Climate Finance | December 3, 2020

Financing for climate action is not catching up to the climate emergency

Amy Cortese
ImpactAlpha Editor

Amy Cortese

ImpactAlpha, Dec. 3 – The pace of climate change is accelerating: new records were set in 2020 for land and sea temperatures, Arctic ice shrinkage and acres lost to wildfires in the western U.S., according to the U.N.’s World Meteorological Organization. 

Financing for the low-carbon energy transition, however, is more or less flat or falling. 

Climate Policy Initiative, which is finalizing its annual global climate finance report, estimates 2019 spending by public and private players in 2019 at just over $600 billion – in line with or slightly higher than 2017’s record climate spending. CPI expects 2020 spending to be even lower, the result of policy uncertainty in major economies and the global recession.

(CPI typically reports spending in two-year cycles to smooth out such annual fluctuations, which tends to show a gradual increase).

Climate spending peaked at $612 billion in 2017 before falling to $546 billion in 2018. Between $1.6 trillion to $3.8 trillion is needed each year in low-carbon energy generation and other climate-smart infrastructure to stay within the global warming goals set by the Paris climate agreement.

“Clearly we are falling well short of what’s needed,” CPI’s Cooper Wetherbee told ImpactAlpha.

Climate crisis

2020 is likely among the hottest three years on record, in the hottest decade on record. The global mean temperature through October was 1.2 °C above pre-industrial levels in 2020, and there is a 20% chance it will exceed the critical 1.5 °C threshold, at least temporarily, by 2024. 

That’s just the start of the bad news from the U.N.’s State of the Global Climate 2020

Extreme storms, flooding and droughts affected much of the planet, displacing some 10 million people and increasing food insecurity for another 750 million. The economic lockdowns from the COVID pandemic, and a normally cooling La Niña year, did little to stop the alarming trajectory towards climate catastrophe. 

Governments of G20 countries have committed $233 billion to fossil fuel-related activities in their stimulus plans, versus $146 billion for green and low-carbon alternatives, according to the U.N.’s Production Gap report, which measures the gap between countries’ investments and production levels needed to keep warming below 2°C and was also released yesterday.

Fossil fuel production needs to drop by 6% per year; instead, countries are planning an increase of 2% a year.

Together, they provide an urgent reminder as global leaders as world leaders mark the fifth anniversary of the Paris Agreement this month and look to regain momentum on climate action ahead of next year’s U.N. “Conference of the Parties.” COP26, as it is called, is set to take place in COP26 next November in Glasgow, after being postponed due to COVID. 

The pandemic may have slowed down climate action and impeded relief efforts for communities displaced by the year’s extreme weather. But it “presents opportunities to set the economy on a greener path in order to boost investment in green and resilient public infrastructure,” write the State of Climate report authors. 

The U.N. Environment Program, meanwhile, calls on governments to “use the momentum to plan a ‘green’ recovery with a deliberate and managed wind-down of fossil fuel production — one driven by climate concerns, new economic and employment opportunities, and environmental and public health co-benefits.” 

Increased Ambitions

Much will hinge on the commitments and COVID recovery plans being crafted now by governments. Members of the Paris accord are expected to ratchet up their greenhouse gas reduction targets by next November. 

Several countries are likely to step-up emission-reduction plans ahead of a Dec. 12 U.N. meeting commemorating the anniversary. The U.K’s Boris Johnson is considering cutting greenhouse gas emissions up to 69% by 2030. 

The election of Joe Biden, who has vowed to rejoin the accord on Day One of his administration and to put climate action at the center of his plans, will re-engage the world’s largest economy. Even with an uncooperative U.S. Senate – a likely scenario pending a January run-off for two Georgia seats – pressure is growing from investors and corporations for climate action. 

On Wednesday, 42 companies including Amazon, DuPont, JPMorgan Chase, General Motors and Walmart urged Congress and the Biden team to work together to “enact ambitious, durable, bipartisan climate solutions.”

“The United States must establish durable national policies that harness market forces, mobilize investment and innovation, and provide the certainty needed to plan for the long term,” they wrote. “It is also vital that our climate policies meet the needs of marginalized communities, low-income households, and workers and communities disadvantaged by the energy transition.” 

Even among fossil fuel holdouts, reality is setting in. On Wednesday, Exxon Mobil announced it would write down up to $20 billion in natural gas assets, its largest write-off ever.