The OECD report, which analysed the period from 2015 to 2022, shows that funding for efforts to protect and restore nature grew from $11.1 billion in 2021 to $15.4 billion in 2022.

The increase came largely from multilateral institutions – mainly development banks – which increased their funding from $2.7 billion in 2021 to $5.7 billion in 2022, mostly by offering concessional loans, which are cheaper than borrowing on commercial terms.

The issue of whether loan finance should be provided to already debt-strapped developing countries for action on climate and nature is hotly debated, with poorer countries and climate justice activists calling for more money to be disbursed as grants.

Multilateral funding for biodiversity (in green) saw the biggest increase between 2021 and 2022, mostly in the form of loans. (Photo: OECD)

Boosting funds for biodiversity protection will be a key issue at the COP16 UN conference in Colombia late next month, as countries face the challenge of meeting a goal to mobilise $20 billion by 2025 – a sum agreed two years ago at COP15 in Montreal. This, in turn, will influence the creation of new national biodiversity plans, experts say, which could also help curb rising carbon emissions.

To channel some of this money, governments agreed at COP15 to set up a new international biodiversity fund established under the Global Environmental Facility (GEF). It has struggled to get off the ground, receiving a scant $200 million so far.

“It is critical that historic and new donors arrive at COP16 with substantial new funding announcements for developing countries – primarily in public grants, not loans,” said Brian O’Donnell, director of the advocacy group Campaign for Nature.

Causes for concern

While it is “certainly good news” that biodiversity funding has increased in the years leading up to 2022, there are some concerning trends, O’Donnell told Climate Home News.

For example, he pointed to a disparity between funding for projects marked as “biodiversity-specific”, which has the principal goal of reversing biodiversity loss, and funding marked as “biodiversity-related”, which is mainly aimed at tackling a different problem but yields some benefits for biodiversity.

The OECD report shows that, while overall biodiversity funding increased, the amount with the principal goal of tackling biodiversity loss decreased, falling from $4.6 billion in 2015 to $3.8 billion in 2022.

“We can’t safeguard nature and the planet just by making it a tangential approach to other funding endeavours,” said O’Donnell. “The majority of the funding has to be with the true desire to safeguard nature.”

Oscar Soria, a veteran biodiversity campaigner and CEO of The Common Initiative, an environmental think-tank, agreed that the lack of funding dedicated directly to biodiversity could limit efforts to protect conservation areas and restore nature.

The prevalence of loans over grants also poses a challenge for developing countries, the two experts said. “With development budgets shrinking in key donor countries, the future of real biodiversity protection hangs in the balance,” Soria added.

The OECD report shows that most direct public funding came in the form of grants, but this type of finance has grown very slowly in the last decade, creeping up from $6.6 billion in 2015 to $7.1 billion in 2022.

Asia and Latin America were the top recipient regions for biodiversity finance from multilateral institutions, but most of it came in the form of loans. (Photo: OECD).

Funding gap

Based on the trends shown in the OECD report, Soria noted that governments “should be able to deliver” the $20-billion goal for international public finance by 2025.

O’Donnell agreed that the goal should be within reach, but said that implementing the Global Biodiversity Framework agreed in Montreal – which includes a target to protect at least 30% of the planet’s land and sea by 2030 – will require major additional financing. 

“Countries should look at this and say ‘we need to aim higher’,” he added.

The gap on a longer-term finance goal that includes all sources – for $200 billion by 2030 – is much wider, as the report shows that currently governments have mobilised only around $25.8 billion in total for biodiversity, including from the private sector.

In the case of multilateral institutions, the funds committed for biodiversity between 2015 and 2022 represent just 3% of all development finance disbursed in those years. Top recipients included China ($750m), Colombia ($338m) and Mexico ($207m).

Donor countries, meanwhile, remain small in number, with only five governments responsible for nearly three-quarters of the biodiversity funding provided between 2015 and 2022.

“This cannot be just an accounting exercise,” O’Donnell told Climate Home. “Ultimately, this needs to be an impact exercise – one that is focused on halting and reversing biodiversity loss.”

(Reporting by Sebastián Rodriguez; editing by Megan Rowling)

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A group of 13 nations and the European Union agreed to give those developing projects like renewable energy, electricity infrastructure and low-emission transport longer to pay back loans and charge them less for insurance.

The Organisation for Economic Co-operation and Development (OECD)’s head Matthias Cormann hailed the deal as a “great milestone to help increase the impact of trade and finance flows on securing our climate objectives”.

But campaigners claim there is no clear definition of green projects and criticised the inclusion of technologies like hydrogen and carbon capture and storage.

They claim that, as many hydrogen and CCS projects are driven by fossil fuel companies, that sector will be among the beneficiaries of the reform, potentially for polluting projects.

The agreement is part of a package of reforms secured within a group of the OECD responsible for setting rules for the export credit agencies (ECAs) of member states.

ECAs influential role

Participants are the USA, France, Germany, Italy, Canada, the United Kingdom, Japan, the European Union, South Korea, New Zealand, Australia, Norway, Switzerland and Turkey.

The reform is expected to come into effect later this year once national ECAs have implemented it.

ECAs are highly influential in directing investment towards specific sectors by offering exporters government-backed loans, guarantees or insurance. This limits the risk taken by companies selling services and goods in countries or industries considered high-risk.

Revealed: How Shell cashed in on dubious carbon offsets from Chinese rice paddies

Under the new agreement, maximum repayment terms will be increased from 15 years to 22 years for investments including ‘environmentally sustainable energy production’, carbon capture storage and transportation, clean hydrogen and ammonia, low-emissions manufacturing, zero and low-emissions transport and clean energy minerals and ores.

The reforms will introduce further flexibilities on repayment schedules and adjust the minimum premium rates charged for insurance cover.

Uncertain ‘climate-friendly’ label

The statement released on Monday does not give any more detailed explanation of what specific type of projects will be given favourable treatment.

A definition for ‘clean hydrogen’, for example, could range from green hydrogen produced with renewable energy to gas-derived blue hydrogen.

An OECD spokesperson said the member states are still in the process of negotiating the final text, which will incorporate the agreement in principle and make all the details public.

OECD boss Matthias Cormann said the reforms will allow the scaling up and better targeting of public and private finance to support climate-friendly investments.

The European Commission said this is “the culmination of more than two years of negotiations”.

‘Incentives for fossil fuel sector’

The reforms have been met with disappointment by campaigners who had pressured governments for more far-reaching changes, including the end of public export finance for fossil fuel projects.

Nina Pusic of Oil Change International told Climate Home the group is worried this will enable benefits to fall into the lap of oil and gas industries that are already heavily supported by export credit agencies.

“Better incentives for truly climate-friendly projects are needed at OECD level, but we are concerned about the definition used here,” she added. “It is still subject to further refinement but the scope has now been set”.

Governments battle over carbon removal and renewables in IPCC report

Steven Feit, a senior attorney at the Center for International Environmental Law, said carbon capture, hydrogen or ammonia are the primary avenues through which the fossil fuel industry seeks to legitimise itself in the wake of climate action. “Labeling these projects as ‘green or climate friendly’ perpetuates a false narrative,” he added.

Carbon capture and storage is where carbon dioxide is sucked out of the air, often directly from a polluting smokestack. Hydrogen and ammonia are products used for a wide variety of purposes. They can be made using clean electricity or polluting fossil fuel electricity.

Bankrolling fossil fuels

In recent years, ECAs have come under fire for being a prominent source of public funding for fossil fuel projects worldwide.

The ECAs of G20 nations provided seven times as much export finance to fossil fuel projects ($33.5 billion) than for renewable energy ($4.7 billion) between 2019 and 2021, according to data compiled by campaigners.

In 2021 the OECD group agreed to end ECAs’ support for unabated coal-fired power plants.

Uncertainty on renewable retraining frightens South Africa’s coal communities

But campaigners and some countries urged it to go further. The Council of the European Union called for an agreement to end officially supported export credits for projects in the fossil fuel energy sector, including oil and gas projects.

Backsliding on pledges

Additionally, at Cop26 in Glasgow 20 countries – including the biggest EU members, the UK, the US and Canada – signed onto a commitment to end public finance for overseas fossil fuel projects by the end of 2022.

But countries have subsequently been accused of watering down the terms of the pledge, by inserting exemptions.

Italy has U-turned on its promise. Its ECA’s new funding policy carves out a wide range of exemptions for the continued support of fossil fuel projects beyond the deadlines on energy security grounds.

Germany and the United States have yet to publish their policies outlining how their pledge will work in practice.

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The data shows that in 2020, rich nations mobilised $83.3 billion of climate finance, a 4% increase on the previous year but short of the $100bn target that they set themselves in 2009. 

