April 14, 2022
There’s a lot of news unfolding fast at the moment, and last week was no exception. So here we’ve condensed the key climate developments from the last week – from big announcements by the UN and UK government – and what they mean for the movement to end finance for fossil fuels and kickstart the transition to a green economy.
The UN raised the alarm on destructive financial flows
On Monday, the IPCC (a key UN panel of climate experts) released a major report setting out the steps we need to take in the next decade to stay within a 1.5C temperature rise. The 3000-page report included a chapter on finance – and their calls to action support what our movement has been saying for years: that voluntary pledges by banks, and reporting by central banks, are not going to cut it. We need rapid action, led by our public institutions, to move money out of dangerous fossil fuels and into cheap renewables.
This is big news, because the IPCC is the group that establishes the global scientific consensus on climate change, with hundreds of experts feeding in to provide governments with the evidence they need to take action. Here are some key messages from the report:
- The green investment gap is huge. We’ve seen financial flows increase for activities that slow global warming and help communities manage its impact on their lives, but global growth has slowed since 2018 and is falling far short overall. In the energy sector alone, we need to invest an estimated $2.4 trillion per year for the next ten years to stay within 1.5C. Plugging that funding gap will involve governments and central banks pulling every policy lever that will support the transition, and fast.
- Rich countries are failing the world on climate justice. Low-income countries are prevented from being able to enact policies that would help them adapt to the worst effects of climate change, in part because they face such high debt levels, often in foreign currencies they can’t control – one of many harmful legacies of violent Western imperialism, as our Senior Economist Danisha Kazi has explained. The word ‘colonialism’ was used in an IPCC report for the first time. The report also featured more scientists of colour and women scientists than previous reports, although both groups are still under-represented.
- We need a new approach to climate risk. The report says what economists like our David Barmes have been saying for years – that the risks to our economy and financial system generated by climate change aren’t like other risks. They involve ‘deep uncertainty’, because the climate can change in sudden, unpredictable ways, and because we don’t know exactly how, or how fast, we will transition to a low-carbon economy. And the report is clear: these risks are underestimated across the financial system, and could eventually lead to public bailouts for banks unless precautionary action is taken, just as we saw in the 2008 financial crisis. The report supports the case for stronger ‘capital rules’ that would make it more expensive for banks to lend to risky fossil fuel projects, which we and others have been calling for.
- The market won’t fix itself. There’s been a lot of talk from banks and investors since the Paris Agreement in 2015, but the report says there’s ‘limited evidence’ that this has reduced emissions. It says that the ‘outcome of these market-correcting approaches on capital flows cannot be taken for granted… without appropriate fiscal, monetary and financial policies’. Central bank ‘stress tests’, which aim to test how well banks will be able to absorb the shocks of different transition pathways, get a mention, but the authors say these should be ‘considered as a first step’, not the end goal. In other words, we need our public institutions to stop tinkering around the edges with data gathering and voluntary schemes, and start using their regulatory muscle to move money out of fossil fuels and into renewables (check out our Simon Youel making this point on BBC News during the COP26 climate summit in November).
- The public sector must play a key role. The report is clear that we can’t rely on the private sector to do all the heavy lifting. As well as urgently cutting off the subsidies it currently gives the fossil fuel industry, we need the state to invest in renewables, shape new green markets and incentivise the right kinds of investment, for instance through public development banks. The report acknowledges that governments around the world are struggling with the costs of the pandemic, but says this shouldn’t deter public investment on climate action. That’s because the costs of inaction are much higher, which is why we need “a new understanding of debt sustainability” that enables governments to spend in the short term. The key message here is that “the investment gap is not due to global scarcity of funds”, but because a handful of politicians are acting on behalf of fossil fuel lobbyists – which means there’s still time to turn this around.
