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??This week: When world leaders meet in Dubai in November for the annual United Nations Climate Summit (COP28), they will have to confront the first comprehensive progress review of the landmark 2015 Paris Agreement.
Known as the Global Stocktake, the review is intended to facilitate “updating and enhancing” countries’ actions and support on climate action. That language – part of Article 14 of the Paris Agreement – importantly obliges signatories to consider whether they are doing enough to address climate change.
The answer to that question is actually already known and, unfortunately, it’s a “No”. The United Nations’ 2022 Emissions Gap Report found that the world is currently on track for temperatures to rise between 2.4 and 2.6 degrees Celsius against pre-Industrial levels based on existing policies. This is significantly above the scientifically agreed thresholds of 1.5 and 2 deg C beyond which the effects of climate change might be catastrophic.
What is not known is how the countries at COP will respond. Some issues that are likely to come into play are:
- Urgent action still needed: Global warming accumulates and accelerates, which means intervention is more effective if it happens earlier. It also implies, however, that early inaction is costlier to rectify later.
- Need for rapid decarbonisation: It is not enough for governments and businesses to act early. They also have to do more. This could mean adjusting targets and policies to be more ambitious.
- Higher risk of ‘hot house’ scenario: The Network for Greening the Financial System has outlined four possible climate change scenarios based on a matrix of transition risks on one axis and physical risks on the other. Current global policies have the world headed for a hot house future, in which global policies are inadequate (low transition risk) and temperatures exceed critical thresholds (high physical risk). This scenario calls for significantly more investments into adaptation measures, as opposed to mitigation projects. Unfortunately, adaptation investments and financing are far behind what’s being spent on mitigation efforts.
- Higher risk of ‘disorderly’ and ‘too little, too late’ scenarios: Policymakers might respond by implementing policies that are more aggressive to attempt to avert the hot house future; but that would raise transition risk. If the policies work, we could be headed for a disorderly world in which warming is limited but transition costs are high. If the policies don’t work, we could be looking at a world in which costs are high but warming comes anyway – or too little, too late. Either way, disruption from transition efforts will increase significantly. This could manifest in the form of higher carbon taxes, higher inflation and higher risk of stranded assets, among others.
- Louder calls for a just transition: The prospect of higher costs will probably be accompanied by many discussions about how to make the transition “just”, which at its core is about mitigating the social impact of decarbonisation. In the hands of politicians, businesses and investors, social justice has been distilled into money – and everybody wants lots of it. The Just Energy Transition Partnership (JETP) coal phase-out programme for Indonesia has therefore been delayed amid unresolved questions surrounding who pays what, and how much.
- Singapore wades into the sustainable aviation fuel debate and lands in favour of responsibly sourced palm oil as a feedstock.
- A coalition of leading investor-focused groups has pledged to support effective climate policy amid an urgent need for course correction on global warming.
- The UAE president of the upcoming COP28 climate summit, Sultan Al Jaber, said the world is running out of time to meet its climate goals.
- It’s a huge risk to be a first mover on green hydrogen, creating an impasse on developing a viable market for the fuel, says Keppel Infrastructure executive Chua Yong Hwee.
- International Finance Corp committed more than US$1 billion in Singapore for the first time in its latest fiscal year, as more businesses in the country pursued ESG-related goals.
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