2020 was the deadline for achieving the $100bn climate finance goal. Developed countries are now only expected to meet it in 2023.  Previous research suggests that the US is responsible for the vast majority of the shortfall.

The bulk of the funding was in the form of loans rather than grants and went to Asian and middle income countries.

Asia received 42% of the finance, roughly equal to its share of the global population, while Africa got 26% and the Americas received 17%.

Climate finance to developing countries was spread over five continents (Photo: Wikicommons)

Lower middle income countries received 43% of the funding while upper middle income countries got 27%. Low income countries, which represent about 9% of the global population and are most in need of finance, received 8%.

OECD Secretary-General Mathias Cormann said achieving the goal next year is “critical to building trust as we continue to deepen our multilateral response to climate change.” Increasing finance for countries worst hit by climate impacts is one of the key goals of Cop27 in Egypt. 

“We know that more needs to be done. Climate finance grew between 2019 and 2020, but as we had expected, remained short of the increase needed to reach the $100 billion goal by 2020,” Cormann said.  “While countries continue to grapple with the economic and social implications of the COVID-19 pandemic and Russia’s war of aggression against Ukraine, we are seeing climate change causing widespread adverse impacts and related losses and damages to nature and people.” 

Joe Thwaites, an international climate finance advocate at the Natural Resources Defense Council (NRDC), told Climate Home News that the report “confirms what was largely feared about climate finance in 2020: that developed countries failed to meet the $100 billion goal due that year; that mobilisation of private finance has totally stagnated; and that despite a growing debt crisis most public climate finance remains in the form of loans.”

Climate finance failed to reach $100bn in 2020 (Photo: OECD)

Developing countries have long called for a greater share of finance to go towards adapting to climate change rather than reducing emissions. Mitigation finance, for reducing emissions, dropped by $2.8bn between 2019-2020, while adaptation finance rose 41% by $8.3bn.

Mitigation still receives a larger share of the total (58%) than adaptation. Adaptation funds have gone towards water and sanitation projects as well as forestry, agriculture and fishing, the OECD report notes.  

“It is good to see that adaptation finance grew significantly in 2020, making the COP26 commitment to double adaptation finance by 2025 look achievable, on route to reaching the balance with mitigation finance that the Paris Agreement calls for,” Thwaites said. 

The OECD update was published earlier in the year than usual to fit UNFCCC timelines.

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Analysis of the latest climate finance data by the Organisation of Economic Cooperation and Development (OECD) – the group representing 36 of the world’s most developed countries – found that only 21% of climate finance mobilised in 2018 aimed to help communities adapt to climate change.

That is only slightly better than in 2017, when 19% of climate finance to poorer nations was aimed to help them cope with climate impacts.

While finance for adaptation has grown more rapidly than support for cutting emissions in recent years, more than two-thirds of the money still went to carbon-cutting efforts, with 9% identified as serving both goals.

Developing countries have long called for climate finance to be evenly split between adaptation and mitigation.

Oxfam: Rich countries are not delivering on $100bn climate finance promise

The OECD report analysed progress made by developed countries to meet a 2009 commitment to mobilise $100 billion a year in climate finance by 2020 to help developing countries green their economies and cope with climate impacts.

In 2018, donor countries delivered $78.9bn, up 11% from the previous year but a slower increase than between 2016 and 2017, when funding went up by 22%.

Donor countries have been urged to announce new climate finance commitments at an event to mark the fifth anniversary of the Paris Agreement on 12 December.

The data included finance from bilateral and multilateral finance, climate-related finance officially supported by export credit agencies and private finance mobilised through public finance interventions.

The vast majority of the money came from public finance, with private funding accounting for 18.5% of the $78.9 billion and hardly increasing in value since 2017 – “a disappointment for many stakeholders,” Raphaël Jachnik, climate finance analyst at the OECD, told Climate Home News.

The absence of funding from the private sector would need to be compensated by more public funding if countries are to meet the $100bn goal, he said.

At a time when developing countries are watching their debts mount as they respond to the Covid-19 crisis, most climate finance continues to be delivered as loans – money vulnerable nations are expected to pay back.

Ballooning debt cripples poor countries’ hopes of green recovery from Covid

Between 2013 and 2018, the share of loans in public climate finance grew from 52% to 74%, according to the OECD, while the share of grants decreased from 27% to 20%. Equity investments rose slightly, accounting for 2% of public finance in 2018.

Anti-poverty NGO Oxfam last month described the heavy use of loans as an “overlooked scandal”, noting that around half were non-concessional loans.

Reacting to the OECD figures, Tracy Carty, senior policy advisor on climate change at Oxfam, said: “Climate finance is a lifeline for communities facing record heatwaves, terrifying storms and devastating floods. Wealthy countries should stop inflating their figures with loans that will be repaid, and start increasing grants, especially for the most vulnerable countries to use for adaptation.”

Loans also dominated climate finance from private sources, which in recent years has almost exclusively focused on cutting emissions, largely targeting the energy sector of middle-income countries.

Climate finance campaigners of the ACT Alliance network have previously warned that loans and private sector investments tended to favour emissions reductions programmes over adaptation ones – further exacerbating the imbalance between the two.

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Between 2016 and 2018, the OECD reported that nearly 70% of all climate finance went to middle-income countries. The least developed countries group received 14% of the total funding and small island developing states just 2%.

That “is particularly unjust,” said Carty, of Oxfam, adding those were the countries that have “done least to cause the climate crisis but are being hit hardest”.

Whether rich countries have delivered on their $100bn commitment might not be known for another two years. Data for 2020 is not expected before the first quarter of 2022 at the earliest, according to the OECD.

The coronavirus pandemic could affect governments and institutions’ ability to collect and report this year’s data, possibly causing further delays.

Only when 2020 data is made available “will it be possible to thoroughly assess the extent to which the [Covid-19] crisis and its aftermath may also have impacted the ability of some developed countries to provide and mobilise climate finance, and of some developing countries to absorb and deploy such finance,” the report noted.

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An increase in extreme weather events is likely to severely impact financial institutions, says new discussion paper (Pic: NASA/Flickr)

By Avik Roy in Paris

Finance is proving the toughest nut to crack at UN climate talks in Paris.

With less than 24 hours to go until a deal is set to be signed, the question of who pays to help poorer nations green their economies is live – and dangerous.

India has been at the front of a pointed critique of finance flows, arguing that too many donations are loans or climate aid it says is masquerading as oversea development aid.

Its main target has been a flagship climate finance study produced by the Organisation for Economic Co-operation and Development (OECD), a club of wealthy countries based in Paris.

It said back in October that progress had been made towards a goal to provide developing nations with $100 billion a year by 2020.

Report: Trillions hang on two sentences as Paris climate talks near climax

$62 billion of progress in 2014 to be precise. That was huge news. And it did not go down well in Delhi. So upset was the government it produced its own study.

“The OECD report is deeply flawed and unacceptable”, read a report launched by India and touted round the COP21 talks.

Indian economist Shaktikanta Das said experts had undertaken a careful review of that OECD report. They concluded that it overstated progress.

The Indian report said the “only hard number currently available in this regard is $2.2 billion in gross climate fund disbursements from 17 special climate change finance multilateral, bilateral and multilateral development bank funds created for the specific purpose.”

“Methodologies used were inconsistent with the literature and best practice and even ‘bent’ in ways to find more flows than reality. Meaningful, independent verification was impossible since only aggregate numbers were reported – with lack of transparency. No serious consultations were done with developing countries themselves,” the Indian report said.

The discussion paper was titled, ‘Climate Change Finance, Analysis of a Recent OECD Report: Some Credible Facts Needed’. It described the OECD as ‘a club of the rich countries’.

Report: India can accept 1.5C warming limit – if rich nations make the carbon cuts

The report barely stopped to draw breath as it piled into the OECD methodology.

It claimed it repeated old errors by double-counting, mislabelling and misreporting climate finance.

But is this acerbic analysis fair?

Timmons Roberts is an expert in climate finance, and a professor at Brown University in Providence, Rhode Island. He said the problem is more complex than it looks.

“The problem’s root is that a definition of climate finance was never agreed – it has essentially been the contributor countries that have unilaterally decided what they think should count.

“Many times they have chosen to count things that are not in the spirit of the 2009 promise at Copenhagen for the $100 billion, at least as developing countries understood that promise.”

“Then there is the problem that we lack an independent system of categorisation and accounting of climate finance, and of tracking its delivery. Paris really needs to set up a work programme to put these three things in place.”

Report: No renewables without coal, says Indian energy minister

But some of the finance included – like loans, export credits and private sector contributions – has been fiercely contested. Linked to this, there is another debate over who should be classed as donors.

