A personal view from Ian Stewart, Deloitte’s Chief Economist in the UK.
At the start of this year our plan was that today’s briefing would cover the outcome of the UN Climate Change Conference, COP26, which was due to end last week. Hosted by the UK in Glasgow, it was set to be a landmark in international efforts to reduce carbon emissions. Like much else it has succumbed to the pandemic, and will now take place next November. Covid-19 has forced the conference’s postponement but it has also generated new momentum on climate change. Six recent announcements testify to the gathering pace of change.
First, Japan and South Korea have committed to eliminating net CO2 emissions by 2050; China has set a target of 2060. As the world’s largest polluter, responsible for around 28% of global greenhouse gas emissions, China’s pledge is especially important. The move is a recognition of the threat climate change poses to China, but it also underscores China’s confidence that it can make the transition without damaging the country’s economic performance. The commercial opportunities will not have been lost on China’s policymakers. The country is the world’s largest manufacturer of solar panels, makes more electric vehicles than any other country and is the single largest producer of electric vehicle batteries.
Second, the outcome of the US election puts America back at the centre of the global fight to reduce emissions. President-elect Joe Biden has promised to take the US back into the Paris climate accord, from which it withdrew under the Trump administration. Biden also campaigned on an ambitious $2tn green recovery plan but its implementation depends on the Democrats taking the Senate, something which looks to be only an outside possibility. Nevertheless, Biden could still make significant changes without the support of Congress by relying, as former President Barack Obama did, on executive authority.
Third, many governments have ramped up environmental spending as part of the surge in public spending triggered by the pandemic. France, for instance, has allocated almost 1% of GDP to green measures, such as incentives for more energy-efficient vehicles. In contrast to Germany’s response to the global financial crisis, when purchases of new petrol and diesel cars were subsidised, the aim now is to support sales of electric vehicles. As the focus of government activism switches from short-term measures to preserve businesses and jobs, levels of climate-related investment spending are likely to rise. The European Union has already earmarked 30% of its huge new stimulus programme for green projects.
Fourth, the UK prime minister Boris Johnson last week set out a ten-point plan for the UK’s transition to a greener economy, as part of the government’s pledge to reach net zero emissions by 2050. By far the most significant announcement was the decision to bring forward the ban on the sale of new petrol and diesel cars from 2035 to 2030. Sales of electric cars are rising, but they account for just 7% of all new vehicles bought in the UK last month.
The ban will help to make a significant dent in emissions: in 2017 road transport made up around a fifth of the UK’s total greenhouse gas emissions. Advances in technology have lowered the cost of owning and running an electric car, but the transition will require exponential growth of the country’s charging network, according to the RAC, which industry groups said would need a “Herculean effort”.
Fifth, the ideas generated by the Task Force on Climate-Related Financial Disclosures are becoming increasingly influential in determining national polices. The Task Force seeks to increase the provision of information by businesses on their carbon emissions as a way of better pricing, and controlling, pollution.
Earlier this month the UK chancellor, Rishi Sunak, announced that large businesses and financial institutions will have to report their climate-related exposure within five years. The president of the Bundesbank has recently suggested that central banks should consider only purchasing securities or accepting them as collateral in monetary operations if their issuers meet climate-related reporting obligations.
Sixth, the pandemic has sharpened investors’ appetite for green assets. Renewable energy stocks have risen in value by 94% since the beginning of the year while the largest oil, gas and coal equities have fallen by 31%. Sunak announced that the UK would issue its first green sovereign bond next year to meet growing investor demand. The money raised from the issuance would be used to help fund projects to tackle climate change and to create green jobs.
COVID-19 has dominated 2020, but, far from derailing progress on climate change, the pandemic has reinforced it. The greatest economic downturn since the 1930s could yet prove a turning point in the long battle to reduce carbon emissions.
