Is this the end of Climate Finance As Usual?
What if I was to say that Covid-19 is set to impact the economy to the tune of 5% of global gross domestic product — About $4.1 trillion USD. Whereas, in line with our current decarbonisation trajectories, climate change could cost us anywhere between $70 — $163 trillion.
What if I was also to say that, to date, using G7 countries alone to make a point, we have mobilised ca. $5.44 trillion in stimulus packages for Covid-19 in 2020. Whereas for climate change, spanning every country in the world, we have raised a total of $546b [in 2018].
Would you wonder when all this went so wrong?
I did. Which is why I wrote this article. Part curiosity, part therapy, part thinking ahead. I hope it helps you too.
Covid-19 Vs Climate: Spot the difference:
Economic Impacts: Climate change costs more [1]
According to the Asia Development Banks’ Chief Economist, Covid-19 could cost the world up to 5% of global gross domestic product or $4.1 trillion USD. Others that suggest shorter containment periods propose closer to $2.7 trillion. While no one can really predict how widely this pandemic will spread, nor the efficacy of the reopening of geographies and markets by each nation, there is fairly strong consensus that global (not national) GDP will bounce back in 2021. Some of the more optimistic reports, like the IMF, suggest up to a 5.8% growth GDP comeback. Others suggest a more moderate, but still overperforming 3.3 % rise, to the 2021 3% rise, previously predicted before the crisis.
Let’s compare this to climate change.
According to CNN, there were 820 natural disasters in 2019 (that’s 2.2 natural disasters per day, by the way), costing the world ca. $150bn. This, sadly, was not an anomaly. 2018, as an example, cost the world $186bn.
These are near term costs, however. What about moving forward? In late 2019, the IMF published a report working from two base scenarios to estimate the impacts to GDP over the longer term. For more details on these scenarios please read the footnote [2]. For those who don’t want to dive deep, the headlines are clear. In the worst-case but now highly-likely scenario we can expect a reduction in per capita GDP output of 0.8%, 2.51% and 7.22% percent in 2030, 2050 and 2100, (Roughly translating to $576 billion, $4.125 trillion and $39.4349 trillion [3]) respectively.
Elsewhere, Carbon Briefs’ famous infographic representation of 70+ peer-reviewed climate studies in 2018, including the IPCC reports, cites a higher 13% per capita (Rough estimate: $70.85 trillion [4]) impact by 2100 based on 2oC, together with an annual loss from flood damage and sea-level rise of $11.7 trillion. And most recently in Nature, one peer-reviewed study estimated up to a whopping 30% per capita impact (rough estimate: $163.5 trillion [5]) by 2100 for that missing 4oC warming.
Mortality: Climate is deadlier
So what separates the perception of threat and from our global governments between the two? Is it perhaps the number of lives lost to a tragically preventable cause? Maybe not.
To date (13.05.20) Covid-19 has claimed 295,828 precious and irreplaceable lives globally. A further 4.396m cases have been confirmed and 1.638m lucky, lucky people have recovered. Over in the climate camp and according to the World Health Organisation, Climate Change is already consistently claiming an additional 150,000 lives per year and impacting a further 160 million. Furthermore, based on the current trajectories it will be claiming an average of 250,000 lives per year between 2030 and 2050. That’s about 6.5 million deaths. Just so you know.
Duration: Climate is longer lasting
Looking at Covid-19 to start, due to — amongst other things — the exogenous nature of this crisis to the resilience mechanisms of the financial system that can rebuild it, the worlds relentless addiction to growth and the unprecedented intervention from governments, we are set to recover, (Albeit in the most myopic and outdated definition of our economic wellbeing, GDP growth), in a matter of years and not decades.
What fundamentally separates climate change and Covid-19 then, is that with the help of such things like unprecedented fiscal stimulus, the development of vaccines, and the adequate preparation for future shocks, this devastating virus will only be temporary. Climate change, sadly, is not the same. Even if in some fantasy world where we slammed on the brakes to zero-carbon overnight, carbon will remain in the atmosphere for up to 200 years and some of its gaseous peers, many multiples longer.
As long as we continue to critically underdeliver on the 7.6% reduction in carbon emissions needed globally, per year, to stay in line with a 1.5oC scenario, then the human, environmental and economic costs will continue to rise like all good exponential curves with a healthy dose of uncalculated feedback loops do. First slowly, then oh-my-god-get-me-off-this-rollercoaster- suddenly.
Intensity: Climate is a steady climb
So climate change stays around for longer, creates a bigger threat to the economy and claims more lives. Why then, is there such huge disparities in investment?
No one makes better sense of this than Christiana Figueres in her awesome podcast, Outrage & Optimism, who posits that it has been both the perception of urgency of the issue together with our sense of proximity to it that has been the historical root of our challenges.
While many could argue that both these root causes have shifted in the last decade, and they would, in part, be right. The added complexity on top, then, must be the intensity, which relates to Mark Carney’s “Tragedy of the Horizons”.
