How COP21 can emphasise action over rhetoric

Sandrine Dixson-Declève, The Prince of Wales’s Corporate Leaders Group

Much has been said by world leaders gathered at COP21 about the unique opportunity they see to galvanise action to transform the global economy. Paris is filled with an energy and enthusiasm not seen in previous climate negotiations. But we must remember that we will be judged by current and future generations not by our intentions, but by our actions here in Paris.

The pathway to a secure future is grounded in finance. Hearteningly, economists have demonstrated that economic growth is not reliant on escalating emissions. Yet we still must resolve the fact – through Paris and well beyond – that to address climate change, financial flows must be directed to a low-carbon, efficient and affordable energy system. This transition will require a massive influx of public and private finance. Only a clear long-term goal and a promise by governments to regularly update their ambitions will give investors the signal they need to increase low-carbon finance.

Undoubtedly the need to finance adaptation, resilience and to build capacity for developing countries is crucial to a unified outcome from Paris. Yet, since greater mitigation ambition in fact helps to assure resilience to global warming and locked-in impacts, it makes sense to also direct public and private resources in all nations to actions that offer rapid cuts in emissions, especially those we can enact before 2020.

Two fiscal policy tools can drive multi-lateral decarbonisation efforts quickly, irrespective of whether they are enshrined in the Paris text: carbon pricing and fossil fuel subsidy reform. They are effectively two sides of the same coin: paying for carbon emissions should act as an incentive to reductions; and removing subsidies to fossil fuels unlocks resources for clean energy, development, education, healthcare and infrastructure.

Subsidy reform offers transparency and consistency – two of the most valued tenets of a healthy relationship between governments, businesses and citizens – by ensuring public resources are not used to articificially deflate the costs of oil, coal and gas, the primary cause of emissions. Continuing to direct public resources to subsidise the consumption of high-carbon energy undermines the actions of others, such as the commitments by cities and companies to achieve net zero (or carbon neutral) goals. They also distort markets by creating false value in industries most needing radical transformation and impede investment in clean energy and energy efficiency.

Despite re-affirmation in 2015, the G20 major economies have been slow to deliver on their 2009 pledge to phase out subsidies. Each year, over $500 billion of public money is directed to fossil fuels, more than four times that invested in renewables. As New Zealand Prime Minister John Key said on COP21 opening day: fossil fuel subsidy reform is the missing piece of the climate change puzzle.

Policy-makers gathered in Paris will need to act on ambition. Eliminating fossil fuel subsidies is a great place to start delivering tangible action in 2016, converting the promise of transformation into a practical pathway. In doing so, impactful leadership can drive all sectors to support public efforts.

Business relies on enabling policy and operates best when it has long-term certainty to direct its investment decisions. Clarity that public resources are shifting away from fossil fuels will unleash investment in innovations to accelerate renewables, electric vehicles and low-carbon infrastructure, bringing the cost of these technologies down. Already low-carbon sectors are growing 4 per cent per annum or better globally, offering much needed job creation.

Subsidies for fossil fuels encourage wasteful consumption by the rich and middle-class, who benefit by up to six times more than the poor and vulnerable from them. With energy prices at a historic low, phasing out inefficient subsidies will be gentler on better-off consumers and national economies. Redirecting public finance from consumption subsidies offers governments pathways to deliver commitments to the Sustainable Development Goals too, by supporting energy access for poor communities with renewable solutions, or investing in social healthcare, schools or other societal needs.

When it comes to climate mitigation, countries seeking feasible ways to finance the cost of national GHG reductions goals will find the elimination of consumption subsidies offers a cost-effective 10 per cent emissions cut by 2050. Delivering action on the direction of public resources to match the commitments in the words of the Paris agreement makes climate sense and robust economic sense.

MORE INFO

The Prince of Wales’s Corporate Leaders Group (CLG) brings together 23 global business leaders working to advocate solutions on climate change. Stora Enso is CLG’s newest member. The CLG is part of a coalition of 40 countries and hundreds of businesses who endorsed the Fossil Fuel Subsidy Reform Communiqué.

ABOUT THE AUTHOR

Sandrine Dixson-Declève is Director of The Prince of Wales’s Corporate Leaders Group (CLG),