Gérard Mestrallet is chairman and CEO of ENGIE, formerly GDF Suez. He spoke at the World Bank Group about his company's support for carbon pricing and the involvement of Europe's energy companies in reinvigorating the EU's emissions trading system.
Europe and Central Asia
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.
When President Barack Obama announced that the United States would cut CO2 emissions from its coal power plants by 30 percent below 2005 levels by 2030, he didn’t just talk about climate change – he was equally forceful about the local benefits that the regulations could bring. He stressed that those regulations would reduce pollutants that contribute to soot and smog by over 25 percent, reductions that could avoid up to 6,600 premature deaths and 150,000 asthma attacks in children; and that the regulations would build jobs, benefit the economy, and be good for the climate.
Demonstrating the value of multiple benefits that result from many policies and projects can provide a compelling economic rationale for action. It can speak to broad constituencies, local and global, and demonstrate the climate-smart nature of good development. A new report prepared by the World Bank in partnership with the ClimateWorks Foundation – Climate Smart Development: Adding up the benefits of actions that help build prosperity, end poverty and combat climate change – sets out to do just that.
At the UN climate talks that ended wearily on Saturday night in Warsaw, negotiators showed little appetite for making firm climate finance commitments or promising ambitious climate action. But they did succeed, again, in keeping hope alive for a 2015 agreement.
The final outcome was a broad framework agreement that outlines a system for pledging emissions cuts and a new mechanism to tackle loss and damage. There were new pledges and payments for reducing deforestation through REDD+ and for the Adaptation Fund, however the meeting did little more than avoid creating roadblocks on the road to a Paris agreement in 2015. In one of the few new financial commitments, the United Kingdom, Norway, and the United States together contributed $280 million to building sustainable landscapes through the BioCarbon Fund set up by the World Bank Group.
At the same time, COP19 was an increasingly emotional Conference of Parties to the UN Framework Convention on Climate Change. The overture to this round of climate drama was provided by Typhoon Haiyan. Haiyan added, sadly, more to the mounting evidence of the costs of failure in tackling climate change. The language is inexorably moving towards one of solidarity, of justice. But for the moment, this framing is insufficient to prevent emission reduction commitments from moving backwards.
And yet again, as was the case in the climate conferences in Cancun, Durban, Doha, and now Warsaw, outside the official negotiations, there is growing pragmatic climate action driven by climate leaders from every walk of life.
The sense of urgency and opportunity is building, it just fails to translate into textual agreement.
According to the International Energy Agency (IEA), global energy demand is likely to grow by more than one-third between now and 2035. Mobilizing investment capital is one major task. Additionally, energy infrastructure such as electric power facilities has a long time span – up to 40 or 50 years in the case of base-load nuclear or coal plants. As the new Growing Green report, released by the World Bank’s Europe and Central Asia Region, points out, with such a long time span and the enormous amount of capital at stake, power sector investments need to consider at least three types of uncertainties—changing regulations, changing technology, and changing climatic conditions.
Regulatory uncertainty persists in countries without formal greenhouse gas emission restrictions. Even in the EU, the emissions trading system is still evolving and future prices for carbon emissions will in large part depend on political decisions. Such schemes may spread to other parts of Europe and Central Asia as the implications of climate change become more apparent and support for climate action rises. A price on carbon, either through a cap-and-trade sys¬tem or a tax, can profoundly alter the comparative economics of different power generation technologies. With a price on carbon emissions, the cost differential between fossil-fuel plants and low-carbon alternatives shrinks and in some cases disappears.
Many international firms and banks already incorporate an assumed carbon price into their financial investment feasibility calculations. Expectations of future carbon pricing have already altered investment decisions favoring natural gas over coal-fired power plants in the U.S. (although more recently the drop in gas prices has been a larger factor). Conversely, regulatory uncertainty also hinders investments in low-carbon generation. The IEA estimates (pdf) that uncertainty in climate change policy might add a risk premium of up to 40 percent to such investments, driving up consumer prices by 10 percent.
Under current trajectories, the world is headed toward a world that will be 4 degrees warmer by the end of this century. Despite the mounting concern around this scenario, many countries throughout the Europe and Central Asia (ECA) region are understandably reluctant to introduce more ambitious climate policies because they are worried about the negative consequences on competitiveness or energy affordability, for instance.
