published on Handelsblatt Online (September 23, 2014)
by K. Toepfer, J-C. Hourcade, M. Aglietta, C. Jaeger
The day before this year’s UN General Assembly, September 23, its secretary general will host a UN climate summit in New York. President Obama will attend a meeting taking place in his country but key countries like China, India, Russia as well as the EU and Germany will not be represented by their top leaders. This is one more sign of the mismatch between dramatic rhetoric on global climate change and ineffective action in global climate policy.
This mismatch was created over years by a paralyzing conversation between the fear of climate catastrophes and the fear of losing jobs by imposing carbon constraints on already fragile economies. It is time to change it. It diverts the attention from the opportunities that arise if the transition to a low-carbon economy provides a lever to mobilize idle resources and to go out of the current economic adverse context.
Effective climate policy involves a massive redirection of investments towards alternative technologies in energy, transportation, buildings and more. Significant amounts of additional investments are needed but seem affordable. Indeed the world economy – and to an extreme extent the Eurozone – does not suffer from a lack of savings; it suffers from the failure of using savings to fund long-term productive investments instead of real estate or liquid financial assets. Redirecting savings towards low-carbon investments would reduce this failure. Without deepening public budget deficits, reducing consumption or other productive investments it would contribute to a sound economic recovery based on new lifestyles and social inclusiveness.
An international accord is needed to support this redirection, but most nations, first and foremost the most important ones, will not accept to surrender national sovereignty to international organizations, and will not accept legally binding commitments on quantitative amounts of emissions reductions. A pledge and review process is thus the only way out. The challenge is to organize credible incentives for compliance and pull-back forces making the pledges announced by governments compatible with the 2° objective in the long run.
This challenge can be met if one realizes that emissions reductions of the required magnitude are impossible without a multiplicity of local and sectorial initiatives. Many such initiatives can be organized in Transnational Sustainability Clubs of businesses, banks, cities and public administrations, around shared non-climate goals and a shared will of pursuing them by reducing GHG emissions (local cap-and-trade systems, urban air quality, urban mobility, energy access in remote areas or low carbon options in energy intensive industry etc.).
Governments have the responsibility of taking legally binding commitments to support such Sustainability Clubs under condition that they are involved in credible monitoring systems under the UNFCCC. They could pledge to take specific actions, receive incentives to implement their pledge and be deprived of them in case of default. Finance is a critical dimension of commitments and has to go beyond the sums envisaged for the Green Climate Fund. Sustainability Clubs focusing on financial incentives and including voluntary countries are thus needed to attract private savings.
Such alliances can develop governmental incentives for bonds to finance green infrastructure investments (power grids suitable for renewables, retrofitting buildings to enhance their energy efficiency etc), following the proposal by M. Diekmann, CEO of Allianz Insurance. Finance oriented Sustainability Clubs could also engage in the discussions about the IMF stepwise expanding the role of special drawing rights to finance sustainable investments, discussions building on suggestions by the governor of the People’s bank of China or J.Stiglitz.
Another possibility is to lower the investment risks of low carbon; to do so countries might guarantee the opening by their central banks of credit lines refundable with certified reductions of CO2 emissions for a given value of the ton of CO2 rather than in cash.This comes to issue liquidity but, in contrast with the “unconventional monetary policies” implemented after 2008, this liquidity would be conditional upon the creation of ‘real wealth’ and would not reanimate an uncontrolled commerce of promises and its cohorts of debt and inflation.
The adoption by the UNFCCC of a minimal value for a ton of CO2 emissions reduction would be desirable. It could foster the consistency of all low carbon initiatives and would have the political virtue of signalling that avoidance of carbon emissions is a common good for humanity.
Over the short term, the key is, with one unit of public money, to trigger much larger flows of private investment and thereby making low-carbon investments one lever of a sustainable economic recovery. All world regions would be beneficiaries of an accord opening this perspective, first and foremost the EU in search of reconciling the discipline of its fiscal compact with an inclusive economic dynamic in all member states.