October 31, 2021, the 26e The United Nations Climate Change Conference (COP26) will kick off in Glasgow, Scotland. Once again, the parties will seek to accelerate action towards the goals of the Paris Agreement and the United Nations Framework Convention on Climate Change. Thus, we must ask ourselves the eternal question: what could move the world from words to concrete action?
A model that worked
Our current 1.1 Â° C of climate change is already tragic and costly. An annual litany of climate disasters – heatwaves, droughts, forest fires, tropical storms and flooding – is the new normal, according to the latest report from the Intergovernmental Panel on Climate Change (IPCC). Although the IPCC claims we still have time to stop climate change at 1.5 Â° C, current policies put us on the path to 2.9 Â° C warming according to the Climate Action Tracker. People are increasingly anxious, and it’s no wonder: “Almost one in three Americans has experienced a weather disaster this summer,” reports the Washington Post.
As climate change draws closer to home, the effectiveness of international cooperation to combat it is called into question. Still, there is reason to be optimistic. Recall that in July of this year, 130 countries came together to end another systemic abuse that threatened the prosperity of future generations. They agreed to set a minimum corporate tax at 15%. Multinationals can no longer use tax havens and loopholes so easily to escape their social responsibilities. They will now contribute their fair share to infrastructure, education and other common goods.
If 130 governments set aside their differences for $ 150 billion (USD) per year in collective tax revenues, they can surely close the carbon havens and loopholes that could wipe out $ 23 trillion in annual economic value by 2050. Once again, they will have to move together and pull the financial levers.
No cost for procrastination
If current emission levels persist, we will use the 1.5 Â° C carbon budget within 10 years. Although innovation in clean technology is attracting record levels of funding, a decade is not much to execute an energy transition. The market is in no rush to deal with climate change as procrastination seems financially rewarding.
In most countries, there is no penalty for continuing to invest in or burn fossil fuels. Rather the opposite. BloombergNEF estimates that G-20 governments subsidized fossil fuels to the tune of $ 3.3 trillion between 2015 and 2019. In the United States, intangible and tangible drilling costs (IDC and TDC) are still 100% tax deductible. taxes for investors. In China, coal consumption more than tripled between 2000 and 2020, encouraged by government subsidies.
Unsurprisingly, the Business & Human Rights Resource Center finds that 60 of the world’s largest banks have invested $ 3.8 trillion in fossil fuels since the signing of the Paris Agreement in 2016. These same institutions are making grandiose statements about their environmental, social and governance (ESG) initiatives. .
At this point, the $ 35 trillion ESG market has little to do with the energy transition. InfluenceMap, an independent think tank, found that 72 of the 133 climate-themed equity funds it studied (55%) did not comply with the Paris Agreement. At best, ESG is a euphemism for parking capital in the Amazon
Bigger sticks and sweeter carrots
If we are serious about maintaining a livable climate, then divesting from coal, oil and gas and ending fossil fuel subsidies is insufficient. There can be no havens or loopholes for capital that accelerates climate change or delays energy transition. At COP26, we need to set more transparent targets, free from trivial offsets, carbon accounting tricks, greenwashing and greed.
Here is what I propose:
1. Set national quotas for fossil fuels
In my estimation, we need to stop burning coal by 2030, oil by 2035 and natural gas by 2040 for 1.5 Â° C to be feasible by 2050. The 2040s may be a decade of âphase-outâ when carbon offsets are still allowed. 2050 is the deadline when fossil fuels must be completely phased out.
All of this requires an international agreement with fossil fuel quotas. Otherwise, governments will continue to fear that if they reduce fossil fuel consumption while others do not, economic competitors will gain an unfair advantage.
2. Link offsetting to fossil fuel targets
Several well-known energy companies, including Shell and Total, have linked executive pay to emission reductions. It works if emissions premiums are more financially rewarding than stock options that increase in value with increasing sales of fossil fuels.
Globally, 20% of executive compensation in every organization, but particularly in the financial sector and government, should be tied to carbon emissions targets. All business leaders and elected officials should be included. Targets should be based on the fossil fuel quotas described above and the impact outlook of ESG investments. As to how the latter could work …
3. Minimum taxes and discounts for investors
I propose minimum taxes that deter investors from exploiting carbon havens while rewarding investments in clean technologies that could accelerate the path to net zero. The higher costs of capital in the fossil fuel industry would trickle down to carbon-intensive industries, strengthening the quotas and offsetting proposals discussed above. By targeting financial investors rather than regulating daily consumption, these policies also avoid a confrontation reminiscent of debates around COVID-19 masking and blocking.
The framework for global minimum taxes and rebates for investors can be quite simple:
â A new global minimum tax rate of 2% on investments in fossil fuels which increases each year by 2%. (Hence, by 2031, the rate would be 20%).
â An overall minimum tax rate of 1% for investors in Big Tech, the divestment community’s favorite haven. This tax rate also increases by 1% each year to reach 10% in 2031.
â A neutral tax on low-risk clean investments, such as solar, wind and hydropower.
â A minimum 2% discount or additional subsidy for investments in carbon reduction technologies and projects (e.g. carbon capture and regenerative agriculture) as well as climate adaptation systems (e.g. forest fire detection and flood prevention technology). These increase by 1% per year over the next 10 years
â A minimum discount of 4% or an additional subsidy for investments in platform technologies for the energy transition such as fusion energy, hydrogen and other clean and scalable basic energy solutions. These discounts increase by 2% per year for the next decade.
From speech to concrete action
The accelerating impact of climate change calls for accelerated action. If 130 countries could agree to a global minimum corporate tax, I think they could negotiate fossil fuel quotas, corporate governance rules and minimum taxes on investments that close carbon havens and drive capital towards energy transition. If this summer is any indication, we cannot afford 2 Â°, 3 Â° or 4 Â° of warming. We need bigger sticks and sweeter carrots with clear responsibility, and we need them now.
The task facing our leaders at COP26 is to rally the world behind a plan that can reach net zero by 2050. We wish them wisdom and strength.