Last month Jamaica submitted a new climate plan to the UN — it garnered little global coverage or praise.
Jamaica is a small economy and whatever the government in Kingston decides, it rarely moves global markets or makes global media.
But it was significant. According to World Resources Institute it is 60% more ambitious than its 2015 submission, and heralds a rapid expansion of renewables and cleaner transport on the island of 3 million.
Jamaica's plan was not a back-of-fag-packet piece of work. It was worked through with World Bank modellers in 2019 to develop emissions and economic scenarios and stress test targets.
As such it represents a new tranche of economic strategies that hundreds of smaller countries are currently pulling together.
Seen in isolation, this is a grain of sand. Yet, fitted into an expanding mosaic, it is part of a story of greener growth through the 2020s and beyond.
First, let's rewind five years.
The 2015 Paris Agreement was the first time all countries (rich, poor, developed, developing) were asked to land a climate plan with the UN, known as Nationally Determined Contributions (NDCs).
Safe to say, there was relief when over 180 arrived ahead of the meeting.
There was a low bar for quality and rigour. Some were short and vague. Many African plans were written by Western consultants.
A 2017 UN study on NDCs talks of 'varying scopes' and said many were 'lacking details.'
The political message they sent was key. Virtually everyone was on board. But beyond that there was little sense of a pathway for growth through 2020 and beyond.
“The first set of NDCs in many cases had no realistic, or, prioritized costing and budgeting,” reads a July 2020 report from the Finance Ministers for Climate Action, a coalition of over 50 countries.
Five years on from Paris, 565 million people still lack access to electricity and 900 million cook their evening meals on polluting, dirty stoves that can kill. It’s hardly a glittering resume.
Trillion dollar opportunity
Yet even if you take the class of 2015 UN plans as rough endeavours, they pack a collective punch.
The International Finance Corporation (IFC), a member of the World Bank Group and the world’s largest private sector-focused development bank, rated them as a ‘$23 trillion investment opportunity to 2030’.
NDCs by China, Indonesia, the Philippines, and Vietnam spoke of $16 trillion of investment in high efficiency building projects and clean energy plans.
Argentina, Brazil, Colombia, and Mexico targeted $2.6 trillion of new investments, with low emission transport a priority.
Cote d’Ivoire, Kenya, Nigeria, and South Africa were among African nations planning $783 billion in clean energy, transport and efficient infrastructure.
Building back… better?
That was 2015 — and even with COVID19 as a bleak backdrop, we are in a different era: renewables and electric vehicles are now serious players.
Coal is largely on the retreat, bar its Chinese redoubt. Blackrock is among leading investors urging a shift from brown to green.
This week BP announced it is becoming an “integrated energy company” (IEC) rather than an “international oil company” (IOC), causing shares to rise 8%.
Planned cuts to oil and gas production by 40% by 2030 is a clear sign BP sees its oil & gas business shrinking fast.
Analysts at McKinsey reckon spending on renewables creates five more jobs per million dollars invested than spending on fossil fuels.
UK think tank ECIU reckons over half global GDP is either planning or is covered by net zero emission targets.
Thousands more climate-friendly green projects are good to roll within two-years, according to consultants EY.
Market signals?
Chile, New Zealand and Rwanda are among those to have joined Jamaica and gone early with submissions to the UN. More are expected at the UN General Assembly in September and in December when the Paris Agreement turns 5.
The question I’m interested in (and would welcome feedback / comments on) is should we start to take them more seriously?
Mirza Baig, global head of governance at Aviva Investors, suggests we should.
"We need governments to move to see widespread transformational changes at a company level," he said in an interview earlier in 2020. These will accelerate the commitments companies are willing to make, he added.
Major multilateral development banks (MDBs) still seem undecided.
I understand officials still claim in private meetings that NDCs are not high quality enough and do not offer enough investment guidance for them to offer more financial backing.
If accurate, that's a convenient stance for MDBs to take. Most of them have still not stopped funding fossil fuels five years after the Paris Agreement, which asked them to make a shift to low carbon.
To be fair, NDCs are not market movers as they typically factor in policies and trajectories national governments have already announced.
Most lowball their UN announcements: the most egregious example is India, which is on course to vastly over-achieve its plan.
An added issue is they’re not usually written by Treasury officials — rather climate and environment teams who hold less sway over central government.
Still, there’s a growing view that investors should take note.
The plans “often provide a window into the government’s vision for areas of future economic growth and technology transformation, both of which have clear linkages with job creation,” World Bank lead economist Stephane Hallegette argued earlier this year.
“They do represent the most public statement most countries have made to date on climate, and thus offer an extraordinarily helpful foundation for efforts to promote a sustainable economic recovery from COVID,” he adds.
Take the UK: its climate plan, expected in late 2020, will benefit from modelling from HM Treasury on pathways to net zero emissions by 2050.
No doubt HMT’s involvement will be the cause of much pain among government departments and could lead to a cut in ambition, but it’s a sure sign that climate is seeping into the mainstream.
More broadly, influential financial bodies are increasingly warning that climate policy at national level is determining whether investors stick or twist.
In 2018 a Bank of England briefing note said climate policy should now be an ‘integral part of the broader policy agenda to promote economic growth’.
In 2019 Legal and General — which manages £1 trillion of UK pension funds — warned the world faces a climate ‘catastrophe’ in its annual report — pledging to crack down on polluters.
In 2020, Larry Fink, CEO of Blackrock — the world’s largest holder of fossil fuel stocks — said his organisation was facing a wave of queries from concerned clients. ‘They are seeking to understand both the physical risks associated with climate change as well as the ways that climate policy will impact prices, costs, and demand across the entire economy,’ he wrote.
We’re still way off course to limit warming to safe levels, and emissions are rising, yet most countries and sectors have broadly over-performed on their promises since 2015.
To an extent, that’s a function of those promises being so low and inadequate. It also means the NDCs are useful in terms of setting a baseline for the next 5 years. In the words of D:ream: Things can only get better.
BP’s latest global energy survey was revealing. For the second year in a row renewables are the fastest-growing source of energy, up 12% in the past year, 252% in a decade.
As Carbon Brief details, low-carbon power sources are steadily inching higher — eating fossil fuel’s share — at nearly 16% in 2019, they are now at the highest in the BP’s 54-year data series.
The new batch on the UN’s books suggests an increased level of rigour, costing and analysis.
The Philippines and Colombia are among those working their plans through finance ministries before announcing strategies late this or early next year.
None of this means the new batch will be copper-bottomed, nor that they will compensate for the poor ambition shown by G20 polluters.
But it does suggest that once added-up, the collective target from developing nations will be one to take note of. Watch this space.
