Climate Change and the Urgent Need for Global Action
Introduction
Climate change is an imminent threat to our planet and its inhabitants. The increase in greenhouse gas emissions has resulted in unprecedented heatwaves, ravaging countries such as the United States, the Mediterranean, and China. It is alarming to note that this year is projected to be the hottest year on record, accompanied by the highest greenhouse gas emissions in history.
Despite the growing awareness of the urgency to tackle climate change, humanity’s efforts thus far have fallen short. Over three decades ago, the United Nations report by Norwegian Prime Minister Gro Harlem Brundtland emphasized the imperative of sustainable development. However, the world continues to struggle in effectively addressing the climate crisis.
The Opportunity for Norway to Lead the Way
Norway has a unique opportunity to lead a significant global response to climate change, leveraging its windfall profits from the energy crisis. With massive revenue streams from fossil fuel exports due to Russia’s invasion of Ukraine, Norway’s net cash flow has soared to unprecedented levels. In 2022 alone, Norway is projected to have generated approximately $150 billion in profits, emphasizing the tremendous financial potential.
Simultaneously, the global political effort to combat climate change is hindered by North-South disputes, particularly regarding finance. Developing countries, which contribute the least to the problem but suffer the most, receive inadequate aid and struggle to finance the transition to low-carbon energy sources. The International Panel on Climate Change (IPCC) estimates that an annual capital investment of $1.5 to $3 trillion is needed in non-OECD countries to achieve the goals set in the Paris Agreement.
The Importance of Clean Energy Investment
The transition to clean energy technologies is essential in combating climate change. Clean energy has become potentially cheaper than fossil fuels in many parts of the world. However, limited access to capital hinders the adoption of these technologies, particularly in developing countries. Post-Covid debt, higher interest rates, and subsidies under US legislation further exacerbate the challenges faced by clean energy investors in these regions.
Norway’s current energy gain is comparable to the magnitude of the entire Marshall Plan, a visionary US investment in global stabilization and post-war recovery. If Norway strategically uses its funding to underwrite and mobilize private investment in clean energy on a large scale, it could shift the paradigm and accelerate the transition away from fossil fuels.
Risk Underwriting and the Role of Norway
Public risk guarantees can play a vital role in mobilizing private capital investment in low-carbon initiatives. Pilot programs and academic research covered by IPCC suggest that risk guarantees can potentially increase private capital investment by up to 15 times.
Given that only a third of Norway’s indirect profits from the Ukraine crisis amount to $50 billion, Norway could commit to underwriting low-carbon capital market investments in developing countries. By doing so, it has the potential to leverage half of the annual foreign investment required by these nations. Through risk underwriting, Norway can demonstrate the effectiveness of such guarantees and encourage other countries to follow suit.
Norway’s Transition from Fossil Fuels to Clean Energy
While Norway has taken significant steps towards clean energy in its domestic policies, its huge revenues during the energy crisis have primarily come from carbon exports. It is imperative to acknowledge that the profits derived from fossil fuels are now tainted by the costs and global suffering caused by climate change. Addressing this injustice is not only a moral obligation but also a crucial step towards a sustainable future.
By using its unique position and funding, Norway can contribute towards the establishment of a global clean energy financial complex. This complex, built on risk guarantees and large-scale international investments in clean energy, has the potential to surpass the fossil fuel complex in driving sustainable development.
The Way Forward and Brundtland’s Legacy
The recent Paris summit on climate finance demonstrated the power of recalcitrant countries to impede progress. However, Norway can build on the proposal to underwrite currency risk and advocate for underwriting risk guarantees for low-carbon investments in developing countries. By embracing this approach, Norway can provide hope and inspiration to the world amid the escalating climate crisis.
Brundtland’s legacy compels us to address the urgent need for global action on climate change. Norway has the opportunity to lead the way, demonstrating the transformative potential of risk guarantees and leveraging its financial strength to catalyze the transition to clean energy.
The Importance of Staying Informed
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Climate Capital: Advancing Towards Sustainability
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To explore FT’s coverage of climate capital, you can visit their dedicated section: www.ft.com/climate-capital.
Furthermore, if you’re curious about the FT’s environmental sustainability commitments, you can learn more about their science-based lenses here: www.aboutus.ft.com/company/sustainability.
