Weekly News: our selection of recent analysis on sustainable finance and climate change
Every week, Policy Shift will share a selection of recent articles and publications focused on public policy and innovation. This week's theme deals with proposals and evolutions in the sustainable finance field and in climate change economic policy - notably in light of the Covid-19 crisis.
An energy policy paper (in English) about technologies and policies to decarbonize global industry through 2070
By Rissman and al. 2020, this paper allows us to understand what the mitigation drivers are in global industry in order to achieve climate stabilization – and given that every sector of the economy needs to reduce greenhouse gas (GHG) emissions (i.e. Le Quéré and al. 2018, in order to achieve a 2°C temperature rise at the end of the century, the world needs net zero emissions by 2050 and net negative emissions thereafter). The industry sector indeed accounts for a third of anthropogenic emissions (largely coming from onsite fuel combustion, manufacturing processes and indirect emissions) and is therefore at the core of developing low-carbon solutions (i.e. need to reduce emissions from industrial operations while industry continues to supply transformational technologies and infrastructures).
By assembling and evaluating technical and policy interventions in the required timeframe based on existing International Energy Agency scenarios and modeled global industry emissions, hydrogen adoption and carbon capture and storage (CCS), this paper is eminently useful in the design and setup of the future EU Taxonomy for environmentally sustainable economic activities. Key supply-side interventions reside in materials and carbon capture, most notably in technologies that reduce the CO2 intensity of the cement industry (process emissions, thermal fuel-related emissions, changes in human settlement patterns), the iron and steel production (with carbon capture or replacement of carbon by hydrogen, for instance), and the chemicals production (with fuel switching, biomass feedstocks and recycled chemicals, reuse of CO2). Alternative energy sources such as zero-carbon hydrogen (though one of the key barriers in its large scale development resides in its low density and therefore difficult storage), large-scale low-carbon electrification processes and energy efficiency (especially at the system level) are also explored. Crucial demand-side approaches include material-efficient design, reductions in material waste, substituting low-carbon for high-carbon materials, and circular economy interventions (such as improving product longevity, reusability, ease of refurbishment, and recyclability).
Therefore, the paper underlines that well-designed policies can accelerate innovation and provide incentives for technology deployment, such as carbon pricing with border adjustments or other price signals; robust government support for research, development, and deployment; and energy efficiency or emissions standards. These core policies should be supported by labeling and government procurement of low-carbon products, data collection and disclosure requirements, and recycling incentives. In implementing these policies, the paper highlights that care must be taken to ensure a just transition for displaced workers and affected communities. Similarly, decarbonization policies must complement the human and economic development of low- and middle-income countries.
Global GHG emissions by sector (Rissman and al. 2020)
A stocktake report (in English) about current initiatives related to climate-related financial risks
By the Bank for International Settlements (BIS), and on the basis of a stocktake exercise led by the Basel Committee for Banking Supervision, this report underlines the role of climate-related financial risks in the regulatory and supervisory framework. Though it appears that a majority of financial regulators and supervisors do not have an explicit mandate with regards to such risks, the latter would impact the safety and soundness of individual financial institutions and pose financial stability concerns – thus falling implicitly within their existing supervisory framework. In order to assess climate-related financial risks, approaches vary from qualitative studies on the transmission channels from climate change to financial risks, quantitative estimation of the exposures to sectors or geographies that might be vulnerable to climate change, scenario analysis and stress-testing. Operational challenges remain, such as data availability (and consistent emissions/climate-related data); methodological challenges (also given the inherent uncertainties in quantifying the impact of climate change); difficulties in mapping of transmission channels; time-horizon misalignment; varying degrees of awareness amongst jurisdictions; a lack or widely accepted taxonomy regarding “brown” and “green” assets; and the lack of internationally-coordinated actions on the management of climate-related financial risks. Therefore, existing supervisory expectations rely in outlining supervisory plans on activities related to climate change risks, encouraging financial institutions to take actions in governance, risk management and disclosure; providing guidance in integration of such risks; and requiring banks to increase credit availability to low-carbon sectors.
A position paper (in French) about co-benefits in policymaking in a post-Covid 19 economy
By the Institute for Climate Economics (I4CE) and the Terra Nova think-tank, this article underlines that post-Covid 19 crisis policies must value the economic, environmental and health co-benefits of public policies. In the sequencing of public action - following the measures aimed at containing the epidemic and in a context of drastically reduced public resources that can be mobilized - the article stresses that the optimization of each euro committed expenditure is key. The search for co-benefits has indeed long been one of the explicit objectives of climate policies, but remains very subsidiary (despite the macroeconomic work on the concept of the "double dividend", combining the reduction of existing taxes and a carbon tax). Therefore, and unlike the measures taken in 2008, it is essential to identify actions that offer co-benefits in three areas: (i) the economy: by contributing to the revival of economic activity in essential industrial and service sectors); (ii) the environment: by reducing GHG emissions and preserving the industrial capital of low-carbon industrial sectors; and (iii) health: by reducing the vulnerability of the population to increasingly less hypothetical health threats. The article concludes by stressing that the integration of co-benefits into public decision-making is not only a necessity, but also a source of hope, as shown by academic work demonstrating the co-benefits of climate policies on health and GDP.
