Foreign

An ironic graffiti from Glasgow during COP26 read: “Cannae afford a carbon footprint”.

As energy prices and the cost of living soar this spring, there is a risk that consumers will be more worried about paying for the carbon footprint they already have, than about reducing it. Already last autumn, our own polling suggested consumer support in principle for decarbonisation fades away as the costs rise much beyond a solar panel or two, and while a record 300,000 electric vehicles are expected to be bought in the UK this year, that still leaves 32 million internal combustion engine cars on the road. Globally, energy and especially gas price volatility is driving emerging markets like China and India towards more, not less coal.

As a country or individual, you shouldn’t have to be rich to be green. A narrative where economic and environmental successes offset each other will never deliver success at scale, as it demands financial sacrifices which, even if they wanted to, most ordinary people can’t afford to make. Governments answerable to taxpayers know this. Carbon taxes are a good example: governments apply them sporadically under different names and at different prices – think of Vehicle Tax and Air Passenger Duty. They also know that a comprehensive, transparently-priced, and explicit Carbon Tax would work better, but they don’t know how to apply it and get re-elected.

Consumer support in principle for decarbonisation fades away as the costs rise much beyond a solar panel or two

This is where greener capitalism comes in. For the first time in Glasgow, business and finance were front and centre. Nogrowth ecological fundamentalists might not like it, but Mark Carney’s achievement in aligning $130 trillion to the slowing of global warming was a huge achievement. Just as important was the announcement that International Sustainability Reporting Standards (ISRS) will place climate reporting on a par with IFRS financial reporting and make sure greenwashing becomes as difficult and as consequential for a company as misstating its balance sheet.

Business has to lead on climate action. Governments relying on constrained taxpayers can’t foot the bill for climate change alone. There is a huge cost to climate change, but the global financial system boosted by all that quantitative easing contains more money than ever before; defined contribution and defined benefit pensions in the UK amount to around £3 trillion. The good news is that addressing climate change is not just the biggest challenge, but also the greatest investment opportunity of our lifetimes, and consumers can share in those returns.

Capitalism is driven by risk and reward – colloquially by fear and greed. The lesson of the increasingly mainstream environmental, social, and governance (ESG) investment framework is that ever more sophisticated climate risk management frameworks and metrics are influencing where capital is invested. Nobody wants to end up owning a stranded asset. This is, however, a debate with an important nuance. Achieving a just and effective climate transition requires investors to steward and support responsible companies on their journeys to net zero.

When it comes to research and development, we are great at the ‘R’ and poor at the ‘D’ – we need real focus on commercialising technology

Engagement – particularly ‘engagement with consequences’ – achieves better outcomes than knee-jerk disinvestment which can result in assets being owned by less environmentally responsible, more short-term players. Divesting is the polar opposite of stewardship, and examples are not hard to find.

Capital allocation frameworks are catching up – in part thanks to earlier government nudges, there is a healthy market for renewable power generation assets, and we have seen dramatic falls in the price of solar energy as markets have worked their magic. But there is more to do, and this is where our focus needs to be if we are to achieve not just ‘the greening of finance’ but also ‘the financing of green’, and hence better planetary outcomes. This requires government and business alignment: government’s role is setting policy and providing nudges, while the private sector can play to its strengths in delivery.

There are three broad areas where capitalism can, and should, step up – and each requires political nudges and a stable policy framework.

Firstly, identifying the right climate technologies to back, and where they need it, engaging them with government to make them investable. One prime candidate is nuclear, both large-scale replacements of the existing nuclear fleet and small nuclear plants of the sort being pioneered by RollsRoyce. Renewable generation is relatively straightforwardly financeable and the issue of intermittency is one which nuclear could solve. Safety arguments are proven, but politics gets in the way, driving climatically perverse outcomes, particularly notably in Germany – this is difficult for investors.

