As G7 leaders meet in the UK this weekend, a global pandemic that continues to ebb and flow is undoubtedly the backdrop. The club of democracies on the permanent roster plus the four guests invited to join – Australia, India, South Africa, and South Korea – have had varying experiences over the past 18 months, some of which have fed a sense of declinism among those present. But on the back of some successes of vaccination rollouts, the onus is now on the summit presenting some practical solutions to ensure freedoms return to the world now and that we can fight the threat of pandemics tomorrow. In thinking about future crises, however, this summit is an opportunity for the nations present to show they can drive a future agenda around a critical issue: climate tech.
For the UK – as current G7 president and host of COP26 in November – this weekend’s summit is a time to build momentum towards a stronger climate commitment through what Boris Johnson has called a “Marshall Plan” for climate. For the US, the Carbis Bay meeting presents a platform to firmly establish its global position as a climate leader, following April’s Earth Day summit. The EU has been pushing a series of climate agendas including the carbon border tax for which it will seek to gain stronger buy-in among the G7 members. Japan remained hesitant towards the G7 ministers’ decision to end international coal finance, but now has stakes to protect in the wake of the ministerial consensus. Landing any agreement on climate would be a big win for the rich democracies as they meet, but it will not be without major hurdles.
On one hand, the leaders need to galvanise political support for ambitious post-covid recovery measures. On the other, they must drive decisive action to put the Paris Agreement targets within reach. Alongside this, are a backlog of issues which have threatened G7 cohesiveness and influence over the past years including disputes over Russia’s indefinite suspension, Iran sanctions, rule-based trade tariffs and a declining share of world GDP. Meaningful progress on climate will therefore be subject to three key points.
Chapter 1
G7 countries are responsible for a significant share of climate finance, and the summit provides an opportunity to address current funding gaps. The IMF estimates the needs of developing and emerging markets increased by about $2.5 trillion because of the pandemic. More than half of low-income countries were either debt distressed or at high risk of distress as of September 2020 because of covid-19. Yet analysis suggests loans account for about 80 per cent of climate finance which further aggravates the debt burden of the poor countries. The future of climate mitigation and adaptation in these countries is now under threat.
Although the Paris Agreement – under which developed countries reaffirmed prior commitment to a goal of providing $100 billion of climate finance by 2020 – does not specify ratios between finance options, there is a need to diversify the instruments, employing more grants, concessional loans, and trade deals, especially as developing countries reel back from the pandemic. The $100bn target has clearly not been met, yet it needs to be seen as a floor not a ceiling. Existing multilateral funds like the Green Climate Fund (GCF), and the Global Environment Facility (GEF), need to be replenished ambitiously.
Bilateral funds which are one of the largest sources of concessional climate finance will need to be multiplied within the next five to ten years, with source countries offering more predictability and transparency. Leveraging private capital, deploying blended finance, and reducing investment-specific risks will be critical, as well as channelling funds to address governance issues. Recent work in Nigeria to support governance reform in the power sector, for example has increased grid solar power displacing the need for diesel.
G7 climate and environment ministers announced in May their intention to stop the funding for international coal developments by end of 2021. Stopping funding for coal is an important step, but it does little to address gaps in energy demand in developing countries which will grow considerably over the next decade. There have been calls to defund the fossil market through subsidy removal with most developed countries set with a 2025 target. But ending fossil subsidies by itself will not do a magic. Funds need to be actively channelled into countries with the greatest opportunity to reduce global greenhouse footprint, i.e., developing countries, while reducing fossil subsidies. As the IEA points out, emissions are rising in developing and emerging economies while clean energy investments are faltering. To close the gaps, we need to grow clean energy investments in these countries by more than seven times to over $1 trillion to reach net zero goals.
Sponsoring a few ‘five-kilowatt’ home solar initiatives here and there will not help developing countries sustainably transition from a carbon-intensive pathway nor will it deliver the scale of economic transformation they need to pull millions out of poverty – not least when many of these countries have been plunged into serious pandemic-induced economic crises. The scope of climate finance needs to evolve, and the summit is a unique opportunity to set the ball rolling.
Chapter 2
Less than a month after the US concluded its Earth Day summit, special envoy John Kerry made news for comments about the world’s enormous climate technology gap. Fact is, there is still a lot of work to be done to accelerate clean technologies – whether through scaling up the deployment of already available options or through the development of new ones. The International Energy Agency (IEA) estimates that annual investments in clean energy will need to more than triple by 2030 to make net-zero achievable by 2050.
