By Stephanie Pfeifer, Institutional Investors Group on Climate Change (Europe); Nathan Fabian, Investor Group on Climate Change (Australia/New Zealand); Chris Davis, Investor Network on Climate Risk (North America); and Alexandra Tracy, Asia Investor Group on Climate Change.
The British economist Lord Nicholas Stern has labelled climate change “the greatest market failure the world has ever seen.” Failing to put a price on carbon emissions leaves the market with no way to address the harm created by these emissions. And with no cost attached to a harmful activity, participants in the market have no incentive to pursue less harmful alternatives. Thankfully, this is changing.
About 40 national and more than 20 sub-national jurisdictions globally have implemented or are scheduled to implement carbon pricing schemes. The world’s emissions trading schemes are valued at about $30 billion, with China home to the world's second largest group of carbon markets, covering the equivalent of 1,115 million tons of carbon dioxide emissions, after the 2,309 million tonnes covered by the EU’s Emissions Trading Scheme.
This progress is good news, and furthering the spread of carbon pricing is essential. Putting a price on carbon reduces emissions and the costs associated with these emissions, costs that end up being borne by everyone, including companies and societies, through an array of impacts resulting from climate change.
In January, World Bank Group President Jim Yong Kim urged the audience at the World Economic Forum in Davos to look closely at a young, promising form of finance for climate-smart development: green bonds. The green bond market had surpassed US$10 billion in new bonds during 2013. President Kim called for doubling that number by the UN Secretary-General's Climate Summit in September.
Just a few days ago—well ahead of the September summit—the market blew past the US$20 billion mark when the German development bank KfW issued a 1.5 billion Euro green bond to support its renewable energy program.
Someone once told me that all it takes is that first visit: once you have the dust of Africa on your feet, it will pull you back, again and again. This was before I knew that I would one day be part of the team leading delivery of the annual Africa Carbon Forum.
And so, it has come to pass: every year, and this was the sixth edition, the forum pulls its stakeholders together to build capacity on issues of climate change, and to help raise a voice for Africa on issues like the UN climate negotiations or policy discussions on the revision of the UN’s Clean Development Mechanism (CDM).
Since it was established, the Africa Carbon Forum has grown into what is often described as the leading event in Africa for players in energy and carbon markets. In the last four years, we have met in Marrakech, in Addis Ababa, in Abidjan, and now in beautiful Windhoek, where the splendid weather last week reminded me of just what we stand to lose if our mitigation efforts are not successful. I was not as fortunate, but a wonder-struck colleague spoke about the family of cheetahs that ran past the car as he drove in from the airport. Are we one of the last generations that will see these beautiful creatures in the wild because their habitat will change due to new climate patterns?
At the Forum's opening plenary (pdf), the Namibian Minister for Environment and Tourism, the Honorable Uahekua Herunga, urged us to work together to make carbon markets work for Africa and prepare the continent for future carbon trading. But, he insisted that developed countries need to act first and that mitigation actions should be taken within the UN’s Framework Convention on Climate Change (UNFCCC). He asked that the forum sends a powerful message from Africa to the 2015 UN climate meeting in Paris about mitigation opportunities in Africa.
From July 1, as part of the IDA-17 Replenishment all new operations funded by the International Development Association, IDA, the World Bank’s fund for the poorest countries, are to be screened for short and long-term climate and disaster risks (pdf) and, where risks exist, appropriate resilience measures are to be integrated.
Additionally, all IDA Country Partnership Frameworks are required to incorporate climate and disaster risk considerations into the analysis of a country’s development challenges and priorities and, when agreed with the country, incorporate such considerations into the content of the programs and the results framework.This is a major step forward in helping the poor and most vulnerable, those most at risk from climate change, prepare for the impacts of our rapidly warming world.
Bank staff can now access a new suite of online tools to help them identify potential risks to the projects and country plans they’re working on.
The new climate and disaster risk screening tools are exactly what they sound like: they provide due diligence at the early stages of project design to ensure that climate and disaster risks are flagged. Screening is a first, but essential, step to make sure that these risks are assessed and managed as we work on climate and disaster-resilient development.
The call for a price on carbon is growing louder in the corridors of business and government. Last week, former U.S. Treasury Secretary Hank Paulson wrote in The New York Times that climate risks are perhaps the biggest “known unknown” that we face, and he asked “farseeing business leaders” to demand a price on carbon—it’s the quickest, most efficient way to manage these risks.
Paulson was previewing the Risky Business report, which calculated the economic impact of climate change on U.S. businesses’ balance sheets. A few days later, CDP released a report on corporate use of internal carbon pricing.
CDP surveyed executives to find out why leading businesses are already valuing carbon to future-proof their business plans. It is interesting to note that some of the largest U.S. utilities, including American Electric Power and Exelon, price carbon in an effort to avoid stranding large fossil-fuel-fired power plants and to reassure investors. Other less carbon-intensive businesses use internal prices to help achieve corporate sustainability goals—TD Bank aims to go carbon neutral, and Walt Disney Corporation (as well as Microsoft) uses internal pricing to encourage employee innovation while delivering profits. The value of encouraging more sustainable growth like this came through this week in the World Bank Group’s new Adding Up the Benefits report, which calculated the value of climate-smart development in lives, jobs, and economic growth, as well as the climate.