The French foreign minister, among others, welcomed the publication, saying the estimates demonstrate that considerable progress has been made.

Others are more generous to the OECD team. Joe Thwaites works for the Washington DC-based World Resources Institute.

“The OECD report was a comprehensive attempt to account for flows that might be considered towards meeting the commitment to mobilise $100 billion in climate finance by 2020.

“However, many methodological issues are still outstanding, since the raw data is based on donor self-reporting and there are differing opinions of what should count, and how to count it”, he said.

Marcela Jaramillo, a Colombian finance analyst at London-based think-tank E3G said the report was a good start in trying to crack an issue that has bedevilled these talks: what on earth is climate finance and who gets to judge?

“India’s reaction to the OECD report underlines the need to engage on a discussion about climate finance flows that brings in together the view from providers and recipients of these funds”, she said.

As for the OECD, the Guardian reports that Simon Buckle, the OECD lead author on the report, said that the organisation had been fully transparent and that its estimate of the amount of finance delivered was the most robust so far.

Still, at the talks there appears a solid front from major emerging economies. They’re not happy.

“We welcome the OECD study but we do not recognise the numbers. There are double-counting issues,” said Chinese climate change envoy, Xie Zhenhua, at a press conference on the sidelines of COP21.

South Africa said the figures, which have become a negotiating chip at these negotiations should have been calculated after consulting developing countries.

Yet Brazil was a little more diplomatic. “The reality is that parties here were not part of pulling together. Double accounting cannot be accounted for,” said Izabella Teixeria, Brazilian environment minister.

“They should clearly say what they have provided, to whom and what is being counted.”

And Pa Ousman Jarju, a Gambian diplomat representing the 48 strong Least Developed Countries group said that whatever the study’s findings, it’s clear the quality of finance on offer is insufficient.

“We should have a common platform where we agree on the modalities on the figures of finance”, Jarju said.

With under a day until these talks are set to wrap up, it’s unlikely this issue will be solved in Paris.

But what’s evident is that it’s a boil that needs to be lanced – and for that all countries will need clarity on what really counts as climate finance.

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OECD agreement nudges developing countries towards more efficient coal plants (Pic: Pixabay)

By Megan Darby

Rich countries will phase out export credits for inefficient coal power technology, after the Organisation for Economic Cooperation and Development reached a deal on Tuesday.

It removes a hidden subsidy for polluting plants being built in emerging economies, mainly in southeast Asia.

Japan, the biggest exporter of that technology, agreed with the US to support a phase-out last month. South Korea and Australia, the last holdouts, came on board after demanding minor concessions.

Steve Herz of the Sierra Club, who was following the talks closely, told Climate Home: “This is a significant step forward for international climate diplomacy…

“Now you have consensus among developed countries it is not okay to continue to subsidise the export of coal technology on business-as-usual terms.”

OECD countries accounted for almost half of US$73 billion spent on coal export credits worldwide over the past seven years, a recent report by Oil Change International, WWF and the Natural Resources Defense Council found.

The most efficient category of coal plant, ultra-supercritical, can still get credits. But at least 300 large supercritical power stations in the pipeline are no longer eligible, according to Herz.

Members of the Paris-based OECD are set to review the conditions in 2019, when environmentalists hope they will decide to end subsidies across the board.

The difference in emissions between supercritical and ultra-supercritical power plants is about 5%, Greenpeace’s Lauri Myllyvirta noted.

That is “way too small to justify any special treatment for these plants,” he said. “The fact that so-called ultra-supercritical plants are still being allowed does call into question whether Japan, Korea and other laggards are serious about not pouring more tax money into exporting pollution.”

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Ghana’s capital Accra needs funding to prepare for sea level rise and storm surges, and invest in cleaner forms of power (Pic: World Bank/Flickr)

By Ed King

The world’s richest countries are back on the hook.

For a few balmy weeks in October a proposed draft UN deal offered a chance they might not have to fork out billons to help developing countries climate-proof their economies.

They were disabused of that notion at 4am on Tuesday morning, when a new pumped-up text emerged, the result of a negotiations blow-out on Monday in Bonn, home to a week of UN talks.

A section detailing what assistance poorer countries will require to invest in green energy and protect communities against climate impacts had swelled from 12 paragraphs to 2.5 pages.

“The storm was useful – we need predictable and adequate finance for developing countries,” said Alix Mazounie from the Climate Action Network.

“Now it has everything it needs… all the essential pieces… clinging on to every paragraph. From that perspective it’s a good start,” said Oxfam’s Jan Kowalzig, a seasoned observer of these talks.

Kowalzig emphasised the document’s renewed stress on a target of US$100 billion a year by 2020 represented a floor, not a ceiling on cash flows.

A round of talks on the finance chapter runs from 7-9pm CET tonight, as diplomats hone language for a global deal to be finalised in Paris this December. Wallets will need to remain open.

Report: OECD estimates climate finance flows at $60 billion

Finance is key at UN climate talks. It lurks at the centre of a web of contentious issues including adaptation, mitigation and loss and damage.

Addressing a meeting of business and finance chiefs in Washington DC on Tuesday, US secretary of state John Kerry could not have been clearer.

“The road through Paris is paved through investment decisions we are going to make this week,” he said.

Poorer countries say they will need funds to adapt to future extreme weather events, funds to mitigate carbon emissions by using clean energy, funds to invest in early weather warning systems.

Poor countries need support to cope with increasingly extreme weather (Pic: Department for International Development/Rafiqur Rahman Raqu)

The good news, say UN officials, is that wealthy countries are already over halfway to providing the $100 billion, a goal first detailed in 2009.

A recent OECD study revealed climate finance flows topped $60 billion in 2014, a calculation that includes public and private funds, multilateral bank contributions and export credits.

Many believe the OECD – a forum representing the world’s developed economies – has overblown these figures by including flows of cash not directly linked to climate change.

The UN’s climate chief Christiana Figueres told media in Bonn it was a “robust input” but admitted the figures had not been discussed or agreed by envoys.

France foreign minister Laurent Fabius – charged with steering these discussions during the December meet in Paris – called for a new assessment to add clarity by the end of next month.

Analysis: What does a strong Paris finance package look like?

Still, others appear optimistic this most toxic of issues could be put to bed – notably Rachel Kyte, the World Bank’s top climate official.

At the recent IMF/World Bank annual meeting in Lima the top multilateral development banks (MDBs) pledged to double their green finance flows up to 2020.

“It’s not our job to do the maths but that gets you along the way if not all to where you need to be, and I think you can honestly say there is a politically credible pathway to the $100 billion,” she told Climate Home in an interview.

Kyte described the 150+ national climate plans (known as INDCs) submitted to the UN in anticipation of a Paris deal as a “first generation investment prospectus” for climate-related projects.

“For us an INDC is going to form part of our dialogue and that will determine what our lending programme will be for that country in the next period,” she said. “Some are seminal documents and the process has already had an impact.”

Adaptation gap

A major headache for envoys in Bonn is the abject lack of finance on offer for adaptation. This can include sea walls to ward off sea level rises, better irrigation for parched land or heat-resilient plant seeds.

Just 16% of funds were directed towards these types of projects from 2013 – 2014, the OECD study revealed. That figure fell to 10% for private sector funds.

There are some explanations for the shortfall. Adaptation projects often take place in poorer countries where costs are low, and they also can take longer covering multiple budget cycles.

Comment: Loans or grants for climate finance?

Still, as Bangladesh scientist Saleemul Huq observed on Climate Home, most banks want a return on their investments. They’re more likely to get that from a clean energy plant than a sea wall.

Kyte tends to agree. “If you are investing in a massive solar array then that finance will flow and it’s a big ticket item,” she said.

This is a problem many hope Paris will solve. One new addition to the text under debate in Bonn stipulates that 50% of all funding flows should be for adaptation [page 12, paragraph 6bis].

This is a red line demand for climate vulnerable countries, said Kowalzig, explaining they “need some confidence that will actually happen.”

The overnight inclusion of a global goal for adaptation [page 9, para 1] in the text could also help, suggested Mazounie, offering a specific date poorer countries can tie demands for cash to.

Growing consensus?

Amid the maelstrom of Bonn and twitter rage from NGOs banned from private government talks, signs of compromise are emerging.

No-one disputes the need for finance to support climate goals. A recent study sponsored by developed and developing countries reported $90 trillion will be invested in infrastructure by 2030, whether green or brown.

The 134-strong G77 has dropped its politically toxic demand for 1% of rich countries’ GDP to help drive a green revolution, said Kowalzig.

Some of its members are already contributors to the Green Climate Fund and China recently stunned observers with a $3.1 billion finance offer, decapitating the idea that only “developed” countries should make these types of pledges.

