Financing the climate

COP26 trundles on in Glasgow with little sign that anything significant is being agreed towards reversing global warming and ending the degradation of nature.  Beneath all the media headlines, governments and corporations are not putting their money where their mouths are.  The financial support for measures to reduce carbon emissions and other destruction of the environment is pitiful.

In 2009, the major rich nations promised they would send at least $100bn a year in climate finance to poorer countries by 2020. That understanding formed the basis of the 2015 Paris climate accord, which aimed to limit global warming to well below 2C, ideally 1.5C. But on the eve of COP26, donor countries admitted they had missed that target in 2020. Now they expect to reach it in 2022 or 2023, years later than planned.

Indeed, most of the rich nations are not meeting their promises at all.  Only Norway, Sweden and Germany can claim that, while the US is billions short and at the bottom of the OECD list.

Moreover, most of the pledged $100bn is not in the form of grants but loans.  So poor countries trying to deal with global warming and to reduce emissions are supposed to pay the bulk of the rich countries’ handouts back.  Calculations from Oxfam suggest the true level of climate-specific grants is about one-fifth of the OECD “climate finance” numbers, once loans are taken out.  These climate commitments were “a mile wide and an inch deep”, Becky Jarvis, a strategist for the Bank on our Future campaign network, said.

Then there is the Mark Carney-led coalition of international financial companies signed up to tackle climate change.  Former Bank of England governor Carney is the official UN envoy on climate finance.  He claims that the Glasgow Financial Alliance for Net Zero (Gfanz) — which is made up of more than 450 banks, insurers and asset managers across 45 countries — could deliver as much as $100-130tn of financing to help economies transition to net zero over the next three decades.  Michael Bloomberg, the media billionaire, was joining Carney as co-chair. The group will report on its work periodically to the G20’s Financial Stability Board. Carney pointed to UN analysis that suggested the private sector could deliver 70 per cent of total investments needed to meet net zero goals. Private finance can save the day – argues Carney. 

But when you look more closely at this headline figure, you find that investment managers account for $57tn of the assets, with $63tn coming from banks and $10tn from asset owners such as pension funds.  And 43 of these 221 investment manager signatories revealed that only one-third of their assets were aimed at investments with ‘net-zero’ targets.  Ben Caldecott, director of the Oxford Sustainable Finance Group at Oxford university, said the headline $130tn figure was “not a fresh pool of money, and most of it isn’t allocatable”. It included home mortgages and money to fund fossil fuel infrastructure, he added.  “What proportion of it can you actually divert into the solutions or use in a way to influence polluting companies to become more sustainable?” he asked.

The Rainforest Action Network, an environmental group, pointed out that the 93 banks that had signed the pledge continued to provide $575bn of lending and underwriting to the fossil fuel industry in 2020. “The disconnect between climate commitments and boardroom decisions is staggering,” said Tom Picken, its forest and finance director.  Asset managers that had signed up to Gfanz had so far aligned just 35 per cent of their total assets to net zero targets, she said. “It is not green finance, nor is it all dedicated in the slightest to tackling climate change as long as financiers have large interests in fossil fuel expansion,” she added.  “This announcement yet again ignores the biggest elephant in the room,” said Richard Brooks, Stand.earth climate finance director. “There is no mention of the F words at all in this new declaration from the net zero clubs. We cannot keep under 1.5 degrees [warming] if financial institutions don’t stop funding coal, oil and gas companies.”

Meanwhile, well-meaning economists offer various schemes to solve the funding problem within the confines of the market economy.  Raghuram Rajan, professor of finance at the University of Chicago’s Booth School of Business, renowned from his pro-market solutions, suggests that every country that emits more than the global average of around five tonnes per capita pay annually into a global fund. The amount paid would be the excess emissions per capita multiplied by the population and further multiplied by a dollar amount called the GlobalCarbon Incentive (GCI). If the GCI started at $10 per tonne, the US would pay around$33bn each year. Meanwhile, countries below the global average would receive a commensurate payout based on how much they emit below the average (Uganda,for example, would receive around $2bn).

