Paying the price for climate change

The climate is changing. Recent extreme weather events offer evidence that even the richest economies are not prepared. Despite the best efforts of international negotiators, we have not been able to agree on an effective binding regime to reduce greenhouse gas emissions. And the eye-popping price tags associated with events such as Hurricane Sandy (up to US$ 50 billion in damages) are generating momentum to change our approach to solve this vexing challenge.

In a series of blog posts curated by the World Economic Forum’s Climate Change Initiatives, a number of leading voices will present their perspectives on climate change. Contributions are linked to the Forum’s Green Growth Action Alliance project and the Forum’s Global Agenda Council on Climate Change. In the following post, Thomas Kerr, Director, Climate Change Initiatives at the World Economic Forum, sets the context.

The year 2012 may be remembered as the year when climate change achieved a political tipping point. The issue of climate change was absent during the US presidential campaign until Hurricane Sandy arrived. The superstorm added an exclamation point to a year of record-setting extreme weather events that started with huge floods in Australia, devastating drought in much of the US during the summer, the worst dry spell in more than 50 years in Brazil, torrential rains costing US$ 2 billion in damages in China, and flash floods affecting 1 million people in Bangladesh.

As we head into the annual United Nations Framework Convention on Climate Change talks in Doha this week, it is clear that global warming is back on the global agenda with a vengeance. While delegates struggle to craft consensus on how to achieve the Copenhagen COP15 target of stabilizing global emissions increases at 2C, the zeitgeist seems to have already shifted to an acceptance that we will be living in a warmer world, full of unknown and potentially huge economic impacts.

As the International Energy Agency starkly puts it in its latest World Energy Outlook:

Delaying action is a false economy. For every US$ 1 of investment in cleaner technology that is avoided in the power sector before 2020, an additional US$ 4.30 would need to be spent after 2020 to compensate for the increased emissions.

Avoiding these pessimistic scenarios will require a radical transformation in the ways the global economy currently functions: rapid uptake of renewable energy, sharp falls in fossil fuel use or massive deployment of CCS, mitigation of industrial emissions and stopping deforestation. Business-as-usual is not an option. This will require massive amounts of capital – the World Resources Institute estimates US$ 300 billion annually by 2020, growing to US$ 500 billion by 2030. This compares against the US$ 100 billion annual funding committed by industrialized nations in the UNFCCC’s Green Climate Fund.

How to address this gap? Perhaps Rachel Kyte, World Bank Vice-President for Sustainable Development, said it best at September’s UN General Assembly meeting: “Unlocking private sector investment is key.” Given the large amounts of money that are needed to address climate change, public monies will be only a drop in the bucket. But private investors – equity firms, venture capitalists, pension funds, insurance companies and sovereign wealth funds – currently control several trillions of dollars’ worth of assets that can provide climate-smart infrastructure development. They must be more actively engaged, to identify the risks that they perceive in green investment and to develop new policy and financing mechanisms that make for attractive returns.

The World Economic Forum is putting these issues squarely on the agenda of climate negotiators, corporate participants, and international and non-governmental organization leaders in Doha. The Forum is partnering with the UNFCCC in the Momentum for Change: Innovative Financing for Climate-friendly Investment initiative. This initiative will showcase successful public-private financing mechanisms and approaches that are delivering climate-friendly investment, informing governments, investors, business, public finance agencies and the media about the need to enable a global shift to a sustainable investment pathway.

Author: Thomas Kerr, Director, Climate Change Initiatives at the World Economic Forum

Image: Picture of Houses damaged by Hurricane Sandy in Ortley Beach REUTERS/Handout