For the UK, with its outstanding universities and science, developing new climate-friendly technologies is a natural fit. However, when it comes to research and development, we are great at the ‘R’ and poor at the ‘D’ – we need real focus on commercialising technology and scaling it up, especially outside the ‘Golden Triangle’ of Oxford, Cambridge, and London. University spin-outs are generally sub-scale, VC is too concentrated in the South East, and regulation gets in the way of investing more institutional money in venture capital. These problems need to be addressed.

Secondly, the innovative strengths of capitalism, in particular in the UK, have to be harnessed in the interests of global climate transition. The City of London played a pioneering role in the Eurobond market 50 years ago, and the same qualities need to emerge to provide leadership in the green finance space. Investment managers looking to decarbonise portfolios need to look to London for their ‘how to’ guide, and our skills in structuring project finance, our legal system, and regulatory systems should make us the natural centre for structuring deals to finance green projects and insurance against catastrophic climate risks in emerging markets.

We can go further though. Most commentators believe that achieving net zero will require not just cutting carbon emissions to address flow, but also using both technological and nature-based solutions to sequester carbon to reduce stock of carbon dioxide. This will become increasingly important in the second half of the transition as residual emissions from hard-to-abate sectors become increasingly difficult to cut.

This explains the pivot to nature and deforestation at COP26 and is closely related to the issue of carbon trading and offsets. The UK can lead on carbon capture and storage under the North Sea, on developing viable financing mechanisms for natural solutions like peat bogs, mangrove swamps, and kelp farms, and in developing a respectable, regulated, and verifiable market in offsetting, based in London. The last of these could be the 21st Century’s equivalent of the City’s London Metal Exchange.

Tackling climate change has huge attractions, including the potential to earn good returns while helping deliver levelling up and regional growth

Thirdly, capitalism must work with government to support consumer engagement in climate, in such a way that all benefit economically as well as environmentally. Business finances electric vehicle charging systems, but investment is underpinned by the existence of a hard expiry date for new petrol and diesel cars. Investment in heat pumps is similarly backed up by deadlines for new gas boiler installation. The confidence that a market will exist in both cases makes it reasonable to expect that costs will come down as technology improves and production scales up, as it has for photovoltaic panels.

Housing retrofit is much more difficult than cars or new-build homes, but it is hugely important. Warming our homes contributes 20-25% of emissions – and most of the homes we will be living in by net zero 2050 have already been built. The Green Deal and other policy initiatives to date have not been effective: there are no nudges to tie the value of a home to its environmental performance, so large capital expenditures are linked to very long paybacks which are of limited practical use and are avoided by most home-owners. A radical solution would be to extend the nudge: tools could include differential rates of Council Tax, or given housing is taxed when it changes hands, in Stamp Duty or Inheritance Tax. These could turn it to the homeowner’s advantage to take the right steps, environmentally: a nudge which is more carrot than stick, prompting the creation of a retrofitting industry.

The ‘Can’t afford Green’ meme will grow in volume over the next few months, but as an investment theme, tackling climate change has huge attractions, including the potential to earn good returns while helping deliver levelling up and regional growth.

Capitalists are good at articulating an investment case – they need to keep doing so around climate and its ability to benefit all parts of the UK as well as investors, companies they invest in, their customers, and employees.

John Godfrey is the Corporate Affairs Director at Legal & General and former Director of the Number 10 Policy Unit. This article first appeared in our Centre Write magazine Favourable climate? Views expressed in this article are those of the author, not necessarily those of Bright Blue. [Image: Pixabay]

Technology and economics are shifting the energy landscape. Alongside the accelerating decarbonisation agenda of global finance, unanimous agreement to a global ‘phase-down’ of coal-fired generation at COP26 has pressured even China and India to begin to get on with it.

Australia is another big coal exporter, shipping about 80% of its thermal coal overseas. At 551 million tonnes of carbon dioxide in 2018 and rising, Australia’s six biggest mines produce more emissions than the entire domestic economy. Given the global context, there’s no denying that the industry is living on borrowed time.

