However, it is important to note that while many jobs will be created as the world continues to adopt renewable energy, this will necessitate a process of economic restructuring in which some jobs will also be lost in the more traditional fossil fuel-based industries. Those affected will need support. A just transition through retraining and economic diversification—with strong support for displaced workers, affected communities, and low-income households—will be essential as economic activity shifts. Such foresight can be found in China, which has a $15 billion fund for retraining, reallocating, and early retirement of an estimated 5–6 million people who will be laid off due to coal overcapacity. As Germany phases out coal subsidies, the government has provided support for early retirement schemes for workers and has promised to share the costs of reform with the industry. Yes, countries and local governments must diversify local economies away from coal, but they must also provide well-targeted assistance through the transition process, ensuring that the change is managed fairly. A just transition is key to ensuring that a strong, sustainable economy is also an inclusive one.
The marketplace for climate solutions is already worth over $1 trillion, and investment is expected to increase. Climate investment opportunities are expected to total $23 trillion in emerging markets by 2030. To take full advantage of this opportunity, we must create conditions that enable finance to flow to the right projects.
The Global Commission on the Economy and Climate found that concerted action in four areas can help countries unlock and move capital in the right direction. First, tackling fundamental price distortions through fossil fuel subsidy reform and carbon pricing can help to raise the quantity and quality of our investments. Fossil fuel subsidies are estimated to have amounted to $325 billion in 2015 alone, skewing investment toward dirty energy sources, discouraging low-carbon innovation, and undermining energy efficiency. Momentum has been growing for fossil fuel subsidy reform and carbon pricing. Today, more than 42 countries and 25 subnational regions have, or are actively planning to implement, a price on carbon, including emissions trading schemes. Furthermore, an estimated 50 countries have started or accelerated fossil fuel subsidy reform. Successful reforms can free up scarce government revenues for other priorities while protecting poor households and managing the transition for affected sectors. For example, drawing on savings from the reforms, Indonesia offered a $2.6 billion compensation package for the poor when it increased gasoline and diesel prices in 2013–2014. G7 leaders committed in May 2016 to eliminate inefficient fossil fuel subsidies by no later than 2025, and the World Bank recently announced that it will no longer finance oil and gas exploration projects after 2019. These sorts of emerging coalitions of governments, investors, and businesses have the potential to accelerate action in this area.
Second, investing in investment by strengthening policy frameworks and institutional capacities can unlock capital for the low-carbon transition. We need to strengthen our policies and institutions to build a pipeline of bankable projects, especially in developing countries. All countries need clear national, subnational, and sectoral development strategies, with accompanying infrastructure and investment plans to guide long-term public and private investments that are aligned with long-term climate commitments. Meeting the immense infrastructure requirements of the next 15 years will require the strategic use of public funds to leverage private investment. When used strategically, public finance can take on some of the initial costs and share some of the risks to help attract even more private finance. Development finance institutions can play a pivotal role in pioneering and sealing up financing models for sustainable infrastructure.
Third, transforming national financial systems can enable growth and sustainable development. We need to change the financial culture to emphasize sustainable long-term investments over a narrow focus on short-term gains. The business, political, and credit cycles are too short to fully take into account the future impacts of climate change.
“Greening” the existing financial system will require comprehensive climate risk disclosure. A number of voluntary climate-related financial risk disclosure
schemes are already developing, and some countries, such as France, now have mandatory climate risk disclosure. Businesses are also embracing this shift toward greater transparency. At the One Planet Summit
in Paris, 237 companies, with a combined market capitalization of over $6.3 trillion, committed to supporting the Task Force on Climate-related Financial Disclosures (TCFD). New tools such as green bonds can also incentivize private investment. The green bond market reached $55.8 billion in the first half of 2017 and could more than double by 2018. To facilitate the market, global standards for green bonds should be agreed upon. Efforts to facilitate green banking operations and create green investment banks at the national, state, and city levels should also be emphasized. Investors and shareholders can play a critical role in demanding that companies consider environmental, social, and governance standards as a bottom line for investments.
