There has been promising progress on climate mitigation over the past year. The global community arrived in Morocco for the COP 22 climate talks in November, buoyed by the pace of ratification of the 2015 Paris Agreement to combat climate change. That agreement endorsed earlier commitments to limit the average global temperature rise to 2.0°C, but few anticipated the far more challenging target of 1.5°C. Considering its scale of ambition, and the fact that the Kyoto Agreement took eight years to come into effect, the simple fact that so many of the original 197 signatories endorsed and ratified this more ambitious treaty within 12 months is a testament to Gallic persuasion and Moroccan commitment.
While curbing global temperature rises to prevent ‘dangerous climate change’ was a fundamental aspect of the treaty, the Paris Agreement is critical in reinforcing two other key themes:
- The role of the private sector in financing climate mitigation
- The importance of global investment in climate adaptation
While much has been done to stimulate investment in climate mitigation – with much more still to do – this must be matched with equal focus on funding for climate adaptation.
Climate change will get worse before it gets better
Preliminary data from the World Meteorological Organization shows that 2016 is now very likely to be the hottest year on record, with a worldwide average 1.2°C temperature rise on pre-industrial levels. This puts the aspirational Paris target of 1.5°C into perspective. However, even at this level, global warming is already causing extreme weather events that are becoming increasingly severe and frequent, causing loss of life and economic losses measured in billions of dollars.
The nationally determined contributions (NDCs) embodied in the Paris Agreement show us what is to be achieved, but generally not how. National policy is not universally strong in this area, the project pipeline is poorly developed and many project structures not yet bankable. Much work is required to translate the financing commitments into a managed programme of carbon reduction.
There are also many contradictions that need to be addressed in our response to climate change. A nation which exports 30% of its water demand via the goods it imports, yet claims ‘water self-sufficiency’ presents a dangerously misleading picture and underestimates risks to its own economy from climate-triggered events elsewhere. Similarly, importing perishable food while using arable land for solar parks in the cause of climate mitigation is an example of short-term thinking. Government policies need to strike a balance, recognising all aspects of the climate change ‘puzzle’.
Even if we magically stopped all emissions today, the ‘super-tanker’ of climate change will continue for many years, if not decades, before any stabilisation in global temperatures is seen. The impacts of climate change will get more severe, and we have to adapt.
Short term action may worsen long term pressures
The effects of chronic climate change such as increased global temperatures or a rise in sea levels should lead to a groundswell of focused policy decisions. But the risk is that results are only measured in short term indicators, such as atmospheric carbon levels, while the precise mechanics of the Earth’s systems are less well established. Projecting a peak level of atmospheric carbon is one thing, determining the resultant peak temperature rise or peak sea level rise is another, and predicting the magnitude of ‘acute’ climate impacts is an even greater challenge.
It is the acute climate events that generate the real shocks and stresses to society – the droughts, heat waves, storms, floods, and the exacerbation of seismic and other ‘natural’ disasters. These ‘unexpected’ events can cause extensive loss of life and extreme damage. They can also prompt reactive policy decisions which themselves disrupt the very plans aimed at mitigating the chronic changes. And with the acute events becoming more severe and frequent, the questions we are left with are: where, when, how big, and how often.
Time to kick-start climate adaptation
The first step towards financing climate adaptation – which suffers from a funding gap currently estimated at US$80bn a year and rising (1) – is to define the ‘who’ and the ‘how’ of these investments. While there will be private sector-funded resilience measures that generate positive returns, and aid sector support for highly vulnerable communities, a significant and growing funding gap has developed where investment doesn’t fall neatly into either of these two funding buckets.
We estimate that this funding gap will grow to US$200bn a year in the next two decades. Innovative public-private financial instruments need to be at the core of this response, with public sector money providing patient capital, guarantees or seed finance to generate bankable projects and the governance that will deliver them. This is catalyst investment, utilising public funds to leverage the available private financing streams by creating investment opportunities that the private sector recognises.
The challenge for climate adaptation is to develop methods for cost-benefit analysis that effectively evaluate economic benefits and longer-term returns – even if these longer term gains come in the form of avoided future losses – while putting in place instruments to deal with residual losses.
Communicating successful adaptation projects and their financing structures to the international community is key to creating a snowball effect which will unlock further investment. The renewable energy sector provides some success stories, such as Senergy-2, Senegal’s first operational solar power plant which provides electricity to 160,000 people. A mezzanine loan of €20M, provided by the UK and Norwegian governments, allowed the developers to complete construction while acquiring long term senior debt (2).
There appears to be sincere international resolve to cut carbon emissions. But with climate impacts already causing great damage and set to get worse, the conversation has to move very quickly towards climate adaptation to safeguard communities and cut economic losses.
1. The Growth Report: Strategies for Sustained Growth and Inclusive Development, World Bank