A response article (in English) about the role of investment decision-making in human-driven decline of life on Earth
By economist Graziano Ceddia (Centre for Development and Environment, University of Bern), this article aims to respond to the authors of the IPBES report “Pervasive human-driven decline of life on Earth points to the need for transformative change”, published in December 2019. The latter discussed the results of the first integrated global-scale assessment report on biodiversity and ecosystem services that identified extraction of resources to provide food and industrial feedstocks as the main direct driver of observed changes in the ecosystems on which humans depend (while socioeconomic and institutional factors remain indirect drivers). G. Ceddia insists in his response on the systemic role of capitalist investments in society as a driver of biodiversity loss, given the competitive search for profit and the basis of an economic system focused on the reinvestment of profits. This is how the investment decisions of a relatively small number of financial institutions are responsible for substantial changes in biomes (e.g. the Amazon and boreal forests) and the expansion of cropland. By responding to this, the article raises attention on the nexus between wealth generation, investment and environmental degradation – and the need for research and policy efforts in this area.
An editorial Financial Times article (in English) about the shift to low-carbon economy amid economic stress in the Covid-19 context
Economist Christiana Figueres (former executive secretary of the UNFCCC) addresses a controversial question looming over the world in the context of the current crisis: “whether we can address the Covid-19 crisis and climate change at the same time”. She underlines that high probability and high impact risks must be acted upon in a timely fashion, given the nexus between environmental degradation and pandemics – as underlined in previous Policy Shift articles. The article states that despite “the age-old adage that prevention is better than cure is widely embraced in the health context and is equally true of climate change”, climate action is still insufficient and the costs of inaction are staggering. That is why close attention must be paid to the pandemic-induced financial decisions that will be made over the next 12 months in that they will “shape the global economy for the next decade, just when we must halve our emissions”.
On the other hand, economist Benjamin Zycher (from the American Enterprise Institute) replies that “carbon taxes and green policies harm economic growth and jobs”, in that taxes on conventional energy would be destructive economically and “preposterous politically”, arguing that unconventional energy is not yet cost-competitive. The latter would therefore “destroy some substantial part of the economic value of the pre-existing energy-using and producing stock of physical and human capital”.
A research paper (in English) about the need to enhance human development in areas where adaptive capacity is low given the dramatic rise in temperatures
By the U.S National Academy of Sciences, this article shows that depending on scenarios of population growth and warming, over the coming 50 years, 1 to 3 billion people are projected to be exposed to mean annual temperatures warmer than almost anywhere today on the globe.
The study demonstrates first that humans are not an exception to the fact that all species have an environmental niche and therefore reside in the same narrow part of the “climatic envelope”, characterized by medium temperatures. However, the study shows that the geographical position of this “temperature niche” is likely to shift more over the coming 50 years than it has moved since 6000 years, meaning that one third of the world population will experience a mean annual temperature > 29°C, currently found in less than 1% of the Earth’s land surface (mostly concentrated in the Sahara). As global warming is affecting ecosystems as well as human health, livelihoods, food security, water supply and economic growth, a change in the geographical distribution of human populations and agricultural production will bear drastic consequences in human life. The article further explores migration as a possible response to climate change, underlying that it may speed up only when a critical climate threshold is reached, but that overall, its magnitude is highly uncertain.
In summary, the results suggest a strong tension between expected future population distributions and the future locations of climate conditions that have served humanity well over the past millennia. So far, the scope for local adaptation has been the dominant focus for analyses of possible responses to a changing climate, and despite a striking lack of realized adaptation in most regions. It is therefore “not too late to mitigate climate change and to improve adaptive capacity, especially when it comes to boosting human development in the southern hemisphere”.
Excerpt from the article that shows the projected geographical shift of the "human temperature niche".
The map on the top shows the geographical position of the human temperature niche projected on the current situation, while the map in the middle shows the projected 2070 climate (scenario RCP 8.5). The map (C) illustrates the difference between the maps (A) and (B), visualizing potential source (orange) and sink (green) areas for the coming decades if humans were to be relocated in a way that would maintain this historically stable distribution with respect to temperature.