Summary
The escalating threat of climate change demands urgent and decisive action on a global scale. The unprecedented heatwaves and rising greenhouse gas emissions serve as stark reminders of the consequences of inaction. Norway, with its windfall profits, has a unique opportunity to lead the global response. By leveraging these profits to underwrite and mobilize private investment in clean energy, Norway can accelerate the transition away from fossil fuels.
Public risk guarantees can play a crucial role in attracting private capital, especially in developing countries where clean energy investment is lacking. Norway’s commitment to underwriting low-carbon capital market investments can provide the necessary financial support and encourage other countries to follow suit.
Brundtland’s legacy serves as a reminder of the need for sustainable development and the importance of taking immediate action. Through its strategic investments in clean energy, Norway can become a beacon of hope in the face of a deteriorating global situation.
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The writer is Professor of Energy and Climate Change and Deputy Director at the UCL Institute for Sustainable Resources
The unprecedented heatwaves ravaging the United States, the Mediterranean and China demonstrate some of the fallout from what looks to be the hottest year on record. It will also likely be the year with the highest greenhouse gas emissions of all time. These grim statistics are a testament to humanity’s continuing failure to tackle climate change – some 36 years after then Norwegian Prime Minister Gro Harlem Brundtland’s landmark United Nations report highlighted the imperative of sustainable development.
This year, Norway has the opportunity to lead, more directly, a huge step towards an effective global response, using part of the windfall profits from the energy crisis to leverage international capital markets to reverse the trend of rising global emissions.
Russia’s invasion of Ukraine has resulted in huge revenue streams to fossil fuel producers. It was mainly a gas crisis, concentrated in Europe, with the repercussions having the strongest repercussions on the European energy markets.
The profits for the oil-producing countries have been enormous. Over the past two decades, Norway’s net cash flow from oil and gas exports has generally reached about $30 billion annually. In 2022, it rose to $130 billion. Over the course of this year, Norway will have reaped about $150 billion in profits – the net cash flow allocated to its sovereign oil fund – above normal, complemented by billions more from soaring prices for its electricity exports.
At the same time, the global political effort to tackle the climate is being hampered by stuttering North-South disputes, especially over finance. It’s not just that the poorest countries, which have contributed the least to the problem and are suffering the most, are receiving inadequate aid. There is also a fight to finance the global low-carbon energy transition.
Emissions growth now comes predominantly from developing countries, and massive investment in clean technologies is needed to change that. The IPCC estimates that between $1.5 and $3 trillion of capital investment per year in non-OECD countries over this decade is needed to achieve the Paris goals. Meanwhile, the Independent High-Level Panel on Climate Finance puts the needs of developing countries outside China at $2-2.8 trillion annually, of which at least $1 trillion annually should be intended for international investment.
The paradox is that clean energy technologies are now potentially cheaper than fossil fuels, but only where capital is cheap and plentiful. In most developing countries, it is neither. The transition is further stifled by post-Covid debt, higher interest rates and huge subsidies under US Inflation Reduction Act legislation, driving clean energy investors away from developing countries.
In real terms, Norway’s current energy gain is about the same magnitude, in today’s price terms, as the entire Marshall Plan of 1948-51. That visionary US investment of $13.3 billion helped stabilize the world and laid the foundation for a rapid and sustained postwar recovery. If Norway does something similar, but uses its funding intelligently to leverage private investment in clean energy on a large scale through risk underwriting, it could change the game entirely.
The recent Paris summit on climate finance advanced the proposal to underwrite currency risk, but demonstrated once again the power of recalcitrant countries to impede real progress. Underwriting risk is key, particularly for low-carbon investments in developing countries. The experience of some pilot programs – as well as academic research covered by the IPCC – indicates that public risk guarantees can be expected to mobilize up to 15 times more private capital investment.
Only a third of Norway’s indirect profits from the war in Ukraine amount to $50 billion. If the country committed to underwriting low-carbon capital market investments in developing countries, it could conceivably leverage half of the annual foreign investment these countries desperately need.
At home, Norway is a champion of clean energy, but its huge revenues during the energy crisis came mainly from carbon exports. The profits made from fossil fuels are now unequivocally polluted by the costs and global suffering inflicted by climate change. Addressing this injustice is the greatest international moral imperative since the Second World War.
Norway has been given the chance to demonstrate the spectacular potential of risk guarantees for large-scale international investments in clean energy. To upgrade the international clean energy financial complex to the scale needed to finally eclipse the fossil fuel complex. And to offer a beacon of hope in an increasingly desperate global situation. Brundtland would be proud.
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