As climate change becomes ever-more present in our daily lives, its’ trajectory of impacts, remain, at least to some degree, on a predictable incline — with its catastrophic peak still considered to be a way off. A recent Aon study illustrates the tragedy of this point quite nicely. Of the natural catastrophe events experienced in 2019, the world experienced $232b in economic losses[6], of which insurance programmes covered $71b. When there is a still a manageable and profitable business in tidying up after the mess instead of preventing it, difficult vote and popularity-threatening action will take a back seat.
Covid-19, on the other hand, has hit us like a tonne of bricks. To an extent that no (sane) government can ignore. So while the 2–3 year economic impacts of ca. 5% contraction in GDP caused by Covid-19 is completely overshadowed by Climate’s decades-long and arguably irreversible 13–30% cratering of GDP (not to mention the complete and total destruction of the fundamental ecosystems that sustain human life), we as a collective society have built a system that tactically reacts more than it can strategically respond.
Covid-19 Vs Climate: The fiscal response
So how is the world responding to these crises in comparison?
In response to the covid-19 crisis, the scale of government intervention is unlike anything we have seen in most of our lifetimes. To illustrate the point, I have taken G7 investments alone and make full disclaimers on the ever-rising value of investments as this crisis unfolds. As of 13th April 2020, the investment by government was as follows: Canada: $202bn, France: $49bn, Germany: $810bn, Italy: $750bn, Japan: $1tr, UK: $413bn and the US: $2tr. That’s a total of $5.224tr.
Climate, sadly is not the same. Working with data from before the pandemic, according to the Climate Policy Initiatives’ State of Climate Finance report, the entire world mobilised a total of $546bn in 2018. Looking ahead, while COP26 will have an increased focus on climate finance, as current policies stand, the only real mandated financial commitment is the $100b per year from developed to developing economies to support the countries most impacted and least equipped to handle it. Something that was extended until 2025 without an increase in value and that we are collectively under-delivering on. Nice.
So, what can Covid-19 do for Climate Finance?
There have been endless articles about the new-found power of the revival of an entrepreneurial state; yet more on the lessons on the potential of personal fears or state-driven rapid behaviour change on a national and global stage, with Christiana Figueres herself positing the power of those two energies combined. Industries are collapsing, others are restocking their coffers and yet more are leading the charge.
In the climate community, there are mixed emotions — Both exasperation and new-found energy. Where some of us are reeling in horror as landmark moments in environmental history roll back before our eyes, while others are eyeing up the opportunity for the long called-for systems approach gaining ground; The integration of climate finance into broader societal spend in order to crack open the mainstream. In this case, to green up and think holistically when we build back better.
In short, there is a lot of noise in the now.
For me, I welcome all this important work being done, but see three important convergent trends in the longer term that give me hope.
1. The precedent of Covid stimulus packages
2. The growing movement in climate change litigation; and
3. The rise in intelligent activism.
- Covid Stimulus Packages:
Once upon a time, a well-known leader of a G7 economy shared with us that there just isn’t a magic money tree. Recent history has told us that when the perception of public threat is enough, there’s not just a tree, there’s a whole god-dang orchard.
With $5+ trillion of investment being injected into global economies almost over-night and the growing call for integration of climate action into the broader societal rebuild, the Green New Deal movement is experiencing an albeit nail-bitingly tense, fervour. While the picture isn’t all rosy by any stretch of the imagination and we are tackling stakes that are now eye-wateringly high - with initiatives like the ‘Green Recovery Alliance’, there are some excellent pockets of hope.
2. Climate Change Litigation:
As we all know, though, not all build backs will be better. South Korea, China and the USA are just three select examples. Couple this with a COP26 postponement and concerns on how that might impact the now overdue 2020 National Determined Contributions (NDC) revisions, and one could consider the picture quite bleak.
However, as I have written about before, the climate change litigation movement has been gaining momentum for quite some time already. What gets me excited now, though, is that we have a new precedent in town: Covid stimulus packages. Not only have governments proven that they can act decisively and invest heavily into public threats — If they want to. They now have no way to deny they can. What this could mean for the 2020s climate legal movement, could be litigation against fossil fuel bail-outs, litigation for failure to integrate climate action into long term stimulus packages, litigation against national fossil infrastructure investment as part of stimulus packages, and the one that has me the most curious, litigation against national inaction as a breach of human rights, knowing what we know now about government intervention.
3. Intelligent Activism:
If anyone remembers the Extinction Rebellion website when it first went up, they might have felt a little like I did. Frustrated. At the time, I got myself really worked up at all this excellent latent energy being channelled into a movement that was asking for an impossible trajectory to net zero, provided links to outdated websites, and who refused to engage with broader stakeholders to make their efforts infinitely more impactful.
