This post is part of WRI’s blog series, The Trump Administration. The series analyzes policies and actions by the administration and their implications for climate change, energy, economics and more.
Finance ministers from the world's major economies have shown growing interest in climate change in recent years. Green finance has been a regular and increasingly prominent feature of G20 finance ministers' meetings, reflected in their comminqués expressing shared priorities. Yet on March 18, following the latest meeting of G20 finance ministers and Central Bank governors in Germany, climate change was notably absent from the final communique´. Pressreports suggest this came at the insistence of the United States, Saudi Arabia and others.
This omission is a setback, because finance is essential to meeting key global climate targets. A joint report released this week by the International Energy Agency and the International Renewable Energy Agency finds that investing an additional $29 trillion in low-carbon energy technologies through 2050 could successfully hold average global temperature rise below 2 degrees Celsius (3.6 degrees F), the limit scientists say is necessary for preventing the worst impacts of climate change. These investments, if done right, can also boost economic growth and employment opportunities, with the report projecting a potential increase in global GDP of 0.8 percent in 2050. Developing countries will require about $280-$500 billion a year in investment by 2050 to adapt to the effects of climate change, with the potential to rise even higher if the world fails to curb greenhouse gas emissions.
International Dialogue on Climate Finance Had Been Evolving
The loss of climate language in the most recent communiqué is an unforced error on the part of the United States. Over the past several years, U.S. negotiators had worked to ensure that G20 language on climate finance was balanced and reflected a fair distribution of responsibilities for funding the global response to climate change. Developed countries acknowledged their responsibility to provide funding to institutions such as the Green Climate Fund (GCF), but the G20 has emphasized the need for other major economies to step up and contribute funding—both domestically and internationally—to the low-carbon transition. Following a multi-year bilateral dialogue with the United States, China announced $3.1 billion for its South-South climate cooperation fund at a leader's summit in Washington, D.C. in September 2015— a figure comparable to the U.S. $3 billion pledge to the GCF a year earlier. More than 40 countries, nearly a quarter of them developing nations, joined the United States in pledging money to the GCF, marking a major step forward in multilateral collaboration to fund climate action.
The United States was also instrumental in getting the G20 to look beyond purely public flows in an effort to mobilize trillions of dollars in private investment, much of which is currently misaligned with achieving emissions-reduction targets. In December 2015, the Financial Stability Board established the Task Force on Climate-Related Financial Disclosures to develop voluntary, consistent guidelines for companies to disclose the physical, liability and transition risks associated with climate change. Such disclosures can be a powerful tool for investors, lenders, insurers and other stakeholders to assess portfolios for growing climate risks, and, if necessary, realign investments.
Climate Finance Is Good for the US and the World
We've explained previously some of the ways climate finance benefits U.S. jobs and exports. In the electricity sector, more Americans are employed in solar than in oil, gas and coal combined, and with global clean energy investments exceeding those in fossil fuels by 2 to 1, it presents a major opportunity for renewable energy exporters.
The benefits are clearly seen by U.S. companies, which have made significant commitments to climate action. In February 2015, Citigroup committed to invest $100 billion for environmentally friendly and climate-relevant solutions over 10 years, and in June the same year, Bank of America Merrill Lynch pledged to increase its environmental business initiative from $50 billion to $125 billion by 2025. Major U.S. corporations including Apple, Facebook, General Motors, Google, Microsoft, NIKE and Starbucks have joined the RE100 initiative committing to procure 100 percent renewable electricity.
Given climate finance's clear benefits to the United States and the world, as well as progress in getting other countries to pledge their fair share of funding, the U.S. pullback from previously agreed G20 language weakens the global consensus, to the country's detriment.
One reassuring note in Saturday's communiqué was a reaffirmation of the commitment made by leaders in 2009 to “rationalise and phase out, over the medium term, inefficient fossil fuel subsidies that encourage wasteful consumption.” These subsidies don't make sense from both an economic and environmental viewpoint. The target is now almost eight years old, and progress has been uneven at best; it is well past time for the G20 to set a concrete deadline to meet it by 2025 at the latest.
Wolfgang Schäuble, Germany's finance minister and chair of the meeting, did leave the door open for progress on other climate issues, noting in the closing press conference that ministers would continue to work on these and would discuss them again next month during the spring meetings of the World Bank Group and the International Monetary Fund. U.S. Treasury Secretary Steven Mnuchin and those in the White House charged with overseeing economic and financial policy should seize this opportunity, and not walk away a second time from balanced, hard-won language on climate finance.
EDITOR'S NOTE, 3/27/17: A previous version of this blog post stated that more Americans are employed in solar energy than in oil, gas and coal extraction combined. We have since amended that sentence to specify that this is true specifically for the electricity sector.