Fall this year has been formative for climate action. Libya’s coastal city of Derna witnessed massive floods which researchers say is a one-in-300-year event, exacerbated by climate change. Autoworkers launched strikes against Ford, General Motors and Stellantis (formerly Chrysler) over, among other factors, worries about losing their jobs amidst the transition to electric vehicles.
Meanwhile, governments, businesses and civil society continued to push forward on ideas and initiatives on financing, renewables deployment and net zero plans at the G20 Summit, Climate Week New York and the UN General Assembly. But the most notable milestone lies ahead – the 28th Conference of Parties of the United Nations Framework Convention on Climate Change, to be held in the United Arab Emirates, less than two months away.
COP28 will bring together countries and stakeholders around four major goals, the first of which I am rather optimistic about, that is an accelerated energy transition. G20 countries, accounting for over 80% of the global power generation capacity, agreed to endorse the call to triple renewable energy capacity by 2030. This is a tall order, but critical.
The main challenge will be bringing the non-G20 countries on board, particularly Africa, Small Island Developing States and the diverse countries in the Middle East. They will account for less than 20% of the global capacity in 2030, but face significant financing challenges toward tripling their capacities. In the worst-case scenario, if they can’t reach global consensus on tripling, at least the G20 nations must be forced to stay put on their endorsement — by committing to tripling renewables in their own jurisdictions by 2030. That no less will be a big step forward.
The other component of this goal is accelerating the phasedown of unabated coal power and phaseout of inefficient fossil fuel subsidies. In the last two years, while cost of both coal and gas increased, the relative prices became favorable to coal. This induced a big surge in coal power generation, far dirtier than gas-based power generation. Achieving the shift will therefore require reversing this trend across developing and developed nations. With sufficient political will and adequate market reforms, this is achievable. Both coal and gas-based energy have now notably higher levelized costs than renewable sources such as wind and solar in most parts of the world. Efficient market incentives can catalyse the phasedown without the need for external resources.
The second goal, focused on climate finance, is the more difficult and urgent one. The good news from the G20 Summit was that 2023 may be the first year ever when member nations are likely to meet the commitment of $100 billion per year. But this may only be a drop in the ocean. There is wide recognition that a $100 billion commitment was vastly inadequate in the first place. The 2022 Stern-Songwe report estimated that $1 trillion annually will be needed in external climate finance by 2030 for emerging and developing economies, excluding China. The International Energy Agency estimated that emerging economies, excluding China, need to invest an average $1.6 trillion annually just for energy transition. These are large numbers—almost six times the current pace of investment.
Still, this is not insurmountable; money can surely be made available. An IMF working paper estimates explicit fossil fuel subsidies to be almost $1.3 trillion in 2022. Most of this in developed economies has been from public budgets. As energy prices recede from their elevated levels, there are two clear opportunities: to repurpose these resources toward climate finance and to phase in carbon pricing without necessarily raising energy prices above what they have been for the last two years. With inflation cooling off, interest rates are also likely to peak early next year. That may revive the private capital flows to at least the large emerging economies, like India.
We are likely to face more societal challenges as we progress on energy transition. Adequate support and a fair pivot plan will be critical to make the shift palatable in any part of the world, especially developing nations. It would also be necessary for the other two COP28 goals i.e., people and inclusivity. Without an ambitious yet empathy driven approach to climate action, we would be cornering vulnerable nations to choose between healthcare and electric cars, pensions and energy storage, schools and grid modernization.
Many of these issues are as much about managing the domestic constituencies as about getting the international cooperation secured. Progress is therefore often slow and tedious. But we have a finite amount of time on our hands to avoid facing more dangerous impacts of climate change.
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