“Now the question is how do you ensure that money is flowing where it is needed… are all the channels of finance – like the Heineken advert – getting it to where it is needed?” said Kyte.

Textual differences remain. Where the G77 + China group talks of direct financial “support” the US-led Umbrella group refers to “mobilising” funds from public and private sources.

But outside the negotiating halls, the finance picture is getting clearer.

More funds are expected to be pledged in November; the EU’s much vaunted “finance toolbox” will be released; the G20 will announce its own plans after its Antalya summit.

Will it be enough?

It’s unlikely in an arena where nearly 200 parties are continually trialling their own versions of game theory, but they appear to be heading in the right direction.

“The thing about this process… given it’s party driven – there will always be new things that come in and those that go,” said Mohamed Adow, Christian Aid’s climate advisor.

“That’s the nature of negotiations – it’s a process of give and take.”

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(Source: Flickr/Cathy)

By Alex Pashley

Governments should rigorously evaluate the true consequences of coal as lower prices spur investments in the dirtiest energy source, the head of the Organisation for Economic Cooperation and Development has said.

Slumped energy prices are incentivising the building of new plants, threatening to lock in decades of dirty development, Angel Gurria, the secretary-general of the rich club of 34 countries said on Friday.

“Coal is not cheap,” Gurria told a lecture at the London School of Economics. “Or at least, it is only cheaper if you ignore all the costs it imposes.”

“Governments need to be seriously sceptical about whether coal provides a good deal for their citizens.”

Report: Fossil fuel subsidies to hit $5.3 trillion in 2015, says IMF 

Coal-fired electricity generation doubled between 1990-2013 according to the IEA, with the black rocks forming the muscle in industrialising countries like China and India.

But without measures to curb production, coal alone could eat up around half the remaining budget of CO2 the atmosphere can withstand to avoid dangerous climate change.

A crunch summit in Paris in December should clear “directional signals” that countries should move to phasing out fossil fuels.

If the world is serious about keeping warming to a 2C internationally agree goal, it would need to think about “stranded assets” and “stranded communities” also, with 7 million people employed in the industry globally.

Rich countries must mobilise funds to make renewable energy affordable for poor countries, leapfrogging fossil fuels to clean energy development, he added.

The post Coal is not as cheap as you think, says OECD chief appeared first on Climate Home News.

(Pic: Hang Jun Zeng/Flickr)

By Alex Pashley

The world’s wealthiest economies are pumping billions of dollars in public finance into coal power plants and mines abroad, running counter to their commitments to curb global warming, a report has said.

The OECD, a rich club of nations, gave almost half of the $73 billion approved between 2007-2014, bankrolling investment in the world’s dirtiest energy source.

Japan was the worst offender, spending $20 billion, said the report by campaigners Oil Change, WWF and the Natural Resources Defense Council, in a comprehensive overview of the little-publicised practices.

More than 80% of coal, half of natural gas and a third of oil reserves must stay in the ground to limit temperature rise to 2C – an internationally agreed aim.

After the OECD’s financing mainly through credit export agencies, Russia and China’s institutions followed with 23% of the finance. Multilateral development banks came next with 22%.

“If not for countries like Japan, Korea and Australia standing up for their coal industry friends, the OECD would, foll have already moved to eliminate export financing for coal,” Stephen Kretzmann, Executive Director of Oil Change International.

“Instead of moving forward to support clean energy development and a climate-safe future, these countries are blocking progress while secretly propping up a dying industry.”

The report calls for an end to coal financing and seeks to put pressure on heads of state meeting at OECD and G7 summits in the next week.

Appearing to contradict a claim that export finance is used to fight poverty in developing countries, the report says zero export finance has gone to ‘low income countries’, with a quarter going to high-income countries.

The report says international public finance for coal over the period caused as much pollution as Italy, the world’s 20^th emitter of greenhouse gases.

Export credit agencies give guarantees to domestic companies when investing overseas. A type of insurance policy that protects an exporter against default, they provide capital.

Fossil fuel subsidies are set to hit $5.3 trillion in 2015, says the IMF.

“Many developed country governments that push for ambitious climate action are simultaneously funding coal abroad.” said WWF’s Global Climate and Energy initiative leader Samantha Smith. “They cannot do both and be credible.”

The post Japan, Germany, Korea fuelling growth of coal power appeared first on Climate Home News.

2011 flooding in Indiana, US (Pic: Paul/Flickr)

By Sophie Yeo

The world’s richest countries have encountered more intense disasters over past decades due to climate change and a degraded environment, according to a report from the OECD.

More frequent and complex shocks have cost hundreds of billions of dollars over past decades, and a lack of resilience means that the shocks are becoming more expensive over time, says the OECD, which represents 34 of some of the world’s most advanced economies, including the US, the UK, France and Australia.

The findings are significant as they undermine the idea that increasing impacts of climate change will primarily impact developing countries. OECD member countries account for 59% of the world’s GDP, 95% of world development assistance and over half of the world’s energy consumption.

“These disruptive events are happening more frequently and our ever-denser cities and interconnected economies mean the costs are getting higher all the time,” said Rolf Alter, Director of Public Governance and Territorial Development at the OECD, launching the report in Paris.

“Smarter risk management to improve our resilience to shocks is the only way to lessen the impact on societies and economies.”

In 1980, disasters cost OECD and BRIC (Brazil, Russia, India and China) around US$ 26bn. This peaked in 2011 at around US$ 313bn.

Source: OECD

Climate change, along with factors such as urbanisation and a growing number of elderly people, are responsible for these trends, said the report, while increasingly globalised economies and societies mean that shocks in one country now reverberate around the world. This means that one country’s failure to prepare for disasters can have worldwide implications.

Disproportionate

The report points out that many of the natural risks that will impact OECD countries over coming decades are expected to be more frequent and intense due to climate change, including heavy rainfall, droughts, and coastal flooding.

While the economic losses from disasters in OECD countries are higher than in lower income countries, they tend to make up a lower proportion of the GDP.

But, the report adds, the losses that do occur may be felt disproportionately at a local level. Hurricane Katrina in the US may have only cost 0.1% of the national GDP, but its impact was felt sorely in the area where the storm hit, where around 100,000 jobs and US$ 2.9bn in wages were lost.

“Disasters are a significant problem for the richest part of the world and I think this is the work that the OECD is doing in really opening up this conversation and demonstrating what it means in economic, social and, in fact, political and stability terms,” said Margareta Wahlstrom, head of disaster risk reduction at the UN.

The UN hopes to strike a new agreement on disaster risk reduction in March 2015, just nine months before the UN’s climate body is set to sign off another treaty aimed at limiting climate change.

While it is the poor countries who will be most vulnerable to the impacts of climate change due to their inability to finance adaptation and resilience measures, the report points out that among OECD countries, the US, Japan and Italy have suffered the most at the hands of large scale disruptive events over the past 40 years.

During a meeting this week in Paris, OECD ministers discussed the findings of the report, with a view to making its recommended policy changes to their governments.

The report suggests that governments should take action to raise public awareness and create financial incentives to encourage businesses and people to protect against risks. A “whole of society” approach could help to manage disasters in the future, it suggests, while international coordination and data sharing would help to lessen disaster costs.

The post OECD: Rich countries will suffer as planet warms appeared first on Climate Home News.

(Pic: World Water Week/Flickr)

Introducing a price for carbon and phasing out fossil fuel subsidies are two vital measures that can help the planet address climate change.

That’s the view of Angel Gurria, head of the Organisation for Economic Cooperation and Development, a forum for 34 of the world’s most developed countries.

Addressing delegates at the World Economic Forum in Davos, Gurria told leaders to “get to grips” with what he says it the “huge risk” posed by rising levels of carbon emissions.

“Most businesses do not take governments seriously when it comes to climate, primarily because many governments have inconsistent and incoherent policies and then often keep changing them, sometimes retroactively,” he said.

“This makes businesses reluctant to invest in greener technologies.”

Gurria presented the WEF with what he called an ‘action agenda’ (below) to reverse the trend  of rising levels of climate warming gases.

He added: “We are on a collision course with nature. Now is the time for us to take bold decisions. Cherry-picking a few easy measures will not do the trick.”

A plan for zero emissions

Action 1: Put a price on carbon. This can be done through a carbon tax or an emissions trading system (ETS). Here, governments have made important progress, with more than 40 countries having implemented some form of carbon tax or emission trading scheme. The “flexibility” of ETS’s makes them politically attractive, although their design and implementation can be improved.

However, not all governments have shied away from explicit carbon taxes. There are some strong success stories of introducing carbon taxes smoothly and incrementally over time.