Finally, ramping up investments in clean energy technology research, development, and deployment can help deliver the scale of necessary investment. Investing in new technologies and practices can significantly reduce upfront costs of sustainable infrastructure over the long term, benefitting both advanced and emerging economies. Several promising multi-partner global initiatives are aiming to boost investment in innovation with climate change as a central theme. For example, through Mission Innovation, 22 countries have committed to doubling public investment in clean energy research in the next five years. Faster deployment of existing clean technologies will be crucial over the next 15 years, when much of the needed infrastructure will be built and key systems locked in for the coming decades.
Stepping Up Ambition
We have already seen huge shifts in the global economy in response to the call for greater climate action. Phenomenal growth in the renewables industry and progress in the cities, land use, and energy sectors are signs that transformation is beginning to take place worldwide.
Nearly 50 countries have now committed to using only renewable power by 2050. China has delayed or stopped work on 151 coal power plants. It has already exceeded its 2020 target for solar power and has consequently doubled that target. India is closing 37 coal mines and cancelling coal power projects to focus instead on solar power. South Korean President Moon Jae-in recently announced the closure of 10 coal-fired power stations. The country also plans to replace diesel cars with LPG ones. The United Kingdom and Canada have jointly pledged to phase out coal power, and a number of other countries, regions, and major companies are joining them in the Powering Past Coal Alliance. Norway’s $1 trillion wealth fund has proposed to drop oil and gas stocks from its benchmark index. The government of New York City announced in January 2018 that it has set a goal to divest $189 billion in pension fund assets from fossil fuels within five years. Indonesia recently announced that its next five-year development plan will also become its first Low Carbon Development Initiative. With the fourth largest population and its status as one of the top ten highest emitting countries in the world, a low-carbon future in Indonesia means a better quality of life for millions and a significant contribution to the global effort to limit temperature rise to below two degrees Celsius.
Businesses, states, and cities around the world are also stepping up to advance climate action. While federal leadership in the United States has taken a step back, the rest of the world is pressing ahead. The G6 and G19 countries reaffirmed their commitment to the Paris Agreement in 2017, and G20 countries agreed upon an action plan to deliver climate objectives in the July 2017 summit. In the United States, in response to the Trump administration’s stated intention to pull out of the Paris Agreement, more than 2,500 non-federal actors representing more than half of the U.S. economy—including cities, counties, states, and businesses—have pledged their support for Paris Agreement goals.
The wider business community is also stepping up to accelerate efforts to tackle climate change. Leading global companies such as Royal DSM, Marks & Spencer, and Philips Lighting have committed to implementing the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) within three years. Over 130 institutional investors representing $17 trillion in assets are calling on capital market regulators and stock exchanges to improve climate and sustainability risk disclosure; they are also advocating for stronger water, climate, and clean energy policies. Additionally, more than 1,000 businesses—including Ebay, Gap, General Mills, Intel, Kellogg’s, L’Oréal, Levi’s, and Unilever—have pledged to do their part to realize the Paris Agreement’s commitment to limiting the global temperature rise to below two degrees Celsius.
These examples of leadership—along with investment shifts, technology breakthroughs, and new government policies—show that a low-carbon transition is accelerating around the world. This sort of leadership is contributing to the fact that, between 2000 and 2014, at least 35 countries simultaneously grew their economies and reduced emissions. This is the clearest evidence against the false dilemma of choosing between economic growth and acting on climate change. While this summary of global action is deeply impressive and cause for great hope, it is still not enough. However, the next round of national climate action plans has the potential to spur greater investment and drive collective ambition. A core pillar of the Paris Agreement is that countries will review and scale up their national climate efforts every five years. This year, 2018, is the time for countries to start looking for opportunities to enhance their national climate action plans by 2020. By stepping up ambition, national governments can send the consistent, credible policy signals that enable businesses and investors to create jobs, growth, and innovation—ultimately generating a virtuous cycle of action.
Better Growth, Better Development, Better Climate
Enhancing climate action offers many benefits for shared prosperity and financial stability, such as job opportunities, energy access, access to sustainable transportation, and health improvements as a result of cleaner air and greater food security. This will help people’s common desire to prosper through good jobs, safe homes, and a flourishing natural world. The foundation for this stability is a living earth and stable climate.
By shifting to a low-carbon, climate-resilient future, countries can grow their economies by capitalizing on trillion-dollar opportunities in clean energy, sustainable land use, modern infrastructure, and transportation solutions. Acting on climate is an environmental, social, and economic opportunity the world cannot afford to pass up. If we act now and act together, better growth, better development, and a better climate are within our reach.