Rajaram sees the scheme as self-financing. Low emitters, often the poorest countries and the ones most vulnerable to climatic changes they did not cause, would receive a payment that could help their people adapt. Conversely, the responsibility for payments would appropriately lie with big rich emitters, who are also in the best position to pay. Countries would be free to choose their own domestic path to emissions reduction. Instead of levying a politically unpopular carbon tax, a country might impose regulations on coal, another might incentivise renewables.

In another scheme, Avinash Persaud points out that to meet the Paris agreement, the world would have to eliminate 53.5 billion metric tonnes of carbon dioxide each year for the next 30 years. There are a range of estimates of how much that would cost, but the investment bank Morgan Stanley put it at an additional $50 trillion, split between five key areas of zero-carbon technology. That compares with pathetic $100 billion mentioned above that has taken six years for countries to scrounge together.  Persaud says “we need a global settlement – not global aspiration attached to a village hall budget.” 

The countries that contribute most to the stock of GHGs could issue an instrument that gives any investor in projects anywhere in the world that reduce GHGs the right to borrow from them at their overnight interest rates – which are currently near zero – and to roll over this borrowing for as long as the project delivers some minimum rate of reduction in GHGs per dollar invested. If the collective annual issuance of this near-zero cost funding were $500 billion, it would boost investor returns to such a degree that it would over 15 years crowd in private savings to the $50trillion needed.

All these schemes fail on two levels.  First, they require global action and global institutions to implement them.  There is no prospect of that happening.  Just as national governments failed to coordinate finance and resources to deal with the COVID pandemic and vaccinations, so governments are unwilling to take significant global action on climate and nature.  Around $50trn over 30 years is needed apparently – other estimates are $4trn a year for the next ten years. This is really a small cost, no more than 2.5% of annual world GDP.  But so far governments have pledged just $100bn and have not even met that.

Second, market solutions will not do the trick, as again the COVID pandemic has shown.  Only government intervention, investment and planning on a global scale can give humanity and nature a chance to succeed before too much degradation is made permanent.  Carbon pricing will not allocate investment properly or change consumption sufficiently – and it only benefits the richer countries (1bn people) at the expense of the poorer (6.5bn). 

Private finance organised by banks and investment funds will not deliver.  That’s because capitalist companies control and make decisions on investment based on profitability.  Global warming will not be stopped or reversed without ending fossil fuel and mining exploration and phasing out fossil fuel production.  Nothing like that is on the agenda of COP26. 

As Jeff Sparrow says in his new book, Crimes against Nature,Each year, the world spends over $1,917bn on guns, bombs, and other military equipment. The comparable figure on advertising is some $325bn. Those staggering numbers represent a mere fraction of what we could direct immediately to environmental programs on land, sea, and air. We could begin systemic decarbonisation, closing down coal-fired power stations, and replacing fossil fuels with electricity from renewables such as solar, using the process to reduce rather than increase our energy needs. We could massively expand low-carbon public transport, so that efficient, easy-to-use and convenient electric trains and trams replaced internal combustion engines. We could replan our cities and towns for human convenience rather than for the use of automobiles; we could establish methods of recycling and re-use that genuinely reduced material throughputs.”

13 thoughts on “Financing the climate

  1. Thanks for your frank analysis and all the facts and figures.

    You say a global solution will not be forth-coming. We should understand the reason why, namely: classical liberal formulation of *sovereignty of the individual* will not allow it. The same reason prevented creation of a UNSC without veto.

    Sovereignty of the individual is based on *self-interest*, over and above the interest of the collective. The absurd result is we now have an ongoing nuclear arms race in the age of MAD. Sovereignty of the individual ideologues are ready to incinerate the planet in a contest between “democratic freedoms” in adversarial 2-party plutocracies, and an authoritarian one-party meritocracy in China (the ideological contest between Taiwan and the mainland).

    But I didn’t see *your* solution in the article. You reject a global command economy in the energy sector, funded by ‘money printing’; you correctly state all the contradictions in private sector funding, carbon taxes and sharing of the cost burden. [I heard a Shell company rep. yesterday saying “we need to generate cash from our fossil business to fund a transition to renewables!].

    Your solution, please?