Action 2: Reform fossil fuel subsidies. We have to reconsider our approach to subsidies. The OECD recently inventoried support to fossil fuel consumption and production in our Member Countries. The support we uncovered is in the range of US$ 55-90 billion per year. This is in addition to the US$ 544 billion provided as subsidies to fossil fuel consumers in developing and emerging economies estimated by the IEA.

Urgent reform is needed in all countries to phase out fossil fuel subsidies that encourage carbon emissions. While the subsidies are often used to fight poverty, their poor targeting makes them an inefficient way of achieving this goal. Fossil fuel already has a huge advantage as the energy resource of choice. It doesn’t need more help.

Action 3: Address incoherent and inconsistent policies. Governments need to stand back and consider the entire range of signals they are sending to consumers, producers and investors. A key question is whether non-fossil energy investments can currently compete with fossil fuels in terms of their risk-return profile with the policy settings in place domestically and internationally.

To help get a consistent picture and to compare country’ performances, carbon pricing and climate policies will soon be a key element of our OECD Economic Surveys. Thus, by mid-2015 we will have a good idea of the progress and remaining challenges in both OECD countries and key emerging economy partners.

The post OECD proposes plan for ‘zero emissions’ at Davos appeared first on Climate Home News.

By Paul Brown

The world’s richest countries have made some progress since the 1990s in limiting environmental damage. But they have not done enough to prevent catastrophic climate change, according to the Organisation for Economic Co-operation and Development.

Scientists say that carbon dioxide emissions need to start going down in the next decade to prevent global temperatures reaching dangerous levels. But the OECD predicts they will continue to rise and by 2050 will be 50% higher than they are today.

The 34 OECD countries in the survey are mainly the older mature economies which in the 1970s produced well over half the world’s CO2 emissions from their factories and transport.

Now the OECD share of total world emissions has dropped to 30%, but only because of the vast increase in the energy use of China and other high-growth countries like Brazil, Russia, India, Indonesia and South Africa.  These now account for 40% of global emissions on their own.

More vehicles

There is some good news in the report. Some OECD countries have both increased production and reduced CO2 emissions by introducing renewables and energy efficiency.

The problem for those that fail to do so appears to be political, with countries like Australia and Canada, which have repudiated the Kyoto Protocol, apparently also abandoning most policies to combat climate change.

The report, Environment at a Glance 2013, says that on average there has been progress. Since 1990 there has been a drop of 25% in the amount of energy required to produce a unit of production in member countries, but this is well short of what is needed to safeguard the planet.

The report, which reviews OECD members’ efforts to combat climate change by reducing fossil fuel use, says that the overall energy mix has barely changed in 20 years. There is still an 80% reliance on fossil fuels, although there has been a lot of switching from coal to gas, which does reduce emissions.

Renewable energy is still only 9% of the total energy supply. Another problem is the increasing demand for transport. Smaller, more efficient engines are failing to offset a 17% increase in vehicle numbers.

Rejecting Kyoto

The major political driver for reducing emissions since 1997 has been the Kyoto Protocol. Countries which made pledges to reduce emissions, principally those in the expanded European Union, have made most progress.

This is partly due to the economic recession and exporting some dirty industries to China and other developing countries, but domestic efficiency measures and switching to renewables has helped.

Among the worst performing countries are those that made pledges under the Kyoto Protocol and subsequently abandoned them for political reasons – the United States, Canada and Australia.

The top four countries in the per capita emissions table (the amount of CO2 emitted for each person in a country) has Australia in the lead and Luxembourg second, followed by the United States and Canada.

Positive note

Luxembourg makes the list only because of its low taxes on fuel, which mean that motorists from neighbouring countries fill up their cars at its petrol pumps and then drive back over the border.

Australia relies heavily on coal burning to power its industry and also exports large quantities of coal to China.

The new government turned its back on international efforts to combat climate change last year. Canada had previously done the same, deciding instead to exploit its tar sands for oil production, involving high-energy use.

The United States has high per capita carbon emissions because of the lavish lifestyles of its citizens and a powerful Republican lobby that supports the fossil fuel industry and blocks any attempt to combat climate change.

On what the OECD calls “a positive note”, its members have slashed emissions of sulphur oxides by 69% since 1990 and of nitrogen oxide by 36% in the same period.

Sulphur oxides, in various forms, are a chief cause of acid rain and a potent greenhouse gas. Nitrogen oxides are also a contributor to climate change and low level ozone, which damages plants and buildings and irritates human lungs.

These reductions have been possible because of political action, showing that it is not the lack of technology that prevents the world tackling climate change but the lack of will and legislation.

This article was produced by the Climate News Network

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British Chancellor George Osborne (L) isn’t keen on the climate ambition IMF chief Christine Lagarde (R) wants to see (Pic: Chatham House)

By Kieran Cooke

The multi-billion-dollar global fossil fuel industry might be getting just a little bit worried.

In recent days, some of the biggest guns in the world of finance have all had the industry in their sights, calling for a cut back on fossil fuel subsidies and the fast-tracking of carbon trading schemes, or for the wider application of taxes on carbon.

Jim Yong Kim, head of the World Bank, and Christine Lagarde, managing director of the International Monetary Fund (IMF), held a joint news conference in which they stressed that climate change must be the main priority of both institutions.

“It is important that our two institutions always have climate change, environmental issues and price setting at the forefront of our agenda,” Lagarde said. “We have got to think about it every day.”

Establishing a proper price for carbon and removing energy subsidies were the IMF’s priorities, Lagarde said.  “If you do it the right way, you can put subsidies where they are needed.”

Jim Yong Kim said the priorities for the World Bank were to invest in sustainable energy for all, well-designed cities, and what he called smart agriculture. He said cutting fossil fuel subsidies was often “politically difficult”, but there were encouraging signs around the world from the implementation of carbon taxes.

Angel Gurria, the head of the Organisation for Economic Co-operation and Development (OECD), joined in the chorus, saying governments must take immediate action aimed at pricing carbon and abolishing fossil fuel subsidies.

“According to the latest International Energy Agency [IEA] estimates, subsidies to fossil fuel consumers in developing and emerging economies totalled US$ 523bn in 2011,” Gurria said.

OECD chief: carbon price vital to address climate change

“In many countries, these subsidies are used as a substitute for poverty relief. That is understandable, since energy is one of the fundamental basic human necessities.

“But such subsidies are generally poorly targeted, and instead end up being captured overwhelmingly by better-off households who can afford larger cars and houses that consume more energy. These subsidies are bad for the economy, bad for the environment, and also bad in terms of social justice.”

Meanwhile, a report by a group of academics at Oxford University has warned the fossil fuel industry that it could not afford to ignore a growing high-profile campaign urging investors to withdraw their cash from companies involved with fossil fuels.

Others point out that if meaningful action is to be taken on climate change, the bulk of fossil fuel company assets have to stay in the ground. This means that industry conglomerates are grossly overvalued and a carbon bubble is likely to burst in the near future.

The World Bank and a number of other financial institutions announced earlier this year that they were scaling back or stopping altogether funding for new coal-fired power projects. The US administration also said it would stop investing in coal projects overseas.

But it’s unlikely that the fossil fuel industry will be heading for the bunkers any time soon.

The World Bank still provides multi-million-dollar funding for fossil fuel projects. The US might have stopped funding coal projects overseas, but its coal exports are booming like never before.

And in Britain there were calls this week for the abolition of subsidies – not for fossil fuels but for the renewable energy industry.

This article was produced by the Climate News Network

The post Analysis: world’s finance chiefs are taking aim at fossil fuels appeared first on Climate Home News.

(Pic: OECD)

By OECD Secretary-General, Mr. Angel Gurría

I have come here today to talk about the ambition needed to tackle climate change and the policy tools that can get us there. As we approach the Conference of the Parties in late 2015 in Paris, our leaders are facing a fundamental dilemma: to get to grips with the risks of climate change or see their ability to limit this threat slip from their hands.

Today our understanding of the scale of the risks posed by climate change is much better developed and supported by seriously tested and globally accepted evidence. The IPCC report released on 27 September stated that warming of the climate system is unequivocal, and since the 1950s, many of the observed changes are unprecedented over decades to millennia. The report is also clear that it is extremely likely that human influence has been the dominant cause of the observed warming since the mid-20th century.

While governments need to start taking action now to put us on a pathway to achieve zero net greenhouse emissions globally in the second half of this century, our dependence on fossil fuels appears to be unshaken. We need to learn from the policies some countries are implementing to drive the investment and technology shift needed to break that dependence, and to highlight the stumbling blocks that will require strong political will to be overcome.