However, as we try to show in our recent publication, Growing Green: the Economic Benefits of Climate Action, strategic investment in climate action can benefit these countries in the medium- and long-terms – thus offsetting the negative consequences of these investments.
Above all, countries need to focus on three types of climate action: climate action as a co-benefit, climate action as an investment, and climate action as insurance.
Last week, I had the honor of speaking to the UN Security Council about an increasingly dangerous threat facing cities and countries around the world, a threat that, more and more, is influencing everything that they and we do: climate change.
World Bank President Jim Kim was in Russia talking with G20 finance ministers about the same thing – the need to combat climate change. Every day, we’re hearing growing concerns from leaders around the world about climate change and its impact.
If we needed any reminder of the immediacy and the urgency of the situation, Australia Foreign Minister Bob Carr and our good friend President Tong of Kiribati spoke by video of the security implication of climate effects on the Pacific region. Perhaps most moving of all, Minister Tony deBrum from the Marshall Islands recounted how, 35 years ago, he had come to New York as part of a Marshall Islands delegation requesting the Security Council’s support for their independence. Now, when not independence but survival is at stake, he is told that this is not the Security Council’s function. He pointed to their ambassador to the UN and noted that her island, part of the Marshall Islands, no longer exists. The room was silent.
As the Climate Investment Funds (CIF) and its stakeholders from the private sector, government, the multilateral development banks, civil society and indigenous peoples’ groups gathered in Istanbul to participate in the first CIF Private Sector Forum, their attention is increasingly focused on synergies between the private and public in addressing climate change. There is a growing understanding among both governments and private sector players - from investors to small project developers to large utility companies - that gains are much larger if common strategies are developed and new partnerships are forged.
Michael Liebreich, CEO of Bloomberg New Energy Finance, opened the day with an energetic keynote address, provocative and positive, setting up the stage for the day by announcing the scope of challenge and opportunities for dynamic, and pragmatic climate investment strategies. Sessions on private sector adaptation, and business attitudes towards climate risk followed. The `Matching Expectations' panel brought together indispensable partners, the triangle of project developers-investors-policy makers, into discussion of regulations, fund raising challenges and investors' expectations and requirements.
The day also showcased five CIF projects, beginning with the highlight of the Morocco Ouarzazate CSP project, a unique PPP model, presented by Paddy Padmanathan, the CEO of the project's developer ACWA Power.
Consensus emerged that the private sector will deliver much of the innovation and finance required for investments in low carbon technologies and climate resilience in rich and poor communities alike. With scientists warning that we are not on a path to limit global warming to 2° or less, there is growing urgency to identify effective ways in which the public and private sectors can best work together to tackle and adapt to climate change. The CIF provide a platform for learning by doing to develop such models for effective collaboration and share experiences among the network of CIF recipient and contributor countries.
The eruption of Eyjafjallajokull in Iceland could mean some good news for those of us concerned with understanding the science of climate change.
As volcanoes go, this is small stuff. The last volcano to have a substantial effect on global climate was Mount Pinatubo which erupted in the Philippines in 1991. Volcanoes affect global climate largely because the sulfur gases that they emit oxidize in the atmosphere to form sulfate aerosols (fine particulate matter), which stay around in the stratosphere for at least 12 months, and act as a strong cooling agent. According to the National Oceanic and Atmospheric Administration (NOAA), Mt. Pinatubo caused global temperatures to dip by about 0.5 degrees Centigrade for a year. The ash, which has been of concern to airline passengers in Europe and many others across the globe recently, generally has only a small and local effect on climate –it tends to fall to earth in a matter of weeks.
|Photo © Rasmus Heltberg/World Bank|
How should climate change be addressed in Tajikistan, the poorest and—according to a World Bank regional assessment, most climate-vulnerable—country in Eastern Europe and Central Asia?1 On a recent visit to this scenic nation to assess the poverty aspects of climate change, we struggled with this seemingly simple question. Answers remain elusive, given the country’s daunting climate dilemmas. So, while in Dushanbe, I attempted to write about the range of the challenge.
First, consider Tajikistan’s thousands of glaciers, many of which are receding. As they melt, farmers downstream enjoy plentiful water supply and see no need to take action. However, once the glaciers are gone, dry rivers and extreme water scarcity could mean the end of farming livelihoods in some areas.