By Celine Bak
Along with the EU, the UK and France, Italy is one of only four G20 members to make a long-term commitment to net zero emissions by 2050.[i] This makes the Italian G20 Presidency, which commences in 2021, a unique platform on which to build the political trust and confidence needed to seize the opportunities presented by a green and decarbonized economy.
The G20 is responsible for 85 percent of global economic activity and 78 percent of the heat-trapping emissions currently accumulating in the atmosphere. In the special report on 1.5°C of warming, the International Panel on Climate Change (IPCC) is clear that if we are to minimize climate risks and hold warming to 1.5°C, we must decarbonize the economy by 2050. Doing so will stave off the risk of us crossing natural tipping points, beyond which the Earth’s systems will experience largely irreversible change.[ii]
The current emissions gap is large – so large that if decarbonization of human activity were a war effort, we should today fear defeat. Global CO2 emissions are at an all-time high, up 2.7 percent in 2018 after a rise of 1.6 percent in 2017.[iii] Madrid’s COP25 provided no indication of the trust and political confidence needed to address the dangers posed by these less-than-sufficient national commitments (known as nationally determined contributions, or NDCs) to emission reductions by 2030 and carbon neutrality for all developed economies by 2050. This trust and political ambition is fundamental to the task before us. The Paris Agreement is a framework intended to build up confidence within and among its parties to enable coordinated, country-level commitments that together achieve sufficient emissions reductions to keep temperatures from rising above safe levels indicated by the best available science.[1]
Now twice-failed COP25 negotiations on carbon markets that would work to coordinate exchanges of emissions reductions show how much work remains to be done to rebuild the trust needed to limit temperature rises to safe levels.
The EU showed leadership during COP25 by announcing its Green Deal – the EU’s growth strategy for the coming decade. Europe’s commitment to be the first climate-neutral continent turns on transforming an urgent challenge into a unique opportunity. The Commission indicated that “above all, the European Green Deal sets a path for a transition that is just and socially fair … [one] designed to leave no individual or region behind in the great transformation ahead.”[iv] The Green Deal would “protect, conserve and enhance the EU’s natural capital, and protect the health and well-being of citizens from environment-related risks and impacts.”[v]
Today, the decarbonization targets set by G20 countries are aligned with 3°C of heating by 2100. The human impact of this level of warming would be profound, with critical water shortages five times greater at 3°C of heating compared to 1.5°C. Other expected impacts include a near doubling of days with heat above 50°C, from 30 to 50 per year, when compared to 1.5°C of heating. Along with land-management practices, Australia’s deadly and economically devastating wild fires are a result of exactly this type of hotter, dryer weather over longer periods. Shorter growing seasons, an increase in the spread of insect-borne diseases, drought, extreme rainfall and food scarcity are just some of the other negative impacts that we can expect at our current trajectory.[vi] Recent medical research is clear: without decarbonization, climate change will be the determining factor in the health of children born today.[vii]
In its recent report on the economic impacts of climate change, the Network for Greening the Financial System concluded that estimates for the physical effects of climate change on the macro-economy between now and 2100 indicate a risk of large negative consequences, ranging from 1.5 to 23 percent of global annual gross domestic product (GDP) per capita.[viii] As US Fed Governor Lael Brainard recently stated, “To fulfill our core responsibilities, it will be important for the Federal Reserve to study the implications of climate change for the economy and the financial system and to adapt our work accordingly.”[ix]
But if the risks of failing to decarbonize the global economy are great, so are the opportunities that we could expect from making a decarbonized global economy business as usual. This is so particularly at a time when major economies are seeking a pro-investment agenda and the financial stability risks of continued investment in companies and projects which could be made worthless by climate policy or impacts are increasingly clear. According to the Global Commission on the Economy and Climate, the shift to a green economy could create US$26 trillion in benefits and 65 million jobs by 2030.[x] This opportunity must be kept in sight along with the value of trillions of dollars of assets which could be whipped out through the policy responses required to address to keep the rise in temperatures to safe levels.[xi]
Businesses are recognizing this opportunity. On the basis of the Marrakesh Partnership, a platform for voluntary contributions to reducing emissions under the United Nations Framework on Climate Change (UNFCCC), corporations are voluntarily establishing climate-science-consistent business plans.[xii] These companies, which have set Paris-aligned decarbonization targets, are reporting improved brand reputation, increased investor confidence and competitive advantage in the marketplace. The scope and scale of these commitments are noteworthy. Nine hundred companies are part of this platform, of which over 400 are developing plans to decarbonize in line with the Paris Agreement, with 177 committing to decarbonizing their operations by 2050.[xiii] Their total market capitalization is $20 trillion, or about a quarter of global GDP.[xiv] Similar commitments are now being made by financial institutions, including banks and global asset managers.
Building the decarbonized economy and the financial system it needs will require bold and ambitious government policies. Under the Italian G20 Presidency, policymakers, the private sector and civil society could work together to build confidence in the potential of the green and decarbonized economy. This could be done by setting a clear pathway for a transition to net-zero GHG emissions by 2050 that ensures social inclusion and takes care of workers in high-carbon industries. The G20 could advance this imperative through a pro-investment agenda for decarbonization. This is critical to support strengthening NDCs and 2030 targets in line with decarbonization by 2050 for countries for advanced economies and by 2060–70 for countries with developing economies.
A key to stimulating investment aligned with long-term sustainability is establishing regulatory certainty to build confidence in new investment norms and behaviours by backing these plans and targets with ambitious sectoral goals and policies, such as the following:
- Scaling up renewable energy deployment to achieve a 100 percent clean power system by 2040, establishing a near moratorium on coal finance and new coal plants, and setting an ambitious coal phase-out date of 2030 for advanced economies and 2040 for all other G20 members.