The warning signs have been around for a while, with Australia’s coal-fired power stations already facing massive write-downs and early closures. Unable to compete with the plunging costs of electricity from renewable sources, these assets are increasingly losing money. Of the roughly 50,000 workers employed in coal in Australia, just over 10,000 are exposed to the immediate domestic decline.

Unfortunately, Australia’s leaders are only slowly accepting this reality after a long history of politicising regional communities, simplifying the various avenues of coal employment into a single unified mass and over-emphasising the economic dependence of the surrounding rural towns. Unsurprisingly, the issue is far more nuanced and the outlook far more optimistic than many would have us believe.

Of the roughly 50,000 workers employed in coal in Australia, just over 10,000 are exposed to the immediate domestic decline

That’s why Blueprint Institute has been hard at work mapping Australia’s coal industry in detail, and charting the best path forward, with lessons for all coal-impacted regions around the world.

Our recent report, From the ground up: A Blueprint for economic diversification in regional Australia, draws on an extensive review of what works and what doesn’t in domestic and overseas examples, to identify three critical imperatives for structural adaptation: empowering communities, renewing economies, and supporting workers.

The knowledge, networks, credibility, and on-the-ground capacity of local leadership are essential to drive productive diversification. In Australia, there are some examples of this model already at work, with the Latrobe Valley Authority (LVA) enjoying measurable success and broad local support. These outcomes have prompted domestic community groups like the Hunter Jobs Alliance to demand similar authorities for their regions.

Three years after the short-notice closure of Latrobe Valley’s 1,600MW, 53-year-old Hazelwood power station, the community-led institutional response had generated $99 million in private investment, and created more than 2,500 jobs, reducing unemployment in the Latrobe Valley below original levels. This success can and must be translated elsewhere.

That’s why we recommend empowering new local authorities to make the most of their community’s unique strengths through regular stakeholder engagement and thorough, data-driven research. In Australia, we’re suggesting local authorities receive an initial $20 million and funding drawn from 5% dividends of ongoing coal royalties. Rather than waiting until it’s too late, our research highlights the critical value of short, sharp, and early investment, a lesson that governments around the world might also heed as they seek to support their own effective transitions.

Although coal generators are losingvalue, their infrastructure doesn’t have to. Following inventive overseas examples like Becker’s data centre proposal in the United States, Australia’s AGL is already planning to convert its Liddell power station into a renewable energy hub for solar storage systems, grid-scale batteries, and a waste-to-energy facility.

To support similarly inventive plans, the Federal Government should match private investment up to $100 million per asset. The Government must also set up frameworks to help launch emerging industries. Renewable energy is the obvious priority, not to mention opportunities in critical minerals mining, carbon sequestration, and the enterprises that start-up incubators could drive.

In Australia, the proposed Hunter Renewable Energy Zone alone would bring $32 billion in private investment, 6,300 construction jobs, and 2,800 ongoing jobs to the region by 2030. Meanwhile, the Star of the South offshore wind project further demonstrates how real the opportunities for reemployment in renewables are. The project has liaised directly with Yallourn coal power station in the Latrobe Valley to connect workers to the 760 construction and 200 ongoing jobs generated.

Employers should bear as much responsibility as possible to arrange job transfers and to offer generous severance compensation, but well-designed income insurance, job search services, and retraining opportunities can be powerful short-term tools to achieve long-term reemployment outcomes. Alongside a variety of other interesting findings, Blueprint’s recent polling research, Voices from the regions, found that an average 81% of respondents favoured government-funded retraining for redundant coal workers across regions with coal assets.

By empowering communities, renewing economies, and supporting workers, any jurisdiction can successfully implement policies that are proactive, coordinated, targeted, diversified, and multiplicative. If we play this right, boldly seizing the opportunities, a new and more sustainable energy economy can offer, regional Australia, and all Australians, will be better off for it.

