The Myth of Economic Growth and Climate Change
The global, multilateral system built after two major world wars has delivered considerable benefits, lifting millions out of poverty and spreading prosperity around the world. But an economic growth model that once drove double-digit annual growth in emerging economies under the famous mantra that “the social responsibility of business is to increase its profits” is no longer appealing and also no longer meets current challenges.
Today we are witnessing a surge of instability and conflict in daily life triggered by climate change. What were once considered “externalities” within our established economic growth model have now become regular signs of the most urgent problem the world faces. We can no longer plan for the future by extrapolating from past circumstances, as climate risks manifest themselves in many ways—from the slow, inexorable rise in sea level to the erratic behaviour of monsoons and strengthening of storms and heat waves.
Some basic facts help set out the scale of the disruption, its costs and the risks that are mounting. Out of the 17.7 million Internally Displaced Persons (IDPs) tracked by the International Organization for Migration as of September 2018, over 2 million people were displaced due to disasters linked to weather and climate events. According to the UNHCR’s Protection and Return Monitoring Network, some 883,000 new internal displacements were recorded during 2018, of which 32% were associated with flooding and 29% with drought.
Even as public awareness of and concern over the threat of climate change has grown, so too has the fundamental challenge, becoming tougher to resolve. According to the World Meteorological Organization, carbon dioxide levels have continuously risen, from 357.0 parts per million in 1994 to 405.5 parts per million in 2017. Sea levels also keep rising and at an accelerating rate: Global Mean Sea Level (GMSL) for 2018 was the highest on record, around 3.7 millimeters higher than in 2017. From January 1993 to December 2018, the average rate of rise has been 2.85 to 3.45mm per year and the estimated acceleration has been 0.1 mm per every two years. [See Figure 1.]
Figure 1: Global Mean Sea Level, Source: World Meteorological Organization (WMO)
Economic loss caused by climate change, in the form of increasingly extreme and frequent natural disasters, is also staggering. According to the humanitarian organization World Vision, for example, hurricanes and wildfire in the United States in 2018 were multi-billion-dollar economic disasters. Harvey, which caused $125 billion in damage, ranks as the second-most costly hurricane to hit the U.S. mainland since 1900. (At $160 billion, adjusted for inflation, only Hurricane Katrina in 2005 was more costly.) If no further action is taken, the CDP (formerly the Carbon Disclosure Project) has reported that the private sector is set to face $1 trillion in losses in the next 5 years, with the financial services industry accounting for 80% of that exposure.
To face these risks, we must embrace the implications of the main plan we have: the Paris Agreement—a visionary and viable policy framework that sets out what needs to be done to stop climate disruption and reverse its impact. But, of course, the agreement itself will be meaningless without ambitious action.
Since 2015, we have been proposing bold actions to trigger transformation of the world economic system, in accord with the agreement’s stated “alignment objectives.” Countries have made major financial commitments in previous negotiations. Yet it is far from certain that they will fulfil their promises, beginning with the provision of $100 billion annually to developing countries by 2020.
Figure 2: Global temperature changes, Source: NASA>
According to the UN Framework Convention on Climate Change’s Standing Committee on Finance (SCF), public finance from developed to developing countries to support climate-change mitigation and adaptation amounted to $57 billion in 2016. Taking into account private finance mobilized by public support raises the flows to over $70 billion in 2016. However, that is a small fraction of the $2.4 trillion that the world needs to invest in clean energy every year between now and 2035 in order to keep global temperatures within 1.5°C of pre-industrial levels, as calculated by the Intergovernmental Panel on Climate Change (IPCC).
Closing this investment gap requires redirecting the flow of the capital away from fossil fuel investments and scaling up climate finance significantly. Policymakers must play the key role here, by implementing and enabling the financing of Nationally Determined Contributions (NDCs). (An NDC reflects a country’s ambition for reducing emissions, taking into account its domestic circumstances and capabilities). Yet, the world is still on track for a 3°C increase, far from IPCC’s 1.5°C scenario, which the almost 200 signees to the Paris Agreement endorsed as their goal. So policymakers need to work to achieve emissions reductions broader and faster than initial NDC plans have indicated if the goal is to be met. [See Figure 3]
Figure 3: Current policies (NDC) target trajectory, Source: Climate Action Tracker (CAT)
The message coming out of the 2019 UN Climate Summit must be that action can make a difference. For instance, research suggests that by accelerating the transition to cleaner energy, the world could keep the increase in global temperature below 1.6°C—essentially meeting the Paris Agreement’s target. By implementing a few dramatic but manageable changes over the next few decades, it is possible to realize a sustainable future for both people and nature.
We must keep in mind that investment to refashion our economic model into a climate resilient one will, in fact, have tremendous long-term economic benefits. According to a recent report by World Resources Institute (WRI), released in advance of this year’s climate summit, the overall rate of return on investments in improved resilience is high, with cost-benefit ratios ranging from 1:2 to 1:10, and in some cases even higher. Specifically, the analysis finds that investing $1.8 trillion globally in five areas from 2020 to 2030 could generate $7.1 trillion in total net benefits. It could indeed deliver a “triple dividend”—it avoids future losses, generates positive economic gains through innovation, and delivers additional social and environmental benefits.
The market economy is a powerful force that needs direction, and regulators and market participants themselves are the ones holding the compass. Reversing climate change impact requires coherent efforts among many different layers of our international society. The just finished UN Secretary General’s summit in New York City was the occasion to reaffirm our global will to meet the Paris Agreement’s objectives. But most importantly, it should wake up the world to the constructive steps that can be taken to act boldly. Our lives and civilization are at stake, with time running out. But this is a race we can win.