Money Matters

Climate change

Money Matters
By Kamran Hafeez
Mon, 11, 21

The Emissions Gap Report 2021 shows that new national climate pledges combined with other mitigation measures put the world on track for a global temperature rise of 2.7°C by the end of the century. That is well above the goals of the Paris climate agreement and would lead to catastrophic changes in the Earth’s climate. To keep global warming below 1.5°C this century, the aspirational goal of the Paris Agreement, the world needs to halve annual greenhouse gas emissions in the next eight years.

Climate change

The Emissions Gap Report 2021 shows that new national climate pledges combined with other mitigation measures put the world on track for a global temperature rise of 2.7°C by the end of the century. That is well above the goals of the Paris climate agreement and would lead to catastrophic changes in the Earth’s climate. To keep global warming below 1.5°C this century, the aspirational goal of the Paris Agreement, the world needs to halve annual greenhouse gas emissions in the next eight years.

If implemented effectively, net-zero emissions pledges could limit warming to 2.2°C, closer to the well-below 2°C goal of the Paris Agreement. However, many national climate plans delay action until after 2030. The reduction of methane emissions from the fossil fuel, waste and agriculture sectors could help close the emissions gap and reduce warming in the short term, the report finds.

“Climate change is no longer a future problem. It is a now problem,” said Inger Andersen, Executive Director of UNEP (UN Environment Program). “To stand a chance of limiting global warming to 1.5°C, we have eight years to almost halve greenhouse gas emissions: eight years to make the plans, put in place the policies, implement them and ultimately deliver the cuts. The clock is ticking loudly.”

As the COP26 delegates concluded talks we can expect an acceleration of climate action across the real economy: at the system level, in countries, throughout industries, and within organizations. However, the net-zero commitments made are outpacing the formation of supply chains, market mechanisms, financing models, and other solutions and structures needed to smooth the world’s decarbonization pathway. For businesses, these conditions will create opportunities to innovate and to lead coordinated action by industry peers, value-chain partners, capital providers, and policy makers. They also introduce added risk that commodity prices will spike globally.

To have any chance of limiting global warming to 1.5°C, the world has eight years to take an additional 28 gigatonnes of CO2 equivalent (GtCO2e) off annual emissions, over and above what is promised in the updated NDCs and other 2030 commitments. To put this number into perspective, carbon dioxide emissions alone are expected to reach 33 gigatonnes in 2021. When all other greenhouse gases are taken into account, annual emissions are close to 60 GtCO2e. So, to have a chance of reaching the 1.5°C target, we need to almost halve greenhouse gas emissions. For the 2°C target, the additional need is lower: a drop in annual emissions of 13 GtCO2e by 2030.

The net-zero commitments made in COP26 came from all stakeholders—governments, financial institutions, companies, multilateral organizations, and others—who must participate if systemic problems are going to be solved. For example, the transition to clean shipping would require customers to request the service, shipping companies to invest in vessels that run on zero- emissions fuels, fuel producers to make more of those fuels, and banks to provide capital for these endeavors. And when these activities are coordinated, they shift the entire operating context for companies.

COP26 also saw new commitments from groups such as the Glasgow Financial Alliance for Net Zero (GFANZ). In many instances, net-zero commitments are running ahead of various global companies’ own plans to meet them. Relatively few businesses have yet to make clear, detailed plans for how they will achieve net zero. That must be what leaders focus on now; investors and regulators expect them to do so. UK Chancellor of the Exchequer Rishi Sunak reiterated at COP26 that the Treasury would require UK-listed companies to release net-zero plans by 2023. It is only a matter of time before regulators and supervisors elsewhere follow that example.

Financial institutions have been at the forefront of the drive to net zero, and they continued leading at COP26. GFANZ brought together more than 450 institutions, representing $130 trillion of financial assets (40 percent of the global total), that promised to align their portfolios with net-zero goals. Various analysts expect net-zero transition would require $150 trillion of capital spending, two-thirds of it in developing economies. While there is justifiable debate about what the GFANZ pact might mean in terms of capital investment—and far more capital will probably be needed—the commitment shows that capital is starting to form.