    1. Obviously there is no solution to meeting the proposed climate change limits within the capitalist system, which is the point of this posting. What is the point of your question other than caipitalism’s?–printing polluted money to miserably feed aliented labor at it’s centers, while making war on those in the “emerging” nations who are deemed a threat its imperial interests? We have at least to be clear about the problem to find a solution. What’s your solution, please.

      1. Printing “polluted” money? Public (central bank) money spent into existence to build solar/wind+pumped hydro storage+ smart grid is not polluted, it’s green, by definition. My solution is a global Green Bank to spend the necessary funding into existence. The private sector is too conflicted to get the job done quickly enough: they want carbon taxes to ensure return on investment in competitive markets; and they want compensation for stranded fossil assets. Moreover, once the green infrastructure is built via public funding as outlined, the global economy will be powered by free sunshine and wind. The function of private sector markets will then be eliminated, in the field of power generation. Your hatred of capitalism is preventing you from seeing the solution.

      2. mandm: re “printing polluted money”: Obviously public (central bank) money spent into existence to fund solar/wind + pumped hydro+ smart grid , is green money, by definition. My solution is a UN-authorized Green Bank, as described previously. But failing that, national central banks could agree to co-ordinate, at meetings like COP26, for example.

        Interestingly, Henry Rech is an MMTer, who loves capitalism and free markets, while hating socialism and planned economies, as you can see in his anti-Asia (read ‘China’) diatribe – to which you justifiably replied with some sarcasm. See my reply to Henry re private sector markets; for my part, I see a place for capitalist incentivization of creativity utilizing individual self-interest, where appropriate. Don’t let your own hatred of capitalism close the door to government being authorized to spending public money into existence, where appropriate.

  2. Remember MAD during the Cold War? Isn’t the lack of effective action on climate change a formula for mutually assured destruction? Either establish production of wealth for use (not sale) and distribute it on the basis of need classless, democratic style so that you have the power to live in harmony with Nature or face mass death to keep supporting the ruling class. Make no mistake, as you sit back, fold your hands and twiddle your thumbs, market solutions will not come to your rescue as the greenhouse gas chamber of the Earth’s atmosphere fills. The time is now or never for human emancipation: a society of ‘free association where the free development of each is the precondition of the free development of all’

  3. Here are some salient facts drawn from Ritchie and Ross, referenced in the piece by Persaud, referenced above. These facts reveal the nature of the problem and cannot be ignored. (The figures quoted below are eyeballed from charts in Ritchie and Ross and so are approximate.)

    Since 1950, CO2 annual missions (from fossil fuel and cement production only) in the Americas and Europe have risen from 5Bt to 13Bt. CO2 emissions from China, India and the rest of Asia have risen from a low level to 20Bt in the same period. (1950 was chosen because that seems to be the time when CO2 emissions growth accelerated in the West.)

    Since 2000, per capita CO2 emissions have changed thus wise in the various countries of interest – China +200%, India +150%, rest of Asia +30%, Europe -20%, USA -20%.

    We can see where the problem is. The West has already begun to significantly reduce CO2/capita emissions since 2000, whereas the Asian countries have increased it significantly and they are by far the largest emitters in total and given their level of development. It could be expected that they will continue to significantly grow their emissions.

    The West has to continue to do its part and would be expected to do so given the widespread acceptance by the populace at large that global warming is a threat and must be dealt with.

    The real problem is in Asia. That’s where significant reductions in current and future CO2 emissions must be made and where there is significant resistance to change – they want to develop their economies quickly.

    If COP 26 fails it will because not enough is being done quickly enough in Asia.

    The reductions in the West have occurred because of two things.

    Firstly, there is the moral imperative and the understanding of the real danger that the planet is in in the West. This has gotten to the point where large corporations in the West are being compelled by their shareholders and shareholder activist groups to act on global warming.

    Secondly, there is the commercial imperative. The fact is that renewables are cheaper than fossil fuels. In other words, there is money to be made!

    There has been an enormous installation of solar and wind and battery capacity by the private sector and huge plans are in the offing. EV production is moving a pace.The private sector has acted pre-emptively in the face of indifferent government policies. The private sector is imploring (at least it is here in Australia) government to settle policies which show direction. At COP26, it is said that the formal functions of the gathering were supported effectively by a show of corporate support for action – there were pavilions provided by corporations promoting their efforts.