It would be hard to imagine a more complex risk management issue than that posed by climate change. But let me start by looking at how governments have recently managed another major risk. For the last five years, we – and many other institutions – have been trying to understand how developments in the financial sector managed to wreak havoc on the real economy and millions of lives.

The financial crisis has been estimated by the GAO to have cost the U.S. economy alone more than $22 trillion. Unemployment in OECD countries now stands at 49 million (8%). It is 16% on average for those under the age of 24 and still growing in some countries. Inequalities are also growing. The cost of reconstructing the financial sector has also been enormous. If you had asked, in advance, those who oversaw the system that led to this train wreck whether they were comfortable living with risks on this scale and would happily pay the costs should they materialise, I suspect their answer would have been no. The risks were either not understood, or ignored.

In parallel, over these same years, governments have also been grappling with how to cope with the risk of climate change. Here the time frames are much longer but, unlike the financial crisis, we do not have a “climate bailout option” up our sleeves. Interestingly, and despite all the press attention given to climate deniers, our understanding of the scale of the risk is much better developed than our understanding of the financial risks pre-crisis. It is not based on financial models but on several decades of extraordinary research and – here models do come in – trying to understand the consequences of how it may evolve.

We know how costly extreme events can be – Hurricane Sandy cost about USD75 billion or 0.5% of 2011 US GDP. Recent analysis by ourselves and research partners estimates that the flood exposure of coastal cities is going to worsen substantially, with the annual costs of flood losses expected to increase to over USD 50 billion per year by 2050. Even with massive new defensive investments of the type New York is now considering, the magnitude of losses when defences are breached is set to rise. Increases in the number of extreme events will involve costly change and adaptation.

In 2009 in Copenhagen, governments endorsed the view that the increase in global average temperature resulting from human activity should be kept below two degrees. That isn’t a costless threshold – it will still require some expensive mitigation and adaptation investments. But we think it remains – just – a manageable and affordable problem to deal with, and much less costly in human and economic terms than the alternative of unmitigated climate change.

Towards zero net emissions from fossil fuels

I’ve come here today to argue that whatever policy mix we cook up, it has to be one that leads to the complete elimination of emissions to the atmosphere from the combustion of fossil fuels in the second half of the century (I shall, from here on, use ‘zero emissions’ as shorthand, but it embraces technical solutions to capture some emissions through, for example, carbon capture and storage or CCS). We don’t need to get to zero tomorrow. Not even in 2050, although we should be a long way down the track by then. But sometime in the second half of the century we will need to arrive there. Why?

‘Zero emissions’ might sound extreme. Why not just lower emissions? The answer to that is physical. Carbon dioxide is a long lived gas. It hangs around. Of one ton of CO2 emitted this year, over 60% will still be in the atmosphere twenty years from now and 45% 100 years from now. Some will still be around after thousands of years. Even small on-going emissions will continue to add to the atmospheric concentration. We have an accumulation problem.

Am I saying a human population of 7 billion or more can live without any impact on the atmosphere? Of course not. It is a question of the extent. We have been interfering with the natural carbon cycle for thousands of years as we convert land to food and fibre production.

But if we’re going to feed a further 2-3 billion people and limit temperature increases we cannot gobble up all the atmospheric space with fossil carbon. But that is what we are doing. Carbon dioxide is the most important greenhouse gas produced by human activities. We are currently releasing over 30 billion tonnes of this gas annually. Of this, electricity and heat generation account for 41% and transport account for 22%. Further anthropogenic emissions come from agriculture and the way we use and alter land, together with some process emissions from industry.

Energy-related emissions make up the bulk and they are the only ones that could, based on existing technologies, be completely eliminated. For power generation, the wide range of existing clean energy technologies can be complemented by smart demand-side management. For transport, the challenge is greater but again, electrification or fuel cells can make the internal combustion engine obsolete.

We can energise the world without interfering in the carbon cycle. The solar flux reaching our planet – and the secondary flows it sets up in wind, waves and rain – is stupendously large. And there is potential in biomass and of course nuclear energy, provided safety issues related to nuclear power generation and waste management are properly handled.

After twenty years of negotiations and policy experimentation, one thing is abundantly clear: the world is nowhere near a trajectory that is consistent with the goal of zero emissions from fossil fuels in the second half of the century. That is true of OECD countries and non-OECD countries alike. Given their different stages of development one would expect them to be on different trajectories, but all those national trajectories will have to converge towards zero in the second half of the century.

Many countries have announced emission reduction targets for 2020 and even mid-century, some of them ambitious ones. Even more is needed: UNEP estimates that the pledges for 2020 get us only between a quarter and half way to where we need to be to keep the 2 degree goal within reach. And pledges need to be supported by credible policies that will achieve them. Thus, an awful lot of progress will need to be made over the next two or three decades starting immediately – not sometime after 2020.

There is, of course, a more immediately pressing reason to move away from fossil fuels and that is the local impacts on human health and the associated cost to the economy. In China, for example, approximately 1.2 million people die prematurely each year from exposure to outdoor air pollution. While some cities, such as London, have made huge investments in limiting some if the worst side effects from fossil fuel combustion, much more will need to be done in the mega-cities of the developing world.

I will turn in a moment to the policy mix that we think would provide the most credible platform for making progress. But before doing so, let me say a little about why, after twenty years of negotiations, this is all proving so hard, and why we need to ask some hard questions about the business as usual mode we seem to be stuck in.

Swimming against the tide on fossil fuels

Ending our reliance on fossil fuels was never going to be easy. Two thirds of electricity generation relies on fossil fuels. 95% of the energy consumed by the world’s transport systems relies on fossil fuels.

I want to be very clear that I haven’t come here to vilify fossil fuels. Much of what we regard as material and social progress has been built on the back of them. They are incredibly convenient. We’ve physically constructed our world around them, and to wean ourselves away from them will mean swimming against very strong tides.

A first tide is a shift to resource abundance. A few years ago, the tide of opinion was that scarce oil and gas would keep prices rising and make the switch away from fossil fuels inevitable. High oil prices lulled some into the belief that the push to decarbonise was running with the grain of resource scarcity and that policy seemed to be going with the tide. That has proved illusory. The tide has changed. We have moved from a world of threatened scarcity to one of potential abundance. US crude oil production is currently growing sharply and the country is expected to become a net exporter of natural gas by the early 2020s. Oil and gas production is being ramped up in Brazil, Canada and Kazakhstan, huge conventional reserves remain to be tapped in Iraq and Saudi Arabia together with huge recoverable shale resources in Russia, US, China, Argentina and Algeria, to name a few.

Certainly, rising costs of extraction pose a challenge but the recent advances in exploiting tight oil suggest that the technological opportunities for continued exploitation will almost certainly continue to surprise us. Listed companies alone spent USD674 billion in 2012 on finding and developing new sources of oil and gas. The fact is that there are more than enough reserves to raise temperatures way above levels that even the most reluctant climate regulator would feel comfortable about.

A second strong tide is the fact that low-carbon technologies are facing an array of incumbent technologies that have a huge advantage based on vast investments over decades. Those investments are very profitable and easily attract new capital. More than half of the new capacity in electricity generation installed in 2012 was still fossil fuel-based. According to one estimate by the World Resources Institute (WRI), around 1200 new coal-fired power plants (with a capacity of about 1400GW) are at the planning stage. Not all of those will come to fruition. But those that do will run for a very long time. And the owners of these assets aren’t going to take kindly to their value being impaired by policies designed to tackle climate change. The Carbon Tracker Initiative estimates that at the current rate of capital expenditure, the next decade will see over $6 trillion allocated to developing fossil fuels.

If policy makers cap carbon emissions, the risk of “unburnable assets” could have a significant impact on the valuation of some companies. It is worth recalling that the investors are in so many cases people like you and me. The Asset Owners Disclosure Project estimates an average of over 55 per cent of pension funds’ portfolios is being invested in high carbon assets or sectors greatly exposed to climate change physical impacts and climate change-related regulation. The looming choice may be either stranding those assets or stranding the planet.

The fact is that any new fossil resources brought to market – conventional or unconventional – risk taking us further away from the trajectory we need to be on, unless there is a firm CCS requirement in place or governments are prepared to risk writing off large amounts of invested capital.

A third very strong tide is what we call “carbon entanglement”. What does this mean? Basically, that governments everywhere on behalf of their citizens have major stakes in bringing fossil fuel to market and taking their share of the rents. OECD governments receive around USD200 billion per year from royalty payments, taxes and other revenue streams associated with upstream oil and natural gas rents. The share of such revenue streams in total government revenues is normally low – in the order of 1-4% — but in countries like Norway and Mexico it gets up to around a third.

