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This summer, fires, floods and heatwaves raged across the continents when the IPCC presented their long awaited climate report. If our worldwide annual emissions stay at the current level, the researchers conclude, our carbon budget – the amount of CO2 we can emit and still keep global temperature rise below 1.5°C – will be gone by the end of this decade. Staying below 1.5°C global warming, even eying it, will require a rapid and massive cut in our carbon emissions. There is no time to waste. The coming years will be pivotal in halting the worst effects of the climate emergency and living up to the Paris Climate Agreement.
Unfortunately, the ambitious IPCC scenarios are still far from reality. For a long time now, we’ve known what needs to be done, but according to Climate Action Tracker, policies currently in place around the world are projected to result in about 2.9°C warming. This shows that higher pledges – the core of the Paris Agreement – though crucial, will not be enough.This year’s COP26 needs to be about immediate action. Because every year counts.
In the months before it hosts the COP26, the United Kingdom has been building coalitions of the willing to spur immediate action in four pillars, dubbed “cash, cars, coal and trees”. The use of coal and petrol cars cannot end soon enough, of course, but there is a great need for more attention to the first: cash. So, let us talk about finance.
Financial flows will make or break a green future – Here is why
Recently, we have seen new announcements from the EU and US, increasing their international climate finance. COP26 could be the moment when we finally live up to the pledge by developed countries to provide an annual 100 billion USD to developing countries to spur climate action on mitigation and adaptation. This, however, is only a small part of the finance agenda we need to be discussing in Glasgow. Paris Agreement article 2.1(c) is clear: we have to ‘mak[e] finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development’.
The 1.5°C carbon budget has massive implications for financial flows and assets of fossil fuel infrastructure and reserves. The exploration and development of new oil and gas fields has to stop today to stay in line with climate goals. In fact, a 1.5°C threshold would mean that energy producers would have to write off over 80% of their fossil fuel reserves as stranded. Not counting on large-scale carbon capture and negative emissions means not only coal and oil, but also global gas use needs to decline rapidly (down 25% by 2030 compared to 2010 levels, according to the IPCC scenario). In the EU, gas consumption needs to fall even faster.
Yet, since the Paris Agreement was signed, fossil finance has only grown. Between 2016 and 2020, the world’s 60 largest banks poured USD 3.8 trillion into fossil fuels. It’s not just the private sector, either. Public money has continued to flow to fossil fuels. Even after vowing to phase-out fossil subsidies, G20 members still provide at least three times as much international public finance for fossil fuels (USD 77 billion) as for clean energy (USD 28 billion) every year. This has to stop. It is high time that we put our money where our mouth is.
Taking the Paris Agreement seriously means immediately stopping public and private finance for fossil fuel activities. Every cent spent on fossil fuel infrastructure hinders the transition towards a climate neutral economy and carries a major risk of becoming a stranded asset in the near future.
To end fossil fuel finance, the EU must lead the way
Even against this stark reality, there is hope. There is a building momentum to put the issue of sustainable finance high on the agenda for the COP26 in November. The phase-out of coal (subsidies) is gaining traction. President Xi has declared an end to Chinese support for new coal power abroad. The UK has announced an end to direct government support for the fossil fuel energy sector overseas. Along with the European Investment Bank, the UK is inviting other governments and organisations to join them in alighting international finance with the Paris Agreement.
Where these organisations lead, the EU and its member states should follow suit. In January, EU foreign ministers stated that they would “discourage all further investments into fossil fuel based energy infrastructure projects in third countries, unless they are fully consistent with an ambitious, clearly defined pathway towards climate neutrality”. The COP26 is the perfect moment to do more than talk. The EU must also act as a climate leader.
The EU, however, cannot be a serious international partner in combating climate change as long as its own financial sector and public finance is fuelling our climate crisis. According to the European Commission, in 2018, EU countries still provided a staggering 50 billion EUR of fossil subsidies. Recent decisions on European energy funds like TEN-E are stoking the fire even more.
Private financing of gas is also far from over in Europe. Fossil fuel financing by the 16 largest banks in the EU has been increasing each year since 2017. The intention of the Commission to label natural gas as sustainable in the Taxonomy Regulation is not at all consistent with the Paris Agreement. It would be detrimental to the EU’s credibility during COP 26 for the EU to be engaging in greenwashing on such a massive scale.
Instead, initiatives like the Taxonomy Regulation should provide the basis for a much-needed shift towards sustainable finance. According to a McKinsey study, a net-zero EU would require investing an estimated 28 trillion EUR in clean technologies and techniques over the next 30 years. Most of these investments would come from shifting finance away from fossil technologies.
Action before and at the COP26 climate summit is therefore crucial. Glasgow needs to be the moment that marks the end to fossil fuel investments – both public and private. We therefore call on the European Commission and EU member states to show leadership and declare an end to fossil fuel finance, and translate it into binding legislation, such as the EU Taxonomy.
Let’s clean up finance in Glasgow!
For our daily report live from COP in Glasgow click here.