    In other words, the private sector is ready willing and able to do its bit and already is doing its bit. All that is required is policy direction and commitment from government.

    Michael and others here cannot countenance the fact that the private sector have stepped up to the plate.

    1. Yes, the private sector has “done their bit” [biting and chewing) and have stepped up to the plate [in fulll satisfaction of their hunger to reduce their smelly carbon emissions]”. You are quite right old chap. The colonials have been lazy and waited too long (about 500 years of sloth) to develop themselves, and are now are wanting to develop themselves too fast.

    2. Your analysis goes awry in the 3 paragraph. Using your figures, Western per capita emissions have reduced by 20% since 2000, while Asia’s have risen by 30%; but the US (and Oz) per capita emissions are still DOUBLE those of China.

      Therefore the problem going forward remains in the West as well as in the East, until such time as US per capita emissions are the same as China’s , for example.

      Meanwhile China is rolling out renewables at a faster rate than any country in the world, and now has the largest installed renewable capacity.

      COP26 has failed because the private sector is too conflicted: the private sector wants carbon taxes to ensure profits during the transition, when fossil assets will become stranded – representing a tremendous loss of private wealth.
      Hence the absurd statement by a Shell company rep recently: “we need our fossil industry to make the cash to fund the transition to renewables”……..

      We are currently witnessing the mother of all market failures, running the risk of cooking the planet, owing to the slow transition to renewables within the present market economy. Over the last decade, the UK (and EU) should have been connected to PVs on the Sahara, to avoid the current situation where the UK is re-starting its old coal clunkers, because the wind stopped blowing in the North Sea. Market failure….like in the recent freeze in Texas which suffered power blackouts for a week or more, because Texas is still not connected to the US grid.

      The private sector is not “willing and able” to do anything, other than think of its own self-interested designs to make money. It’s a hindrance, not a solution, to the present global climate change emergency which requires a command economy to fix. Indeed there’s there no profit in power generation, in a world running on free sun and wind.

    3. Neil,

      “The private sector is not “willing and able” to do anything, other than think of its own self-interested designs to make money.”

      Yes, of course.

      “Indeed there’s there no profit in power generation, in a world running on free sun and wind.”

      Aren’t you contradicting yourself? Why is private enterprise spending (and has spent) billions on installed renewables capacity? Is this now totally benign behaviour? Of course not. Private enterprise believe they can make a profit.

      “Meanwhile China is rolling out renewables at a faster rate than any country in the world…..”

      And it is installing dozens of new coal fired power stations.

      “We are currently witnessing the mother of all market failures….”

      Solarization of the Sahara is a great idea. I have no doubt many enterprises have considered it as one of the great business opportunities of the 21st century. But if you were a private corporation would you spend 10s maybe 100s of billions of dollars in a politically unstable and militarily hostile environment? I would not think so. Unless of course you put the CIA on the payroll or EU nations had their militaries occupy the Sahara.

      I would agree markets can’t do and won’t do everything.

      The problem has been massive failure at the governmental level.

      Why would a socialist government behave any different?

      1. Henry asks:” Why is private enterprise spending (and has spent) billions on installed renewables capacity?… Private enterprise believe they can make a profit”

        Yes, as long as carbon taxes, or government subsidies for renewables, create the necessary market price signals to ensure electricity prices are high enough for private companies to make a profit, while transitioning from cheap, lucrative, base-load coal. Meanwhile we have the ridiculous example of that Shell rep talking out of both sides of his mouth.

        If the climate emergency is real, nationalization of the fossil industry is obviously necessary for an orderly exit, compensation and transfer of resources from the private fossil industry to the public sector, with *fastest possible* build of green infrastructure, by the public sector – which as any MMTer knows can fund itself by spending money into existence (when the resources are available) – no carbon taxes required.

        Even China is fiddling around with market carbon pricing in an attempt to move away from coal ; I would have thought the CCP could stop mucking around with private companies in free markets, and double or triple the rollout of renewables, funded by the PBofC.

        “The problem has been massive failure at the governmental level”

        Yes; I believe in a UNSC without veto, as proposed by Doc Evatt, one of the UN’s founders. But if men prefer to engage in a nuclear arms race in the age of MAD……..

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