Liana Downey is the acting Chief Executive of the Blueprint Institute. This article first appeared in our Centre Write magazine Favourable climate? Views expressed in this article are those of the author, not necessarily those of Bright Blue. [Image: Pixabay]

Every day Red Cross Red Crescent staff and volunteers around the world are out there responding to emergencies and natural disasters. Across the 192 countries we work in, their message is the same: we are seeing a clear rise in climate and weather related-emergencies, with impacts compounded by Covid-19, and felt most harshly in conflict-affected regions.

Wildfires, drought, flooding, heat waves, hurricanes; extreme weather events are happening more often, and are putting more people in danger. Red Cross research found in the last decade 83% of all disasters triggered by natural hazards were caused by extreme weather and climate-related events, and sadly have killed more than 410,000, the vast majority in low and lower middle-income countries.

We are already feeling the heat now at 1.1°C global warming. Last year alone included unprecedented heatwaves in North America, flash floods in London, Germany, and Belgium, wildfires in Southern Europe, and flooding and drought in Kenya.

As the scientific community and UN call the latest evidence from the Intergovernmental Panel on Climate Change report a “code red for humanity” there’s no time for delay in scaling up action.

The good news is, thanks to investment in weather forecasting capability globally, we are collectively better equipped to prepare for these events today than we have ever been. We’re better able to predict the weather, we no longer have to wait until a disaster strikes, and we can take action before the impact of these hazards are felt.

One in three people are still not adequately covered by early warning systems, let alone early action plans. We can have the most amazing weather forecasting capabilities, but if the message doesn’t reach the community, come in a language they can understand, from a trusted source, in a format people know how to react to, it won’t save lives.

In areas where people are receiving early warnings, we still face the challenge of acting early. Funding commitments to act early and prearrange finance before a disaster strikes featured on the global agenda from the G7 in Cornwall to COP26 in Glasgow, but we still have some way to go to make early action the default response.

By 2050, the UK will be 50% more likely to experience hot summers, and heat-related deaths could triple, reaching around 7,000 annually

Pre-agreed funding to act swiftly before a crisis strikes is critical. Globally, less than 3% of humanitarian funding is currently available for anticipatory humanitarian action. The UK COP Presidency and UK Government are a leading proponent of acting early. The Race to Resilience and the support of the Risk Informed Early Action Partnership (REAP) will save lives linking scientific, humanitarian, and donor expertise to make a real shift and scale action for communities and people most affected by climate change.

In Bangladesh, thanks to robust early warning and early action systems, 2.4 million people were evacuated prior to Cyclone Amphan hitting. An extensive shelter network was opened and people were supported to evacuate safely by 70,000 volunteers, including from the Bangladesh Red Crescent.

The importance of building resilience and early action to new climate extremes is also crucial in the UK and across Europe, from flash floods and storms to the growing risk of heat. The Climate Change Committee identified tackling the health risks from heat as a urgent priority for government.

Extreme heat is one of the deadliest, but also one of the most hidden extreme weather hazards – a silent killer in the UK. Heatwaves are becoming more frequent, longer and more extreme. By 2050, the UK will be 50% more likely to experience hot summers, and heat-related deaths could triple, reaching around 7,000 annually.

In 2020, here in the UK, we sadly had the highest ever recorded excess deaths as a result of heat – with over 2,500 excess heat related deaths recorded in England alone. Worryingly, British Red Cross research found a significant perception gap on heat risk, with 1 in 4 people thinking the UK isn’t hot enough for a heatwave. We know older people are more at risk, but we found that over half of over 75s in the UK do not identify themselves as higher risk in hotter weather, which means they are less likely to take life saving early action.

We need the systems, plans, and finance in place to scale early warning, early action now. We need to build resilience to existing risks, shocks, and more extreme weather by harnessing the knowledge and building the capacity of local volunteers and communities most affected. As we look to COP27, 2022 will be critical year to scale up early action to safeguard against disasters.

Mary Friel is the Climate and Resilience Policy Manager, and was the COP26 Policy & Advocacy Manager, for the British Red Cross. This article first appeared in our Centre Write magazine Favourable climate? Views expressed in this article are those of the author, not necessarily those of Bright Blue. [Image: Pixabay]