With the findings
of our CEO Survey having a focus on resilience and the World Economic Forum’s
latest analysis reinforcing the potential of green investment to put the world
on a climate-resilient pathway and underlined the need for this, with
expectations of a global population of 9
billion expected by 2050, Jonathan Grant examines what 2013 holds both for the
UK and international developments.
Getting ready for a warmer world...
A downward revision of projections for global
temperatures over the next five years by the UK’s Met Office prompted claims of
“we told you so” from climate sceptics over the New Year. But the projections
still show near record temperatures in the next few years and don’t change the
long-term prognosis. Meanwhile Australia continues to bake in record summer
temperatures. So it is no time for complacency.
Our own research suggests that even the 2 degrees
target agreed by the international community looks highly unrealistic, based on
the current rate of progress on global decarbonisation. In our view therefore it's time to plan for a
For the business community that means more focus on
resilience and adaptation to climate change. Pressure on costs has kept energy
efficiency on the business agenda, but in 2013 CEOs will look beyond carbon
reduction (or what is termed ‘mitigation’) when they look at climate change
a wetter one, for the UK at least
In the UK, it’s
official: 2012 was the wettest year ever in England, according to the Met
Office. The downpours caused widespread
disruption with over 8,000 houses and businesses affected by flooding. According to our analysis, this has left the
insurance industry facing claims of about £1bn and property owners with the
prospect of significantly higher premiums.
These may not be freak floods. Analysis by the Met
Office suggests that the UK may continue to get wetter, as climate change
causes warmer air to carry more water.
One implication of this in 2013 is that there will
be added impetus to the discussions between the Government and the Insurance
industry about providing affordable insurance cover for the high risk flooding
areas of the UK. The existing 2008
agreement is due to expire shortly without providing on-going insurance cover
for those affected households.
starting green growth – the UK experience
Battered by multiple crises, the one idea that
politicians everywhere seem to be able to agree on is the green growth agenda.
The vocabulary varies – green growth, sustainable development, low carbon and
the like – but the underlying ambition is the same: more sustainable economic
activity and, particularly, more green jobs.
It calls for a new approach to economic growth that
is supportive of the earth’s ecosystems and contributes to poverty alleviation.
Building green economies means changing the way we define and measure economic
success and societal progress, so that they better reflect quality of life,
social equity, and the need to maintain the natural systems and resources
humans and other species need to thrive. We expect to see both countries and
companies exploring new ways of measuring and reporting progress in 2013.
We should also see low-carbon and environmental
industries growing in importance to the UK economy. They already contribute 8%
to GDP and employ almost a million people – more than the motor trade and
telecoms combined. These sectors can be
a catalyst for a sound and sustainable UK economic recovery.
We expect that the business community will continue
to invest more in clean energy, sustainable transport, and energy and resource
efficiency in an effort to build resilience to rising global commodity prices
while mitigating environmental risks to the business, not least those
associated with climate change.
One implication of this for 2013 is that there will
be more discussions between the government and the industries on how to craft
the right public policies and incentives to promote green jobs, technologies
and infrastructure in the UK, and how to exploit the advantages in green
development to expand the UK’s trading and investment opportunities worldwide.
Where next for
the climate negotiations?
Targets, finance and ‘loss and damage’ will be high
on the agenda at the climate negotiations in 2013. New findings from the IPCC’s fifth Assessment
Report (AR5) will highlight the gap between current emissions pledges and what
the science tells us is necessary for 2 degrees. At the next COP in Warsaw in November,
countries are expected to propose measures to increase ambition in the short
term, i.e. up to 2020, but it is likely that these discussions will remain
largely qualitative in 2013.
Developing countries are calling for more money to
tackle emissions growth and the impacts of climate change. This year, we can expect to see some forensic
level analysis of what funding has been delivered and whether it is additional
to existing aid. Developed countries are
also expected to present plans in Warsaw on how they will scale up their
current funding to mobilize $100bn per year by 2020. The Green Climate Fund, newly established in
South Korea, will seek to define some of the rules and funding mechanisms for
channelling climate finance. In 2013,
though, it is likely that donor governments will use existing routes to deliver
their financial commitments (i.e. through their own development departments or
through the World Bank and similar institutions).
In Doha, governments agreed to
establish a new institution or mechanism to address the issue of ‘Loss and
Damage’. There is the risk that these
discussions could be a drag on the negotiations in 2013. Loss and Damage could either become
mainstreamed into climate finance, along with mitigation and adaptation, or
descend into fractious and interminable discussions about liability and
compensation. If Loss and Damage raises
expectations about financial flows unrealistically, it is possible that it
could increase mistrust among negotiators when these expectations are not
met. By the time we reach Warsaw in
November, we will see which direction these discussions have taken.
New coalitions of countries
may emerge in 2013 which break down the traditional north south divide. The EU, a self-proclaimed leader in the
talks, may look to forge stronger links with other proactive developing
countries such as the AILAC group (Association of Independent Latin American
and Caribbean states which includes Chile, Costa Rica, Panama, Colombia, Peru
and some others).
Increasing sophistication from climate science
Early drafts of the IPCC’s landmark report will be widely leaked
and critiqued in 2013. The Fifth
Assessment Report is a comprehensive review of the science of climate change,
its potential impacts and options for adaptation and mitigation. The three working group reports will be
finalised in late 2013 and early 2014. Increasing sophistication in climate models
will give more insight into climate forecasts for the coming decades and better
geographical resolution in the longer term projections. In a recent summary of the science, the New
Scientist’s prognosis on climate change was that “it’s even worse than we
Carbon pricing – the only way is ...?
In the spring this year, the EU is expected to agree on the so-called
backloading proposal to delay the auctions of a portion of 2013 and 2014
allowances. Backloading could prop up
prices in the short-term, but that prop will be removed later in Phase 3 as
those allowances are reintroduced into the market. So this is temporary medicine when the EU ETS
needs major surgery. Our analysis last year showed that both bold policy
intervention and economic growth above 2% are needed to prompt the market to
return to historic levels of €15-20.
This suggests that the EU allowance price will stay in single digits
over the course of 2013. Nor will 2013 bring any relief to the CER market,
where prices are now measured in cents rather than Euros.
chronic lack of demand for these credits is not new, but it has been
exacerbated by the decision in Doha that only signatories to the 2nd
Kyoto period are eligible to use CERs.
It is easy to think with such low prices that the Clean Development
Mechanism is broken and not worth fixing.
But market mechanisms will continue to feature prominently in the
negotiations in 2013. One bright spot on
the horizon is work by the World Bank Partnership for Market Readiness to bring
together major developed and emerging economies to support the implementation
of new market mechanisms to tackle emissions growth.
to read more on this and our other predictions and views on the key events that
will or may be taking place this year.
 Publications dates for the IPCC Fifth Annual
Assessment Report: Working Group I – September 2013; Working Group II – March
2014; Working Group III – April 2014; Synthesis Report – October 2014