In cross-border sectors which are hard to decarbonise like shipping and aviation, it is not only important to revisit international regulation, but also to collaborate on scaling up innovation. In the shipping industry, technical and operational solutions like steaming, weather routing, and contra-rotating propellers, have shown potential to improve fuel efficiency. Hydrogen, methanol, and ammonia among other fuels already show a promise as low-carbon alternative energy source. But, none of these options has been deployed at the scale needed to abate the industry’s ca. 1 billion tonnes of annual CO2 emissions.
The G7 should seize the opportunity of the data revolution to incentivise innovation around alternative fuels, efficiency, and freight carbon accounting in the cross-border sectors. In the shipping industry for instance, there are opportunities to address the challenge of opacity on granular emission data at scale. Automatic systems are emerging which use satellite technology to gather information on position, bearing, draft, speed and more, while matching them with vessel’s operational details (age, manufacturer, engine type, size, fuel type etc.). In countries like the UK, where integrating international share of emissions from aviation and shipping will become part of national carbon budgeting, deploying such data systems at scale will be useful.
By capitalising on emerging data systems, the G7 can lead the way in scaling-up innovation and beating down emissions in an otherwise hard-to-abate sector. Private sector led coalitions representing over 90 percent of world’s merchant ships are already pledging support for the United Nations $5billion fund to help improve research and innovation to support the industry’s transition. Similar pledges have emerged in the aviation industry.
On roads, governments can ban fossil cars, create low-emission zones, and introduce perks for people driving electric vehicles. But in the skies or on international waters, the story is different. One country alone cannot address the challenge. A regional approach will remain limited. Only well-coordinated global solutions will suffice, and the G7 has a chance to take the lead here.
Chapter 3
The power balance on climate sits differently than it did three decades ago. In the nineties, G7 countries collectively held almost 70 percent share of global GDP in nominal terms; now, they hold less than 50 percent. The world order is changing quickly with forecasts putting countries like China and India ahead of most G7 countries in terms of share of global GDP by 2050. From the emissions point of view, G7 countries now account for 40 percent less share of the global total than they did in 1990. The scale has tilted away from the G7 and their ability to directly address global emissions within national boundaries has shrunk significantly. Now they must rely on cooperation and competition with large emitters like China to get their climate agenda off the ground.
Cooperation will be critical in climate technology areas that provide mutual opportunities like carbon capture and storage (CCS) where the stage is set to drive down complex high-capex technology costs. Collaboration on hydrogen production, storage, and transport will be important, especially where measures like electrification are impractical like international freight. Many other climate technologies can be treated similarly. G7 leaders need to up the ambitions of initiatives like Mission Innovation – whose 23 member-countries inclusive of China sought to double investment in clean energy research – while supporting a wider scope of promising cleantech development.
Frameworks for carbon pricing, taxation, emissions trading, carbon border adjustments and carbon-offset exchanges can be addressed at the G7. However, real progress is likely to emerge from a broader international engagement. As the International Monetary Fund (IMF) Managing Director noted, adopting a carbon price floor among the G20 – a small but sufficiently large group of leading economies with about 80 percent of global emissions – will help to efficiently shift supply and demand unto a low-carbon pathway.
Competition and confrontation are equally viable modes of operation which the G7 need to adopt to maintain technological progress on climate change. The recent move of the G7 to isolate China as the only remaining large investor in international coal projects could contribute pressure, but it should not be considered a magic wand. Domestically, China has added more coal power capacity than the rest of the world combined in the last years. The direction of travel of China’s interest in growing and maintaining international investments in coal assets is clear. The country’s target to peak emissions by 2030 does not suggest it will be slaking its coal interest anytime in the near term.
Chapter 4
The Carbis Bay summit will be a challenge but also an opportunity to move the needle on climate technology in the run up to Glasgow’s COP26. It is challenging because the world leaders have a mixed bag of urgent local and regional issues to contend with, all wrapped up in the spiky web of covid recovery. From an opportunity point of view however, it is far likelier to reach a meaningful agreement between fewer countries who are presumably connected ideologically and whose camaraderie go way back. While last month’s communique by G7 ministers might have set a positive precedent for this weekend’s summit, the leaders must now get decisive about turning words into action.