ADVOCACY
FINANCING THE TRANSITION: ÒÃÔÒÀÉÀÀ¿ÇÀ¼¿ÀÍÎÃÄË We already know what we need to do to solve climate change, but for that, the right financial levers and leadership are needed first.
Lindy Fursman, director of climate and energy policy, Tony Blair Institute for Global Change
U nder the Paris Agreement, countries have set ambitious 2030 emission reduction targets. And by Febru- ary 2025, new nationally determined contributions for the period through to 2035 will be announced by each party to the agreement. However, regardless of ambition, the Global Stocktake in 2023 showed that current plans and action on reduc- ing emissions are far from enough: the current trajectory of global emissions is not consistent with limiting the global temperature rise to 1.5°C, even if all plans to meet the NDCs were implemented. For many countries, meeting a target that represents their “highest possible ambition” will be difficult. But decarbonisation will be especially diffi- cult for countries that need significant investment in order to meet the clean energy needs of their growing popula- tions, as well as to decarbonise existing energy assets. Sources of emissions have changed radically over the past 20 years, mov- ing from developed to developing countries. And history shows that energy demand in developing econo- mies increases rapidly as development accelerates and populations move into higher income bands, resulting in large increases in per capita emissions. Because of this, in addition to pro- gressing their own domestic transitions, countries like the United Kingdom and
the United States must lead global efforts to support the use of clean tech- nologies and facilitate the allocation of finance and investment to support this deployment in developing economies. Otherwise we risk seeing significant spikes in global emissions in the future. The world already has most of the solutions needed for global decarbonisation, and technologies – both new and existing – continue to develop. The cost of producing elec- tricity using solar and of batteries have both fallen rapidly and are cost- competitive with coal and natural gas plants in India and China respectively. More than $1 bil- lion is being spent every day on solar deployment. There are also new solutions being developed for a num- ber of other challenges, and further innovation may make these more widely deployable. For example, powered by artificial intelligence, scientists are even making huge strides in accelerat- ing the development of fusion. However, in Africa and South-East Asia, private investment in clean power is actually declining. While global finance flows are increasing, they remain small in the context of the scale of investment needed to limit tem- perature rises to less than 2°C while allowing sustainable development. Moreover, the gap between the costs of deploying clean energy in the Global North and South is wide, and further action is needed to bridge the divide. Finally, investment into activ-
ities driven by fossil fuels remains consistently high, especially when sub- sidies for fossil fuel use are included. To address this, the climate strate- gies of countries like the UK should emphasise both domestic execution and accelerating the global transition through technology and investment in regions such as Africa and South- East Asia. In these regions, the challenge is not only securing unprecedented levels of investment but doing so at terms that households and businesses can afford. Many of these countries are compet- ing internationally for business and investment to drive economic growth and create jobs. To do so, the cost of their energy matters. Recent international efforts to drive investment have tended to take a project-centric view with a focus on headline investment numbers. What is needed is a focus on creating markets that can drive investment at greater scale but that can also deliver lower costs. The UK is uniquely placed to drive this change. It is a global finan- cial centre and has led the way in areas such as regulation and mar- ket creation (for example, the offshore wind regime). It also has an influential voice in development through its in-country presence, influence with the multilateral devel- opment banks and its world-leading development finance institute. These assets can be leveraged to deliver key changes, including to drive a shift
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Financing a Just Transition
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