behind the business decisions in sport. Sign up here
Energy Source — Essential energy news, analysis and insider intelligence. Sign up here