- GDP is a bad measure of human wellbeing. The IPCC report also says GDP is useful only “as an indicator of the level of activity of an economy” but that it “gives no indication relating to human wellbeing”, and that climate policy requires “better grounding in relation to decent living standards”. It says that many policies that reduce demand for energy and materials would “help achieve wellbeing for all”, supporting calls for a ‘wellbeing economy’ that prioritises the health of people and nature over economic growth.
So sick of hearing that government "inaction" brought about climate change. They acted: they subsidized fossil fuel companies, gave them leases, spouted their misinformation, criminalized protest. Nothing about that is passive.
— Mary Annaïse Heglar (@MaryHeglar) April 4, 2022
The UK government set out its energy strategy
The government set out its long awaited strategy to reduce dependence on Russian gas and set out a pathway to net zero. There was some good news – like an accelerated target to produce 95% of the UK’s electricity from low-carbon sources by 2030, including offshore wind, hydrogen, and (controversially) nuclear.
But the strategy failed on the no-brainer policy of increasing energy efficiency – the Treasury blocked plans for £200 million-a-year for home insulation, which would have brought household bills down and reduced energy demand in the short term.
They also made plans to issue a new round of licences for oil and gas exploration in the North Sea in the autumn – just days after the IPCC report said all new fossil fuels must stay in the ground. Green MP Caroline Lucas described this decision as “economically and environmentally illiterate”, and we agree, especially because renewables and efficiency measures are much more popular than increasing domestic gas production.
"We have run out of excuses. We have run out of reasons for inaction. We have to cut carbon as quickly and as dramatically as we can." @chaitanyakumar discusses the new @IPCC_CH report on @SkyNews Daily Climate Show pic.twitter.com/dI0tzbu8lv
— NEF (@NEF) April 5, 2022
On Thursday, Chancellor Rishi Sunak also sent letters to the Bank of England’s key policymaking committees, recommending that they consider “the important role that the financial system will play in supporting the UK’s energy security – including through investment in transitional hydrocarbons like gas – as part of the UK’s pathway to net zero.”
It’s positive to see the Chancellor highlight the role of the Bank of England in shifting investment to a low-carbon, energy secure future, but experts, including the UN IPCC, are clear that there’s no room for new oil or gas expansion if we’re to stay within 1.5C. As our director Fran Boait made clear last week, ‘the Bank of England must move urgently to stop the City of London pouring billions into fossil fuels we can’t control the price of, and redirect finance towards cheap renewable energy like wind and solar’.
The IPCC report confirms that the only responsible way of bringing energy bills down and maintaining a liveable planet is to reduce the share of oil and gas in the system by stopping all new expansion of fossil fuel infrastructure, and rapidly upscaling cheap renewables like wind and solar. The government’s energy strategy is a step in the right direction, but it’s too small – so together we need to keep ramping up the pressure.
That’s why we’ll campaign against any new licences for new domestic oil or gas projects this year, and continue to push the Bank of England to stop British banks funding fossil fuels all over the world.
We’re also asking national and international financial regulators to make banks cover their own losses through strengthened capital rules, and to stop banks relying on the public to bail them out for their risky fossil fuel lending. We recently mobilised hundreds of people to respond to an international consultation on this, and we’ll be ready for the Bank of England’s Climate and Capital conference exploring the topic later this year.
Right now, the government is working on a new ‘Green Finance Strategy’, which will set the direction of green finance for years to come. As well as pushing the government to spend at least £30 billion a year on the low-carbon transition, we also need the Bank of England to coordinate with government departments to support green lending, and steer private investment towards low-carbon, job-creating projects.
We’ll need all the people power we can muster to make sure the Green Finance Strategy is as ambitious as possible, so make sure you’re signed up to our mailing list so you can look out for the best ways to get involved.
The most important take away from this IPCC report is that doomism will not save us, it only drives apathy and holds people back from acting.
But collective action will. Whatever drives you, use that to support & join the climate movement, there is a place for you.
— *Dominique* Palmer (@domipalmer) April 5, 2022
Anna Pick is Media and Policy Officer at Positive Money. Find her on Twitter at @annapick_