by Phillip Wentworth
(Canada)
Carbon Laden Stacks
The Carbon Emissons Market – The finance sector has a vested interest in a strong, stable world economy. The evidence is becoming clearer and stronger all the time, not only of the threat climate disruption poses to the global economy, but concerning the timing, scale and direction actions need to take to mitigate and abate that threat.
Strong, early action to reduce emissions can limit costs to around 1% GDP annually but failure to act will result in costs and risks equivalent to losing at least 5% GDP annually and as much as 20% if a wider range of risks is taken into account. By 2030, additional investment of approximately US$200-210bn (or between 0.3-0.5% GDP) is projected to be needed just to bring emissions down to current levels.29 In order to reach the objective of reducing global emissions by 50% by 2050 and to address additional needed investment and financial flows, there is an urgent need to significantly expand the international carbon markets.
Financial institutions can play an important role due to their pivotal function in channelling investment flows. To the extent that policy frameworks exist, the leaders are already demonstrating their willingness to respond. However, much more is needed from the finance sector and from policy makers in terms of the necessary timing, scale and direction of finance and investment flows. Policy frameworks play a crucial role in clearly defining the ambition level and seriousness of governments. Confidence in the regulatory regime can make this happen and so galvanise the majority of financial institutions.
In the last five years, UNEP FI and its members have urged international policy makers and governments to take greater and more concerted action, and have pushed for effective market-oriented solutions in tackling adaptation and mitigation.
Financial institutions are, first and foremost in business, not policymaking and not government. They have a broad stakeholder base, and as a sector of the economy and part of the global community, need to recognise their responsibility in contributing to the global response to climate change. However, an adequate policy environment is necessary to optimise the finance sector’s contribution. The challenge is to ensure that policy makers at Bali, at the national government level and in other domestic policy setting bodies, are fully cognizant of the important role the finance sector can play in responding to the climate change challenge.
Source: UNEP Finance Initiative 2007, Carbon Crunch: Meeting the Cost http://www.unepfi.org/fileadmin/documents/CEObriefing_carbon_crunch.pdf