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Undoubtedly, the climate is changing. The World Meteorological Organization reported that 18 of the warmest years in human history occurred in the past two decades. In 2018, Greenland sea ice began to break up for the first time ever. Even atmospheric carbon dioxide concentrations are the highest they’ve been in 3 million years. Governments worldwide are racing to ensure that they limit global warming to less than 2oC. Limiting global warming means that global greenhouse gas emissions released by human activities must reach zero by the end of this century. Global emissions need to reduce by 40 – 70% from 2010 levels by 2050 for the world to reach net-zero emissions by 2100. We must change faster than the climate.
The world’s largest carbon emitters have indicated they are willing to undertake firm collective action to limit global warming. The US and China signed a joint declaration in November 2014 in Beijing. Their coming together promoted political momentum toward long-range efforts by countries to transition to low-carbon economies. By 2025, the US aims to cut emissions by 28% from 2005 levels. China said its emissions will peak by 2030. The EU climate and energy package further demonstrates climate leadership by targeting a 40% cut in emissions from 1990 levels by 2030. The Paris Climate Summit 2015 built on this global momentum and delivered new targets on climate action beyond 2020. The summit addressed why we must change faster than the climate and drove ambitious climate targets.
But is this action enough to reverse the impacts of climate change? We are racing towards exhausting our collective carbon emissions budget consistent with a 2oC target. Investing in fossil fuel production beyond the climate budget will increase climate risks. To overcome these climate risks, governments need to scale up carbon capture and storage technologies rapidly. So far, we don’t see much of this happening.
To effectively and collectively combat climate change, government policies worldwide should move in the same direction. Yet, global investments in fossil fuel production and consumption stand at 55-90 billion dollars. These investments blatantly contradict global efforts to reduce global warming and limit climate change. The developing world spends around 548 billion dollars to support fossil fuel consumers. At the same time, the price of carbon is increasing, and emission reduction policies have become more expensive. But even these have failed to produce a real dent in emissions. Even economically sensible measures like emissions trading schemes and carbon taxes have lost their usefulness. This is due to governments levying exemptions and special deals while adding to the complexity and burdensome costs of these measures. Governments need to straighten out the mesh of carbon prices for it to be more effective. But the world also needs more than just carbon prices. We need firm, adaptable, and clear climate policies.
If governments take effective climate policy action right now, we could collectively avoid annual GDP losses. Global losses between 1% and 3.3% could be avoided by 2060. If governments fail to act now, these damages could keep mounting even beyond 2060. It could increase the risk of passing tipping points. According to the International Energy Agency (IEA), we need investments worth 50 trillion dollars over the next 20 years to meet the 2oC targets. We need to pour these investments into energy supply and energy efficiency. However, public finance is facing significant constraints. Therefore, it is critical to mobilize private financing. Institutional investors in developing countries have some 93 trillion dollars in assets. They invested only a tiny fraction of this in low-carbon infrastructure, which is not enough. We need to increase institutional investments. Increasing investments requires investment policies with clearly defined prices and policy coherence.
To respond effectively and coherently to climate change through policies, world leaders need to look beyond traditional climate policies. How fast we can transition to a low carbon economy will depend on the interaction of policies and regulations across various areas. The interaction will also determine how much the energy transition will cost. The Organization for Economic Cooperation and Development (OECD) is working with international organizations like the IEA to identify problems in policies. The OECD is an association of 38 nations in Europe, the Americas, and the Pacific. They are also working to guide governments in untangling the regulatory wiring around the fossil fuel economy. To overcome the fossil fuel economy, governments need to look at the relationship between the water, energy, and food production sectors. This relationship also spans several Sustainable Development Goals (SDGs). The OECD assessed the national climate policies of countries and hopes to release the assessment soon.
The climate is changing faster than we are. Plain commitments by governments on emission reductions are not enough. They must translate these commitments into cost-effective actions and policies. Cities play roles in wealth creation, resource use, and population growth. Therefore, national governments must fully involve municipal governments and private sectors in climate policy discussions. Encouraging public and private investments in research will lead to the development of new low-carbon technologies. The investments will also generate new economic opportunities.
The transition to low-carbon activities in our economies is achievable. However, it will simply not happen without a global, concerted effort. It also won’t happen if society perceives climate action as economically constraining. Work by the OECD on environmental regulation and productivity has shown that environmentally stringent policies can incentivize significant innovation and efficiency. The increased innovation and efficiency will benefit leading-edge companies. Many governments have developed firm environmental policies in recent years.
But, it is these policies rather than new technology that are restraining progress to a low carbon economy. The message is clear and simple: carbon pricing is effective and essential, but it is not enough. Governments have to go a step further and realize and address flaws in policies that favor large, well-established businesses and their polluting technologies. These ‘favors’ to large businesses are destroying our planet. If governments can stop giving a free pass to these companies, we can truly achieve the low-carbon transition. Governments need to develop a greater sense of urgency toward climate change.