Every day that passes more countries and public and private institutions that adhere to the ‘Race to Zero Emissions’ (‘Race To Zero Campaign’) promoted by the United Nations on the occasion of COP26 to be held in Glasgow next week .
Meeting the commitment to be carbon neutral by 2050 is not going to be an easy task for anyone. Making our society run without emissions implies huge changes in practically all of our activities. It requires modifying our habits and behaviors. It requires the deployment of emission-free technologies in all polluting sectors, from electricity to maritime transport, aviation and other forms of transport; from metallurgical to cement and the plastics industry to agriculture and livestock. In many cases, we will first have to develop emission-free technologies that do not exist today.
This large-scale transformation is going to require colossal capital injections, on a volume never seen before in any economy. It is estimated that to achieve these goals, more than 150 trillion dollars will have to be invested between 2020 and 2050, about 5% of world GDP.
In purely economic terms, much of this investment is justified on its own. Many clean technologies in existence today have lower operating costs than their dirty alternative, thus more than offsetting the initial investment. This is the case for investments in renewable energy generation, electric vehicles, energy efficiency or in certain aspects of agricultural activities (for example, the use of fertilizers).
In other cases, especially in industrial sectors, it will be necessary to encourage the development and adoption of clean technologies that are currently not competitive. An efficient global market for carbon emission rights would be the best incentive, as it would set a price for the negative impact of emitting CO2. Clean technologies would avoid this additional cost, which would make them relatively more competitive.
Coordination with emerging countries
Emerging economies must decisively join the race toward decarbonization, for two reasons. First, as the United Nations indicates, these countries are going to suffer much more from the negative consequences of climate change than the developed world. Second, these regions have enormous potential for the development of renewable energy projects, as well as for the deployment of natural solutions to offset CO2 emissions. This represents an immense opportunity for growth and development.
However, few emerging countries have. Most countries in Africa, Asia or Latin America have not yet assumed a carbon neutrality target, nor have they limited or set a price for CO2 emissions. For what is this? Lack of conviction and resources.
As the president of a bank with a strong presence in emerging markets, I can attest that the perception of the need for decarbonisation is very different in those countries. The sense of urgency is overcome by other more immediate and pressing problems, such as inequality, health or lack of infrastructure, especially after the pandemic.
The reduction of emissions is perceived as something with a cost that is difficult to bear, and which will also translate into lower growth and slower development. In fact, the volume of investment associated with the transition far exceeds one trillion euros per year until 2030, seven times the current level. These countries do not have the necessary resources, nor do they have the capacity to attract external capital. Without the support of the developed world, they will not be able to respond to the challenge or seize the opportunity it might present.
They will not be able to join this race either, which will have dire consequences. Without them, we will exceed our collective carbon emissions target; without them we will not be able to effectively implement a global market for CO2 emissions; without them we will not take advantage of their potential to develop green projects. In short, collectively we will fail in our endeavor to decarbonize the planet, which is unique and the same for all.
The economic support of the developed world to the developing countries must be more determined, both for the planet and to reduce the inequality gap. This idea is not new. In 2009, during COP15 held in Copenhagen, developed countries agreed to mobilize, by 2020, $ 100 billion a year in mitigation and adaptation actions in developing countries. They reiterated their commitment in Paris in 2015. Last June, once again, the G7 pledged to mobilize $ 100 billion a year through 2025.
Twelve years later, our level of ambition should have risen very significantly, as it is clear that $ 100 billion (about 0.2% of the GDP of developed countries) is well below the amount needed to deliver. mitigation and adaptation objectives. Far from it, we have not even fulfilled that initial commitment. According to the latest available OECD data, the climate finance program of developed economies only reached $ 79.6 billion in 2019. Despite recent announcements by President Biden (to quadruple the contribution of the United States) and the President Von der Leyen (increasing EU support by € 4 billion) we will continue to fall short.
We need to be more ambitious. We also urgently need a stronger framework to ensure that countries meet their commitments, including country-specific annual amounts; clarity on how these commitments will be financed, specifying the role of private capital and public institutions; clarity on how funds will be distributed among countries; and all this based on a strong governance mechanism to increase transparency, predictability and confidence in future flows of climate finance. Perhaps some existing multilateral institutions, such as the International Monetary Fund and multilateral development banks, can help in some way, given that they have “tried and tested” ways to raise funds and channel international financing, including the mobilization of private funds.
Time is running out. COP26 in Glasgow represents a great opportunity to step up and lay the groundwork to move from words to action in support of emerging countries on their path to decarbonization. For the sake of our planet, let’s make it happen this time.
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