The chair of the Intergovernmental Panel on Climate Change (IPCC), Dr Hoesung Lee, has dismissed fears from investors and nations that reaching net-zero emissions will place too much strain on the global economy.
Speaking at the London Green Finance Summit in Guildhall, Dr Lee addressed an audience of investors and policymakers, urging them to spur the low-carbon transition by creating more market and policy signals for green finance investment.
Noting the findings of the IPCC’s own report into the need to limit global warming to 1.5C, Dr Lee claimed that governments needed to shake off the notion that transitioning to net-zero would add pressures to economies. The landmark study revealed that transitioning to net-zero would require the current 2% of global GDP currently spent on the energy sector to increase slightly by 0.4%.
“The strength of investment and allocation of resources for achieving this 1.5C will not burden the global economy,” Dr Lee said. “The current 2% of GDP spent on the industry will have to undergo a tremendous transition away from fossil fuels to non-fossil fuel technologies with an opportunity for sustainable growth.”
The IPCC Special Report document warns that the world is already 1C warmer than pre-industrial levels, and that an increase to 2C would significantly worsen the risks of drought, floods, extreme heat and poverty for hundreds of millions of people. The report predicts that if the world can become carbon-neutral by 2047, we will have a 66% chance of meeting the most ambitious end of the Paris Agreement pledge.
Dr Lee claimed that studies had proved that there wasn’t a lack of finance or financial instruments to facilitate that transition, but rather a “lack of political will”.
In the UK, for example, research that built the case for the Government to enshrine a net-zero goal into law found that a net-zero target could be achieved at the same cost that is currently put against achieving the current Climate Change Act, which is between 1-2% of GDP in 2050.
He also suggested that policy was standing between scientific findings and climate action, highlighting the lack of movement on global carbon pricing as a key example.
There are currently around 50 countries and jurisdictions and that have put carbon price in place. In fact, carbon prices now cover approximately 20% of global emissions. However, a report from the Organisation for Economic Cooperation and Development notes that the average carbon price across 42 major economies was $8 per tonne in 2018; in contrast, research suggests that a price upwards of $135 per tonne is needed to reach the ambitions of the Paris Agreement.
“Access to finance is considered a main barrier to low-carbon infrastructure,” Dr Lee added. “It is a lack of carbon pricing that also results in high-carbon infrastructure development. Everything comes down to political will, it seems that this political will sits between science and climate action.”
As for the IPCC, Dr Lee said that the body was prioritising a better understanding of mitigation costs and the impacts they will have on the financial services sectors and hoped to have more in-depth information for the next iteration of the report in three years’ time.
Dr Lee did note that while the transition won’t burden economies, it could sting investors that fail to use observe the carbon intensity of their portfolios and move to back more sustainable products, services and businesses. CDP, for example, has highlighted the economic risks posed by decarbonisation. A group of 215 of the largest companies in the world risk collectively losing up to $1trn to climate impacts in the next five years, according to the organisation.
Dr Lee’s speech came on the same day that the UK Government unveiled its highly anticipated Green Finance Strategy, outlining how the finance sector and better climate disclosure from corporates can drive progress towards wider action on climate change and the push towards net-zero emissions.