Pay a visit today, especially in my country which is now complete with its own Net Zero by 2050 law, and I’ve gladly eaten my hat. The movement now has 650 groups in 45 countries worldwide. While not perfect social science, The website talks of “above the ground” civil disobedience, targeting of 3.5% of the population, drawing on such ideas as “momentum driven organising” to drive systems change. Greta, albeit somewhat quieter from the global pandemic headlines, nevertheless has become a political superstar with as many actively engaged followers as the Prime Minister of Australia has citizens, and every day I seem to hear more stories of thrillingly sharp young activists taking on major multi-nationals or their own governments in strikingly intelligent and strategic ways.
While this movement regroups in the time of crisis, I don’t fear that the lack of street protests will affect its’ ability to create change. Quite the contrary. These smart activists will just get smarter. Interventions will get tighter. And they, too, are now fuelled with the insight that governments really can act — if they want to.
Cultivating a perfect storm: The end of Climate Finance as usual
While the world necessarily focuses on ensuring the integration of strings attached stimulus packages and stronger more integrated Green New Deal(s). I am watching these three convergent trends. Together they make a perfect storm for the end of climate finance as usual. They set precedents for radical fiscal action, create litigation for inaction and they are powered by an ever-stronger community of empowered and powerful voting citizens, who have just had enough.
If I had one of those magic money trees, I’d be focusing on three things right now:
1. Invest heavily into the climate legal movement. This, I understand, is being bolstered by a new legal foundation funded by a UK climate charity right now. We need many more. Already experiencing a coming of age thanks to initiatives like CDP, CDSB and TCFD making the right information available, I see this as one of the most important levers for change in the climate movement we have. I would love for a team, or many teams, to focus on leveraging the covid fiscal stimulus package precedent in order to turn it into an actual legal precedent at an industry, regional or national level. Then share it like the fires that are ravaging our native forests.
2. Provide strategic intelligence to activists. What would Luisa Neubauer and her team do, if she had the exact figures of how much Germany is spending on Covid, who is getting bail-outs and who isn’t; how much Covid could impact their economy in comparison to climate over time; how much finance is being mobilised for the just transition and who is unduly influencing who. Or any country for that matter. What if Luisa and activists like her were given a systems map, targeting all key leverage points, a no holds barred key-influencers map and a political strategist. What then?
3. Back truly innovative climate finance mechanisms. The Bretton Woods and associated institutions as they work today, cannot and will not deliver. And while plenty can and will be done from operating within the existing and available mechanisms, we desperately need to think longer-term and in parallel in order to achieve our goals. If governments are now willing to mobilise, then future-fit financial institutions and mechanisms need to meet them half-way. Some people are out there - sometimes welcomed, sometimes in the cold — are intentionally pushing the boundaries of what these incumbent and insurgent institutions can do. Joan Larrea’s Convergence Finance, Dominic Hofstetter’s Transformational Capital Initiative, Axa’s Transition Bonds, Richard Robert’s Tomorrows Capitalism Initiative and Mafalda Duarte’s Climate Investment Funds are to name but a few. We need to back brave institutions willing to break convention and we need to platform mavericks who can see another way.
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As always, thoughts and comments welcome.
Keeping myself out of mischief at: Kate@wolfenden.info
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[1] Now, it would be remiss of me in such an article not to mention the glaring inadequacies of our socio-economic system surfaced by this crisis, that is so close to my heart. Not to mention the eye-watering and unsustainable debt the world now finds itself in (already 322% of global GDP in 2019 and now rising exponentially) as a means to dig itself out. However, for the purpose of this article, I am going to focus on opportunities within a system, not systems change. So please forgive me as I leave likely the most pertinent inconvenient truth of this decade, aside for purpose of this article.
[2] One scenario focused on action in alignment with the 2015 Paris Agreement goals known as the RCP 2.6 scenario that keeps temperatures to within about 1.8oC. The second was based on the RCP 8.5, which at the time worked on the principle of a “worst-case” or “no climate policies” scenario that expected a rise to about 4.3oC by 2100. A figure that anyone who keeps up with climate action progress would know is dangerously close to the mark.
[3, 4, 5] Calculations for actuals from GDP estimates are by their nature not too accurate, but I just wanted to make these %’s less abstract for you. Do not take literally.
The 2030 GDP prediction came from Next Big Future — https://www.nextbigfuture.com/2019/01/world-gdp-forecasts-for-2030.html
The 2050 Prediction came from PwC — https://www.pwc.com/gx/en/issues/economy/the-world-in-2050.html#keyprojections
The 2100 prediction came from a Per Capita Prediction at Future Timeline — https://www.futuretimeline.net/data-trends/8.htmmultiplied by population prediction from Pew— https://www.pewresearch.org/fact-tank/2019/06/17/worlds-population-is-projected-to-nearly-stop-growing-by-the-end-of-the-century
[6] NB. It does not go unnoticed that this study offers up a different number and total cost of disasters than the CNN report. Please consider the point illustrative. In it’s simplest form, of the economic impacts, up to a third of these costs were covered by the insurance industry.