From ClimateChangeCorp.com Climate change threatens to wreak even more financial chaos than the current banking crisis, says Emily Farnworth
In the past few months, almost £2 trillion of taxpayers’ money has been committed to rescue the global banking system in a swift response from politicians around the world to deal with our self-inflicted financial crisis.
In contrast, the UK government-commissioned Stern review predicts that the global climate crunch could cost the world up to 20% of GDP, a fact that, if ignored, the next generation will find hard to believe was public knowledge. What is more, Stern calculates that an annual investment of just a fraction of the figure recently ploughed into the financial system would be enough to prevent dangerous climate change.
Lack of knowledge is not the issue. The inability of society to make decisions that have long-term benefits rather than immediate results was at the heart of the economic crisis and is at the heart of the climate crisis.
What this tells us is that we need incentives that drive short-term decisions that have the right impact in the long term. The financial sector has been quick to make money from clean technologies and carbon markets precisely because those opportunities have offered immediate financial returns. So what more could be done to encourage wider appeal of low-carbon investment?
The US Congress did well to ensure that $18bn of the $700bn bailout that was agreed under the Emergency Economic Stabilisation Act funds tax breaks and incentives for long-term investment in renewable energy.
This was a major breakthrough for the renewable energy industry, especially for the solar sector, which benefits from the long-term extension of the investment tax credit (eight years until the end of 2016 compared with the one-year-only production tax credit for wind projects).
As a result we will see a lot more solar power projects coming on line than previously possible and a much smoother development cycle for these projects with less boom-and-bust activity.
Making solar and other clean power attractive will tip the balance for those renewable projects that have not had an acceptable financial return and open up the market to mainstream investors.
Alongside the recent bank bailout, the UK government has the ideal opportunity to encourage investment in a new, low-carbon economy, but so far has failed to do so. EU ministers have agreed a plan to overhaul financial regulation. They presented this at the November G20 meeting in Washington, but missing is serious consideration of measures that ensure a healthy economy is also a low-carbon economy.
The Green Global Deal Group, a group of campaigners convened by the New Economics Foundation, a UK thinktank, offers one approach to addressing economic reform in a way that ensures low-carbon economic growth. The group calls for radical changes such as altering the UK financial system to boost funding for a new energy and transport infrastructure, and breaking up discredited financial institutions.
The finance sector itself realises that it needs to be proactive in factoring climate change and carbon risks into investment decisions.
The Climate Group is working with a group of major financial institutions to develop the first comprehensive global framework for the sector’s response to climate change. The new framework aims to guide operational greenhouse gas emissions reductions as well as reducing the carbon embedded across the full range of products and services provided by these institutions.
But we need to see step-changes if the finance sector is to respond fast enough to climate change.
While the surviving financial institutions are taking their role in shaping a low-carbon economy seriously, it is a shame that the impending climate crisis is not provoking more of a response from either the private sector or governments.
Just as the credit crunch was a global crisis requiring a joined-up global response, so is the climate crunch.
And as the finance sector will be at the heart of rebuilding the economy, it is important that it goes beyond addressing climate change in its own business activities and takes steps to push politicians towards a global deal on climate change – one that will speed up action already being taken by the sector.