Deploying sufficient capital quickly enough to achieve net zero is now the challenge. At a system level, focus should be on scaling markets and institutions that can channel money into decarbonization and adaptation. This involves scaling voluntary carbon markets, restructuring multilateral development banks, developing country platforms, and creating futures markets for green commodities.

Extreme weather won’t be the only climate-related threat to supply chains in the years ahead. As demand increases for materials with low emissions intensity, such as green steel, production capacity may not expand quickly enough to keep pace, at least in the near term.

Companies will want to prepare now for tightening supplies and for upward pressure on their costs. Some businesses are locking in purchasing contracts for commodities such as green steel. It may also be possible to hedge the gap in price between conventional materials and zero-emissions substitutes— though this would require trading capabilities that few companies outside the financial sector now possess.

For makers of steel, cement, and other materials, growing demand for zero-emissions goods constitutes an opportunity, which can be met only if they decarbonize their base of installed assets. Doing so will take significant capital as well as technology and time.

Further warming will have physical consequences, and warming is set to continue. The Sixth Assessment Report of the Intergovernmental Panel on Climate Change concluded that further changes to the Earth’s systems are locked in, no matter how much more warming takes place. What’s more, multiple climate-modeling efforts based on COP26 pledges suggest that continued warming will raise temperatures to more than 1.5°C above preindustrial levels.

The physical hazards posed by climate change have manifest humanitarian impacts. For example, in scenario-based analysis for Race to Resilience, a campaign led by the UN High-Level Climate Champions, in a scenario where 1.5°C of warming occurs by 2030, almost half the world’s population could be exposed to a climate hazard related to heat stress, drought, flood, or water stress. And compared with high-income nations, lower-income countries like Pakistan have larger shares of the population that are likely to be exposed to at least one climate hazard.

A recent study on Climate risk Country profile put Pakistan among the top risk-prune countries in terms of increase in average temperatures and resultant social and economic losses.

Pakistan faces increase in average temperatures significantly above the global average with a potential rise of 1.3°C-4.9°C by the 2090s over the 1986-2005 baseline, the study said, noting that Pakistan faced some of the highest disaster risk levels in the world ranked 18 out of 191 countries by the 2020 Inform Risk Index

Pakistan is the fifth most climate vulnerable nation in the world. Between 1998 and 2018, according to the Global Climate Risk Index, the country is estimated to have lost nearly 10,000 lives to climate-related disasters and suffered losses amounting to about $4 billion from 152 extreme weather events in that period. Analysts have estimated Pakistan’s climate migrants over the past decade at around 30 million people.

Notwithstanding any debate about whether COP26 was a success, the general direction for countries and businesses has been established. Momentum has shifted toward net zero, providing businesses with a new organizing principle.

The transition to net zero will be complicated. The best leaders can hope for is that it will be relatively orderly, rather than punctuated by sudden, unexpected shifts.

Courageous leadership will therefore help navigate the transition. Leaders will need to cut through the noise and articulate a direction for the future, supported by a detailed plan to get there.

Pakistan has had short-term strategies to tackle the issues like climate change. Every government wants a policy or project, which can be completed within its tenure. But it would not work in the case of the environment. It requires a policy based on a long term vision to tackle these issues.

Apart from water stress, and glacial melting, there is a shifting monsoon, which is directly impacting the country's already struggling agriculture output. Pakistan is a multi-threat country in terms of climate change vulnerability. It needs to do much more to protect the environment, and the local communities from the ravages of climate change.

Pakistan has recently launched an “Eco-System Restoration Fund” for supporting nature-based solutions to climate change and facilitating the transition towards environmentally resilient initiatives, covering afforestation and biodiversity conservation. Pakistan has officially begun the process of creating a National Adaptation Plan for building resilience to climate change. All these efforts must be given utmost national priority with ownership of all key stakeholders. The time to act is now.

The writer is a staff member