- Setting 2030 as the phase-out date for internal combustion engine vehicles while providing investment in decarbonized public transportation, in electric vehicle (EVs) infrastructure and fiscal incentives for EVs.
- Establishing a forum for the decarbonization of heavy emitting sectors such as steel, aviation, trucking and shipping, as well as mining and oil & gas through public-private collaboration.
- Transitioning to a land system that supports a decarbonized economy and can feed a growing population with sustainable ecosystems and healthy communities, including through climate-smart agricultural practices and ending deforestation.
- Addressing the social impacts of decarbonizing the economy and adapting to the climate impacts already faced, leaving no one behind.
- Building resilience against climate impacts for the communities that support value chains globally by investing in adaptation, including through nature-based solutions and biodiversity.
These sectoral plans and targets will deliver the full rewards of growth if they are implemented in the context of a G20 sustainable finance agenda which should include the reforms needed to:
- Support a pro-investment agenda in clean infrastructure which pulls through innovation and improves the health and lives of citizens.
- Ensure inclusive access to capital particularly for regions whose economies are highly exposed to hydrocarbon-based energy.
- Modernize financial regulations that drive corporate focus on short-term profit rather than long-term sustainability.
- Assure the protection of savers from the action of financial institutions that continue to invest in projects whose value may be wiped out by decarbonization policies and climate effects.
Italy’s G20 green economy agenda should be focused on building trust and confidence, including through leveraging progress on the EU’s Green Deal as well as the preparations and achievements of the UK and Italy’s collaboration on COP26 in Glasgow in December 2020. This should include integrating the long-term sustainability and the green economy agenda across all ministerial meetings. Because of the urgency of the climate crisis, and the need to accelerate the translation of science into the widest possible spectrum of policy changes, roles are evolving quickly. For example, a large measure of the EU’s quick progress on the Green Deal and before that on the Action Plan on Financial Sustainable Growth, is the result of its strong youth and civil society, which increasingly combine building and translating evidence for policy, engagement and advocacy with policy makers with the traditional role of education of and engagement with citizens. Creating mechanisms to raise the impact of youth and civil society will increase the impact of Italy’s G20 Presidency on the green economy.
Building a prosperous, decarbonized economy by 2050 requires a transformation of unprecedented pace and scale – one similar to that needed to win World War II. This transition is achievable, but only when there are new, collectively inspired ways of working. This can happen when public-sector, private-sector and civil-society leadership positively reinforce each other. As a clear leader through its commitment to decarbonization by 2050, Italy, through its G20 presidency, can build up trust among G20 members and provide an example of ambitious government policies for the Green Economy to stimulate the private, public, and political investments needed to achieve the full ambition of the Paris Agreement and bring to society all the benefits of the Green Economy.
For information please contact:
Céline Bak celine.bak@analytica-advisors.com
+1 613 866 9157
[1] Article 2 lays out the aim of the Paris Agreement as “strengthen[ing] the global response to the threat of climate change, in the context of sustainable development and efforts to eradicate poverty, including by holding the increase in global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels, recognizing that this would significantly reduce the risks and impacts of climate change.” Science published in 2018 and 2019 through the IPCC indicates that a 1.5°C rise in temperature – not 2°C – should be considered safe. Compared with current annual emissions of 55 Gigatonnes CO2 Equivalent (GtCO2e), in 2030, annual emissions need to be 58 percent lower (a 32 GtCO2e reduction) for the 1.5°C goal and 27 percent lower (a 15 GtCO2e reduction) for the less safe goal of 2°C. See https://www.unenvironment.org/interactive/emissions-gap-report/2019/ for a summary.
[2] Negotiations on Article 6 carbon markets were pushed to 2020 after the 2018 negotiations at Katowice failed. Defeated proposals for global carbon markets centered on safeguards for human rights, including indigenous rights, mechanisms to finance the cost of climate change through a share of the proceeds of carbon trading, mechanisms to ensure no double counting of emissions reductions, assure overall reduction of emissions and limit credits from the previous emissions-trading regime.
[i] https://www.bbc.com/news/science-environment-50547073?utm_source=Nature+Briefing&utm_campaign=c9ca9547c3-briefing-dy-20191126&utm_medium=email&utm_term=0_c9dfd39373-c9ca9547c3-44530773
[ii] https://www.ipcc.ch/sr15/
[iii] https://www.scientificamerican.com/article/co2-emissions-reached-an-all-time-high-in-2018/
[iv] https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal_en
[v] https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52019DC0640&from=EN
[vi] https://www.climate-transparency.org/g20-climate-performance/g20report2019
[vii] https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(19)32596-6/fulltext
[viii] https://www.bankofcanada.ca/2019/11/researching-economic-impacts-climate-change#footnote-ref-1
[ix] https://www.theglobeandmail.com/business/economy/interest-rates/article-federal-reserves-lael-brainard-says-climate-change-poses-profound/
[x] https://www.sei.org/projects-and-tools/projects/global-commission-on-the-economy-and-climate/
[xi] https://www.cnn.com/2019/12/09/economy/climate-change-company-valuations/index.html
[xii] https://unfccc.int/climate-action/marrakech-partnership-at-cop-25
[xiii] CDP and the World Resources Institute are responsible for the protocols for these commitments and for vetting each company’s decarbonization plan.
[xiv] https://www.wemeanbusinesscoalition.org/companies/#country=Italy