The absolute size of these revenues pales into insignificance alongside that of some emerging and developing economies. Russia alone receives around USD150 billion a year from oil and gas, amounting to 28% of total government revenues, while OPEC countries extract revenues of USD 600 to 700 billion a year. The reliance of these governments on fossil fuel revenues is overwhelming. They have a heavily vested interest in continuing these flows of income. It is scarcely surprising then that cash-strapped governments of all shapes and sizes worldwide are hoping to find and exploit new reserves of oil and gas, whether it be in the deep sea off-shore of Brazil or in the Arctic.

Carbon entanglement will not be easily undone and the very modest progress of climate policy over the last two decades is in part testament to that. These are some of the strongest tides that we have to confront. Now let me tell you where we see the main policy challenges.

The policy challenge

With a particularly important negotiating deadline approaching at the UNFCCC Conference of Parties in Paris in 2015, the question before us now is whether we can consolidate the modest progress made to date and turn it into a momentum that will lead to a transformed energy system and zero emissions; or whether we will cobble together a face-saving agreement in which countries can point to some actions while leaving the ‘carbon entanglement’ untouched.

If we are to succeed, every country should be able to explain how its policies will get it onto a trajectory that leads in the second half of this century to the elimination of fossil fuel emissions. Governments need to be held accountable. They decided, in Durban, to seek a global agreement based on national commitments that could be quantified and tested. Those commitments will reflect national circumstances and no two countries will be in a position to move in the same way at the same speed. But all need to move.

The end goal of zero emissions is achievable, but it will not be achieved if we continue with current policies. It will all depend on the way in which every country answers the following question: is our government contemplating a policy mix that is, over time, credible given the scale of the transformation we have to make? While answering this question, we recommend that our countries take a close look at the mirror and evaluate their progress in tackling four key policy challenges:

-A lack of strong, consistent carbon pricing signals. Where carbon prices have been imposed, exemptions and carve-outs combined with very low prices have meant that the impact has been marginal at best. In some cases, we also have overlapping policies that can create inefficiency.
-A lack of action on fossil fuel subsidy reform. You would think that twenty years into the climate debate we would at least have made more progress in removing subsidies to fossil fuels that actually encourage carbon emissions. These are not just subsidies for consumers (which often end up benefiting higher-income households) but also official support to oil and gas companies for exploration and exploitation of new fossil reserves.
-Mixed messages and stop-go policies when it comes to supporting renewable energy, which have seriously shaken investor confidence.
-And, finally, a failure to tackle regulatory and market rigidities that favour fossil fuel incumbency in the electricity sector and which undermine demand-side options that could empower consumers to choose clean energy.

All this adds up to a lack of credibility if we mean what we say about climate goals. This is much more than a political issue. It is a crucial economic issue. At the moment, most businesses don’t believe that governments are serious, and they are investing accordingly – thus perpetuating the carbon entanglement.

Policy progress in turn, will not be made through gestures – but rather by convincing all sectors of society that the path that has been charted is credible, sustainable over time and that it will deliver.

To swim against the strong tides and effectively address the main policy challenges, our countries will need an Action Agenda with clearly set goals and measurable deliverables. I want to take this opportunity to propose such an Action Agenda:

1. Putting a price on carbon

In our view, any policy response to climate change by any country must have at its core a plan to steadily make carbon emissions more expensive while, at the same time, judiciously giving non-fossil energy and energy efficiency an advantage at the margin. This is fundamental.

In addition, countries will need to do other things as well, such as promoting R&D, running public awareness campaigns and promoting energy efficiency standards, but always keeping a close eye on their cost-effectiveness. But without placing a clear and explicit priceon emissions we are, as they say, just ‘pushing at a piece of string’ when it comes to changing consumer, producer and investor behaviour.

What do we know about carbon pricing? There is a strong consensus that putting an explicit price on carbon is necessary for tackling climate change, either through a carbon tax or through an emissions trading scheme. The OECD is today releasing a report, Climate and Carbon: Aligning Prices and Policies, that summarises our latest work on the issue and provides an accessible guide on how to tackle carbon pricing.

The evidence is that politicians favour almost anything other than a tax. If it’s called a tax it seems to run into twice the political headwind as any other policy instrument. Partly as a result of this, emissions trading schemes (ETS) are becoming widespread. The EU ETS is the oldest and best known but similar (and in some cases more comprehensive) schemes are now in existence in California, nine states in the North-Eastern USA, Quebec, Australia and New Zealand. There are also pilot schemes being trialled in seven Chinese cities and provinces that cover over 20% of China’s emissions. These are important, but piecemeal, efforts. While the “flexibility” of ETSs has made them a politically-attractive option compared with carbon taxes, getting them legislated has involved all sorts of compromises. As a result, more needs to be done to improve their design and implementation to make them as effective as possible.

It is important to note that not all governments have shied away from explicit carbon taxes. Since Sweden introduced its carbon tax in 1991, an additional nine OECD countries have followed suit. We have learned a lot from these experiences on how to introduce carbon taxes. For example, introducing the taxes incrementally over time can allow households and businesses to make smooth, efficient adjustments. The implementation of British Columbia’s carbon tax is as near as we have to a textbook case, with wide coverage across sectors and a steady increase in the rate, from CAD 5 to CAD 30 per tonne over a period of five years.

But carbon pricing doesn’t stop there. There are many ways in which carbon is priced implicitly. For instance, there are many taxes on different forms of energy that can to some extent reflect a price on carbon, even if carbon reduction was not the original target of the tax. These vary significantly across countries. Our database of environmental taxes shows that energy and motor vehicle taxes in countries such as Denmark, Brazil, and Turkey amount to as much as 3.5% of GDP, whereas they are less than 1% of GDP in the US. In Mexico, energy subsidies outweigh the taxes.

In a publication earlier this year entitled Taxing Energy Use , the OECD delivered the first comprehensive analysis of what the landscape of energy taxes looks like when each tax is compared according to the carbon content of the fuel.

Some findings from the study highlight the inconsistency of energy tax policies. For instance:

-Coal, the most polluting of all fuels, is, strangely, taxed less than most other fuels used to generate electricity.
-Diesel, which emits around 18% more CO2 per litre of fuel than gasoline, is taxed a third less than gasoline on average. And diesel has significant impacts on local air pollution. In France, for example, diesel-related air pollution is estimated to kill more people each year than traffic accidents. A severe case of bad targeting, indeed!

Encouragingly, however, the report shows that energy taxes clearly affect energy consumption behaviour. Indeed, countries with higher average effective tax rates on CO2 tend to have lower carbon emissions per unit of GDP.

The same sort of analysis can be applied to other policy instruments. And we are just about to release a report that does this. While the “price” of a carbon tax is clear to all (which is one of the reasons they are easy targets for political opposition), other policy instruments such as technology standards also result in an implicit ‘carbon price’, reflecting the cost to households or companies in complying with these standards. Our new study estimates these prices, with fascinating results.

First, looking across the 15 countries in the study, which include OECD countries as well as Brazil, China and South Africa, it is clear that there are a number of policy instruments in place that impose an implicit carbon price, and in some sectors this price is very high. In some cases, this may reflect ambition. In other cases, it may be the result of excessively costly policies.

The large differences in the cost-effectiveness of the different policy instruments used within a sector and across sectors are clear. The study shows that economy-wide pricing instruments, such as emissions trading systems, are more cost-effective in reducing emissions in the electricity sector than feed-in tariffs or capital subsidies (with capital subsidies costing EU 176 per tonne of CO2 abated, feed-in-tariffs costing EUR 169 per tonne, and trading systems EUR 10 per tonne on average).

Yet capital subsidies and feed-in-tariffs are much more commonly used! In the transport sector, fuel taxes are the most cost-effective instrument for reducing emissions and are widely used. Notwithstanding that, many countries have tax preferences and fuel mandates to support biofuels. Yet these are costly and often of questionable, if not negative, environmental value given their life-cycle impact. This new work clearly demonstrates that countries could achieve much higher levels of emission reductions for the same cost if they used smarter, market-based policy instruments.

What does all this add up to? It is clear that there has been a huge amount of taxing and regulatory action around carbon in many different jurisdictions. But the outcome to date is far from optimal. Depending on the country, carbon is priced in a multitude of ways. Sometimes the price is very high, often it is low to negligible. It is a chaotic landscape that sends no clear signal.

2. Reforming fossil fuel subsidies

To that we have to add a further round of distortions caused by what one might term ‘negative carbon pricing’ or, as they are more commonly known, subsidies. Once again it is the OECD and the IEA that have led the way in putting a spotlight on these practices. According to the latest IEA estimates, subsidies to fossil fuel consumers in developing and emerging economies totalled USD 523 billion in 2011. In many countries, these subsidies are used as a substitute for poverty relief.

