EBRD president warns global economic system is failing due to climate change

0
20048

Odile Renaud-Basso explains that neither nature nor the economy can be sustained doing things the way we do, as she seeks investable projects, better regulations and more carbon pricing.

Giving the Mais Lecture at the Bayes Business School in London, the European Bank of Reconstruction and Development’s president, Odile Renaud-Basso, set out the scale of human impact on the planet and why this is now economically and environmentally unsustainable, before laying out what needs to be done about it.

Renaud-Basso set out some alarming facts about the scale of human activity saying that of all the mammals on earth, 95% were now humans or livestock raised for human use. Even more dramatically, she noted that the world’s entire biomass (1,100 billion tonnes spanning plants, mammals, insects, bacterium, lizards, birds and fungus) was now less than the total of man-made mass, of which concrete alone makes up 500 billion tonnes.

“Greenhouse gas emissions are a stock problem, as well as a flow problem, because the gases stay in the atmosphere. That means we have, in effect, a carbon budget”
Odile Renaud-Basso, EBRD

Climate impact

Renaud-Basso said man’s impact had resulted in a 1.2 degree rise in the global temperature, which itself masked extreme changes in different places, such as the 2.2 degree rise in Europe and three degree rise in the Arctic.

That has largely resulted from energy use, which has risen from 5,000 terrawatt hours of energy produced in 1800 to 159,000 terrawatt hours by 2021 – 80% of which was produced by burning coal, oil and gas. And this is a compound problem.

She explained: “Greenhouse gas emissions are a stock problem, as well as a flow problem, because the gases stay in the atmosphere. That means we have, in effect, a carbon budget – a finite amount of CO2 that we can emit before reaching a temperature rise of 1.5 degrees. That budget is about 3,000 gigatonnes. To date we have used about four-fifths of it, or 2,400 gigatonnes. So, we have a bit over 500 gigatonnes left, which we will exhaust by no later than 2030 if emissions remain at 2019 levels.”

How did we get here and what do we do now?

Renaud-Basso made clear that economic development had achieve wonderful things for humanity but she stressed that the damage was done alongside this as a “result of the greatest market failure the world has seen”.

So while the Mais Lecture has in the past discussed the how market rules and prices could be used to deliver social outcomes, she felt it was time to use the lecture to focus that fundamental principle to the twin climate and nature crisis.

“If we put values on biodiversity and ecosystem services, and impose costs on pollution and consumption, the market will deliver and facilitate the transition to a zero-carbon world,” she said.

“the sustainable transition is essentially an energy transition: a shift from overwhelming reliance on hydrocarbons to an overwhelming reliance on renewable energy” 
Odile Renaud-Basso, EBRD

Electricity is key

Renaud-Basso said that the focus had to be on transitioning energy away from fossil fuels. And she said doing that means doing two things: – “First, shifting to use electricity whenever and wherever we can, to drive our cars, heat our homes, run our industry and to produce synthetic fuels for the activities we cannot directly electrify. In the International Energy Agency’s authoritative Net Zero Roadmap, global electricity generation more than doubles between now and 2050.

“Second, generating that electricity from zero-carbon sources, overwhelmingly from the wind and the sun. In the same IEA scenario, renewables as a share of electricity production rise from 30% to 88%, with almost all of that increase coming from wind and solar. At the same time coal and gas fall from their current position producing more than half the world’s electricity to near zero.”

Who must do what?

Renaud-Basso said “the sustainable transition is essentially an energy transition: a shift from overwhelming reliance on hydrocarbons to an overwhelming reliance on renewable energy.”

That shift likely means an investment of at least $3tn every year in the coming decade. The Glasgow Financial Alliance for Net Zero identified over $130tn of capital available for investment, and the growing focus on energy security and more stable prices means other economic benefits are important too.

That may be mitigated by long term returns, because would mean a move away from low upfront cost, high running cost energy, to energy sources with high up front cost but almost zero running costs.

To make all of this happen, she stressed that carbon pricing had driven investment in Europe, and regulation was a back-up for where that proved difficult. Then she noted different approaches to how things should be funded, with the USA funding transition through tax-credits, while the EU focuses on mandates and expanding carbon pricing.

“our role is to catalyse systemic change by using our investments and our policy dialogue to promote regulatory and market reforms that make climate investments economically viable.” Odile Renaud-Basso, EBRD

Vital market signals

Speaking about the view from the EBRD, she warned that use of fossil fuels had been an economic competitive advantage through past decades, but was becoming an uncompetitive drag on economies now.

But to see better flows of capital to help countries develop away from fossil fuels, she stressed that there remains too limited a supply of investable projects, too onerous administrative and legal processes, and in too many places, a lack of enabling regulations like carbon pricing.

MDBs can help de-risk investments and Renaud-Basso said this was something she agreed with, though she said simply shifting risk from one investor to another would not solve the problem. Instead, she said: “Our role is to catalyse systemic change by using our investments and our policy dialogue to promote regulatory and market reforms that make climate investments economically viable.”

Overall, green investments made up half the EBRD’s business last year; that’s $6.7bn of climate finance. The bank also mobilised a further $10bn dollars of private capital.

But while this is positive, she stressed that donors and governments – especially in the developed world – need to provide capital flows to developing nations and needed to take actions that will help private investors engage with investment risk to achieve long term outcomes, because the public purse could not do it all alone.