The US is back, front and center in the global climate change conversation: US President Joe Biden rejoined the Paris Agreement at the outset of his administration. Within 90 days he called for a leaders’ summit on climate change. Forty countries were invited and all showed up — even China and Russia, which are at odds with the Biden administration’s foreign policy objectives.
Before the summit, countries fell over themselves, upping their climate goals: Leading by example, the US will reduce its greenhouse gas (GHG) emissions by 50-52 percent by 2030 compared to 2005 levels. Canada upped its goals until 2030 between 33 to 50 percent compared to 2005 levels. Japan similarly improved its goals for 2030 by 78 percent compared to 2013 levels. Korea pledged to stop financing coal-fired power plants overseas and even Brazil brought its net zero goal forward from 2060 to 2050.
None of that compares to Europe, which this week enshrined into law to cut GHG emissions by 55 percent compared to 1990 levels.
The European approach is more ambitious especially because data is compared with 1990 levels and as the new laws pertain to all aspects of life. In contrast, the US approach has a stronger focus on new technologies and the contribution business can make. The warming of the Earth knows no boundaries, which makes it a truly global issue requiring global solutions. This in turn necessitates flexibility and adjustments to regional and national circumstances.
Some of the initiatives deserving particular mention are the net zero (oil and gas) producers’ forum, where countries accounting for more than 40 percent of oil and gas production — namely Saudi Arabia, the US, Canada, Norway and Qatar — agreed to cooperate on pragmatic net zero emission strategies.
Technology is of particular interest if the ambitious targets are to be met. The world will still require hydrocarbons if the “lights are not to go out.” A pragmatic approach is pivotal, be it regarding hydrogen, carbon capture, use and storage (CCUS) or Saudi Arabia’s circular carbon economy, which aims to reduce, recycle, remove and reuse carbon.
Climate change is real and global, there is no harm in using stretch goals.
In the same vein, the price for carbon matters because it will drive incentives. The summit looked at this issue. The EU has an advanced carbon pricing system and, among others, California has its own carbon trading scheme. Given that carbon emissions are a global issue, more comprehensive global solutions are required.
The affordability of investments associated with climate change is an issue for many developing countries. The Paris Agreement foresees compensation mechanisms. To this end, the Biden administration pledged to double its contribution to developing countries to $5.7 billion by 2024.
In an interview with Bloomberg, the US envoy on climate change, John Kerry, stressed the importance of finance when it came to achieving climate goals. He does have a point — the economic ramifications of climate change are real. In a report released earlier in the week, Swiss Re estimated that losses attributable to climate change would amount to $23 billion by mid-century if global warming is not kept to 1.5 degrees to pre-industrial levels.
These are big numbers and a wake-up call, particularly for the financial community. Banks and investors increasingly focus on ESG standards. They are wary of investments in assets that are at risk of becoming “stranded” as governments increase environmental rules. Indeed, finance is probably one of the most potent drivers behind change, given that ESG-compatible investments are the fastest-growing asset class globally.
Many criticized that the goals were too lofty to be achieved. Given that climate change is real and global, there is no harm in using stretch goals. There will always be naysayers. However, the efforts can only bear fruit if the approach is realistic and flexible, focuses on technology and takes into account the requirements of various geographies, especially the developing world. China, the US and Europe produce more than 50 percent of global GHG emissions. Having them all at the same table to discuss the issues is a good first step along the thorny road to COP 26, which will take place in Glasgow this November.
• Cornelia Meyer is a Ph.D.-level economist with 30 years of experience in investment banking and industry. She is chairperson and CEO of business consultancy Meyer Resources.