That is understandable since energy is one of the fundamental basic human necessities. But such subsidies are generally poorly targeted and instead end up being captured overwhelmingly by better-off households who can afford larger cars and houses that consume more energy. These subsidies are bad for the economy, bad for the environment, and also bad in terms of social justice. We need systems for social redistribution that protect people from energy poverty without hard-wiring a reliance on emissions-intensive consumption.

In recent years, the OECD has extended this analysis to make an inventory of support to both the consumption and production of fossil fuels in our own Member Countries. This is a major achievement that builds on the methodology developed over twenty five years ago to track support for agriculture. Again, the support we have uncovered is non-trivial – in the range of USD55-90 billion per year recently.

Most of the support in OECD countries is quite opaque, particularly as it relates to production subsidies, lost in the details of taxing statutes. The figure is by no means comprehensive and our work is on-going. For instance, tax breaks for company cars can significantly increase the social costs of transport, through increased emissions, as well as more accidents and congestion. Preliminary findings of work we have currently underway suggest these tax breaks amount to over USD 30 billion per year across 25 OECD countries.

3. Incoherent and inconsistent policies

The net effect of the massive misallocation of resources arising from fossil fuel subsidies is to tilt the playing field in favour of continued reliance on fossil fuels. These policies actively undermine the carbon-pricing initiatives in some of the same countries and the economics of low carbon energy. Fossil fuel already has a huge advantage as the energy resource of choice. It doesn’t need more help. Moreover, the investment playing field is naturally attuned to channelling capital to mature, incumbent technologies that it understands.

Governments need to stand back and look across the entire range of signals they are sending to consumers, to producers and investors. If they are serious about climate change they can leave no stone unturned – all avenues to price carbon in a cost-effective way need to be explored and all conflicting policy signals eliminated. A critical element in this is financing the transition. There is no shortage of capital in this world. The question is whether non-fossil energy investments can currently compete in terms of their risk-return profile. In addition to pricing carbon, that means ensuring the right regulatory arrangements are in place and where appropriate, sufficient incentives for investors to redirect investment from fossil fuels to more climate-friendly alternatives.

To help them get a consistent picture and help countries compare their performance we’re going to make carbon pricing a key element of all our OECD Economic Surveys. By mid-2015 we will have a good idea of the progress that has been made – and remains to be made – in both OECD countries and key emerging economy partners. I want to stress again that we know the time-frames and ambitions won’t be the same – countries start from different places. But all need to be able to explain how their policy settings are consistent with a pathway to eliminate emissions from fossil fuel combustion in the second half of the century.

Managing the transition to zero net emissions

A clear, long term signal that the price of emissions will only go one way – up – would be the best path to put us on a trajectory towards zero emissions. But given the long life of many energy generation assets, and the fact that investors will inevitably question whether governments will stay the course, it may be worth considering complementary measures to accelerate transformational technological change.

Complementary measures are also required because vested interests and institutional inertia can delay the introduction of carbon pricing and inhibit its effectiveness. Let’s be frank: Governments are lobbied by those who face the highest costs of adjustment. And for these groups the costs are real. The very transparency of prices makes them an easy target for opponents. So a whole variety of less transparent regulatory interventions and subsidies are sometimes favoured to make progress. These are rarely cost effective. But if such policies can give producers and consumers the confidence that viable technical alternatives exist and their costs can be managed down, then they may be a justified means of making the transition to stronger carbon pricing.

The key point to stress is that, whatever is attempted, the whole range of price- and non-price- based measures must be mutually supportive. This may involve some hard questions.

A first hard question is: Should governments impose a moratorium on new coal-fired power stations?

Coal releases far more CO2 per unit of energy than oil or gas. Without CCS, continued reliance on coal-fired power is a road to disaster. I note that that the World Bank, the US Export-Import Bank, the European Bank for Reconstruction and Development and the European Investment Bank have severely limited the cases in which they will finance new coal power projects. This should be something every government considers for itself in terms of domestic developments and (for those countries that are donors) in respect of development assistance.

In some countries, today, coal is on the retreat as a simple result of market forces. Obviously I have in mind the United States where the exploitation of shale gas has changed the game. How should we regard the advent of shale gas in terms of the long term goal I have been talking about? For heavily coal dependent countries a switch to shale gas can reduce the carbon intensity of power generation (as in the USA). This is an improvement from a climate perspective (provided the gains are not off-set by vented and fugitive emissions).

It will mean lower emissions, but not “no emissions.” The question then becomes: how do you ensure that gas is a transitional step towards an eventual goal of zero emissions? If we invest too much in dedicated pipelines and other infrastructure, the transition risks becoming a new and permanent dependency. Any new fossil resources brought to market – conventional or unconventional – risk taking us further away from the trajectory we need to be on, unless there is a firm CCS requirement in place or governments are prepared to risk writing off large amounts of invested capital.

Another hard question: Should governments regulate to ensure that new plants can be retrofitted for carbon capture and storage (CCS)?

Given the scale of our current dependence on fossil fuels and the scale of sunk investment in their extraction and use, CCS is will have to play a vital role. However, we should not over-estimate its potential in the coming decades nor rely on it as the “get out of jail free” card. The IEA notes that even if all currently planned CCS capacity were to be constructed, only 90 Mt CO2 would be captured per year. That would be equivalent to less than 1% of power sector CO2 emissions in 2012. The gap between where we are and where we need to be is huge but perhaps not surprising. Under current carbon prices, CCS is only commercially interesting for enhanced oil recovery!

Beyond CCS, we should see transformative zero-emission technologies as opportunities that will deliver a range of environmental benefits and economic opportunities. Once costs start to fall and the palpable local, public health benefits of zero pollution energy start to register in people’s minds, the building of a post-carbon world will offer some incredibly exciting economic opportunities. These are not just about fuel savings on the energy supply side. The applications of ICT to a world in which consumers can manage their own demand and choose their energy sources – including disengaging entirely from the grid – is likely to be a world reliant on a large number of products and services that currently do not exist.

Understandably, the cost of exiting from the status quo can appear daunting. The transition to a zero emissions economy will not be a costless one. Governments must be frank about the costs of this transformation. But if we are equally realistic about the costs climate change could impose, we should see transformative zero-emission technologies as opportunities. Every one of them will be part of a new growth dynamic.

Conclusion

“History is a race between education and catastrophe.” These words by HG Wells can be a guiding light to address the difficult choices that are knocking on our door. We are on a collision course with nature, and we need to take bold decisions to change that path. We must help governments identify ambitious but achievable goals, and then to achieve them in the most cost-effective manner. Our efforts have so far been a fraction of what is required. We are neither on track to achieve internationally agreed goals nor managing to execute even the existing policies in a cost effective way. This is placing human well-being at risk.

There is only one way forward: governments need to put together the optimal policy mix to eliminate emissions from fossil fuels in the second half of the century. Cherry-picking a few easy measures will not do the trick. There has to be progress on every front, notably with respect to carbon pricing, and that is what peer review and learning from best practice should help achieve. The OECD is dedicated to assisting countries in that process in order to design, promote, and implement better policies for better lives!

This speech was first published on the OECD website

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Source: Flickr / Striking Photography by Bo Insogna

UK: Governments forced to rescue the world’s banking system are being warned there will be no bailout if there is a crisis in the Earth’s climate system. That is the view of the head of the Organisation for Economic Co-operation and Development. Angel Gurria is expected to rebuke nations failing to curb CO2 emissions in a speech on Wednesday. (BBC)

China: Senior officials from South Korea and China held inaugural talks on Wednesday during which they discussed ways to promote bilateral cooperation on climate change and address environmental problems, a Seoul official here said. (Yonhap News)

Finance: Getting a global deal on climate change is critical, according to World Bank President Jim Yong Kim, but financial institutions must remember that immediate action is also possible. Speaking today alongside Christine Lagarde, the Managing Director of the International Monetary Fund, both agreed that climate change had to be a central priority going into the future. (RTCC)

Finance: Landis, the portfolio manager of the tiny $6.7 million Firsthand Alternative Energy fund , has posted a return of 79.6 percent for the year through October 7, the best performance of any actively-managed stock fund in the United States that doesn’t use leverage, according to Lipper. (Planet Ark)

US:  The federal government shutdown is reaching all the way down to the South Pole. The National Science Foundation announced Tuesday that it is putting its three Antarctic scientific stations in deep freeze just as scientists are starting to arrive for the start of a new research season. (Guardian)

Energy: A shale gas boom in the UK would create more than 100,000 jobs but the industry will take ten years to get going, according to new research. (Times)

EU: Guidelines for when EU member states can use taxplayers’ money to support energy generation will not include nuclear power, the European Commission, the EU executive, said on Tuesday. (Reuters)

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