This is the second of two pieces on the G7’s vision for a clean green plan. Read the first episode here.
While the West’s vision of decarbonizing the Global South and tackling Chinese influence is promising, it still doesn’t look like a green version of the Marshall Plan. It must.
First presented at the Group of Seven (G7) summit at least a year ago, it will only reach its full potential if Western leaders make it a priority. Covering geopolitics, climate, trade, investment and aid, it cuts across multiple ministries and only leaders have the ability to break down bureaucratic silos within their governments.
For now, it is unclear whether the West will show unity in pursuit of its vision, which includes US, European and British plans. This is partly because leaders are distracted by Ukraine and because various actors, particularly the United States and the European Union (EU), have very different approaches to climate policy.
This is, among other reasons, why the G7 needs to be clearer about what it is trying to do. For example, right now US President Joe Biden sometimes sees Build Back Better World (B3W), the US component of the strategy, as a catch-all infrastructure initiative. But it will accomplish more if it has a strong focus on helping countries in the South with rapid and equitable transitions to net zero carbon emissions. These G7 powers also have very different approaches to their own climate policies, with the EU and UK being the most aggressive, which will make it harder to approach the rest of the world with a unified plan.
Having different names – B3W, the EU’s global portal and the UK’s Clean Green Initiative (an idea I helped shape in a speech to UK Prime Minister Boris Johnson in March 2021) – doesn’t help neither. But the exact name is less important than picking one and coordinating more closely under it: then the G7 can sing from the same anthem sheet and motivate all relevant stakeholders, politicians and policy makers to financiers and international financial institutions. .
The G7 should also think big. The UK, which led a deal to decarbonize South Africa and is still chair of the 26and The UN Climate Change Conference of the Parties (COP26) through November, aims to advance decarbonization plans for a few more countries this year. France proposed that the EU add five more African countries, including Egypt and Morocco, to the list. And Germany, as this year’s chair of the G7, has produced a master list, with each G7 country given responsibility for one or more countries in the South. Meanwhile, several large emerging countries, including Indonesia and Vietnam, are interested in partnership agreements.
It’s a useful start; but to be transformational, the plan must cover the bulk of the roughly 130 countries that make up the Global South over the next few years.
The G7 must also be clear on what it is looking for: ambitious carbon reduction targets for 2030 and net zero dates of around 2050. Some developing countries will say that is too exaggerated, rightly pointing out that because they haven’t caused most of the emissions responsible for climate change, it’s not fair to keep them trapped in poverty.
Yet they all signed up to the Glasgow COP26 Climate Pact, which called for net zero targets “by or around mid-century” and committed them to reviewing and strengthening their medium-term decarbonisation plans if necessary.
Developing and emerging countries have much to gain from a rapid transition to net zero. Not only will they avoid the worst ravages of climate change, but hundreds of millions of people will have access to electricity for the first time; millions of lives will be saved each year through lower levels of air pollution; and their industries will be at the forefront of the next industrial revolution. Finally, switching to clean energy will save them money as oil and gas prices soar.
But the financing of this great collective plan remains a problem.
Turn billions into trillions
The Glasgow Climate Pact emphasized the need to take account of ‘different national circumstances’ – and it is clear that one of the most relevant circumstances for developing countries is that they lack the resources to achieve mid-century net zero goals. Many suffered from debt even before the COVID-19 pandemic; now they have to deal with rising food and fuel prices caused by the Ukrainian crisis.
G7 leaders say they will increase climate finance from “billions to trillions” to fund their plan. Experts estimate that countries in the South will likely need a trillion dollars a year for the rest of this decade to make the switch.
But how can the West mobilize such a sum of money? That’s ten times the $100 billion a year in climate finance that rich countries promised to mobilize for developing countries by 2020 – and still haven’t delivered. They too are in debt due to the fight against the pandemic, and their finances will be hit even harder in the wake of the war in Ukraine thanks to increased defense spending and subsidies to protect their own consumers from price hikes. Energy.
Yet if G7 countries think outside the box, they can ensure that relatively small amounts of taxpayers’ money go a long way. They can harness capital from various sources that do not reach their budgets – private capital, guarantees and international financial institutions – and thus turn billions into trillions.
But the lion’s share of the investment has to come from the private sector and go to private sector projects. The plan is a huge opportunity for Western investors, companies and technologists to advance green industrial revolutions around the world by leveraging their entrepreneurial skills.
In addition, Western banks, insurance companies and pension funds are under increasing pressure to align their activities with the Paris Agreement of 2015. Many of them have joined the Glasgow Financial Alliance for Net Zero, which represented $130 trillion in assets at COP26 last year. But little of this money goes to emerging and developing economies because the risks (such as bureaucracy, corruption or political conflict) are too high.
Developing countries can make themselves more attractive to private investment by reducing bureaucracy and corruption, ending fossil fuel subsidies, introducing carbon pricing, restructuring bankrupt power utilities, and more. Meanwhile, Western governments can absorb some of the remaining risks themselves.
Rich countries have traditionally helped developing countries through grants or cheap loans. But securing private investment – which the EU and UK have promised to do – would be a better bet.
The West can also mobilize the Multilateral Development Banks (MDBs), led by the World Bank, which have great expertise in dealing with developing countries but which have not yet focused enough on climate change. They have also not collaborated enough with the private sector.
Channeling funds through them can be extremely profitable. They operate on the principle of “callable capital”, which means that their shareholders (the largest of which are Western governments) invest a small fraction of their capital, with the rest provided only in the event of losses. MDBs can also leverage their capital by borrowing and they too can attract private investors to work with them on joint projects.
Now, G7 countries must use their majority stakes in most MDBs to give them a new climate-focused mission by devoting more of their resources to green projects. They should also supplement the capital of these institutions, showing enthusiasm for the task.
Other sources of financing that do not affect the budgets of rich countries are the “special drawing rights” (SDRs) of the International Monetary Fund. This is something akin to global money printing: although SDRs are not cash, they can be converted into hard currency. Last year, the IMF issued $650 billion in SDRs to its members in response to the pandemic. This followed the issuance of $250 billion during the global financial crisis.
The problem here is that most SDRs have gone to rich countries that don’t need them, because the amounts are based on a country’s contribution to the IMF. That’s why the organization is working on a plan to channel $45 billion of surplus SDRs from wealthy countries into a trust to help countries build resilience to climate change, among other shocks. But this is not ambitious enough: the West should think ten times more. After all, rich countries already have about $500 billion in SDRs that they don’t need.
Critics might say there is no magic money tree. Although guarantees, callable capital and SDRs do not immediately affect government budgets, they could in the future; these are called “off-balance sheet commitments”. While this is true, they pale in comparison to the off-balance sheet liabilities the West is managing by failing to tackle climate change decisively and reacting too late to the threat from China.
The West has the basis of a clean green plan that not only helps save the planet, but also has huge geostrategic advantages. But he will only reach his potential if he shows ambition and unity of purpose while determining exactly where the money will come from.
Hugo Dixon is a journalist, activist and entrepreneur. A version of this article has been published by RUSI.
Wed 3 Nov 2021
Can innovation save the planet?
Political heavyweights Bill Gates and John Kerry and experts from the United Arab Emirates and Kenya joined the Atlantic Council at COP26 in Glasgow, Scotland to discuss technological breakthroughs that can have a lasting impact on the world. climate change.