Accelerating the transition to net-zero carbon economies

Published 19 June 2019 in:

Photo: Niclas Vestefjell/imagebank.sweden.se

Secretary-General of the United Nations António Guterres noted in his remarks on 10 September 2018 that “climate change is the defining issue of our time – and we are at a defining moment”. Given the urgency portrayed in the IPCC report on 1.5 degrees of warming, we should all be at the forefront of raising the level of ambition.

From a Swedish perspective, we are pleased to share our experience of policy, providing and mobilising finance and providing innovative technology for an ambitious implementation of the Paris Agreement and the transition to a net-zero carbon and climate-resilient economy. We must embrace the opportunity afforded by climate action. The New Climate Economy Report found that “bold climate action could yield a direct economic gain of USD 26 trillion through to 2030 compared with business-as-usual”.

As Parties to the Paris Agreement, we have all taken upon ourselves to define ambitious national efforts within our nationally determined contributions (NDC). Developed countries have recognised the need to support developing country Parties in their implementation.

Naturally, for most countries – if not all – financing NDCs with public money alone will not be possible. National budgets are simply not big enough to finance the costs of the transition and implementation of the Paris Agreement. At the same time, national budget processes need to take climate action into account for public spending to be aligned with the goals of the Paris Agreement. Equally as important as securing financing for climate action is ensuring that public spending does not run counter to the goals of the Paris Agreement. Furthermore, NDC implementation is facilitated when NDCs are firmly anchored in national budget and planning processes – both to ensure financing through national budgets, as well as to ensure consistency between NDCs and national implementation of the 2030 Agenda.

But to achieve the goals of the Paris Agreement, there is both a need and an opportunity to mobilise other financial flows. To facilitate those flows, national regulatory frameworks and resource mobilisation processes are key. Within the European Union, we are working to set in place a regulatory framework which enables investors to make informed decisions on climate action.

Sweden stands by its commitment to climate finance and will continue to finance climate action – both through development finance and by catalysing other flows. The goal of USD 100 billion remains an important milestone and commitment, and will form the basis of discussions on a new goal for climate finance post-2025. But, while recognising the different dynamics of the Paris Agreement and the Addis Ababa Action Agenda (AAAA), a coherent approach to financing development and climate action is key for achieving the Sustainable Development Goals (SDGs)and ensuring the transition to climate-smart economies. Financing climate action should be part of resource mobilisation efforts within the AAAA. The importance of domestic resource mobilisation was highlighted at the 2018 Stockholm Tax Conference. The interlinkages between the SDGs, the AAAA and the Paris Agreement need to be applied both globally and at national level for the multilateral spirit of 2015 to truly live on. Such an approach will also facilitate a just transition and alleviate potential socio-economic impacts of climate action, making the transition inclusive.

In practice, this approach would mean that all countries should ensure implementation of their NDCs and National Adaptation Plans (NAPs) by implementing the AAAA nationally. National ownership of development priorities, including climate action, is always key. Countries themselves prioritise relevant climate action measures, be it mitigation, adaptation or aligning financial flows. Countries are also in the driver’s seat in terms of putting in place a regulatory environment that stimulates more private investment. As a donor partner, Sweden will continue to mainstream climate action in our development cooperation programmes, and we will ensure multilateral partners do the same. We will continue to highlight climate-related security concerns, both in our overall policy dialogue as well as in development cooperation. Additionally, protecting biological diversity and integrating global environmental goals as expressed in the Rio conventions and other global conventions will produce results on climate action. The fight against global warming underpins all sustainable development, and evidence shows that the best results are achieved when gender equality is at the centre of these efforts.

The UNFCCC’s 2018 Biennial Assessment and Overview of Climate Finance Flows (BA) shows that the main part of climate-specific development finance flows through bilateral channels (USD 33.6 billion in 2016) or through the multilateral development banks (USD 19.7 billion in 2016), while USD 2.4 billion was channelled through the multilateral climate funds. Financing through the climate funds should increase when the Green Climate Fund gets up to speed and establishes required governance structures. The BA also concluded that investments in fossil fuels amounted to USD 742 billion, fossil fuel subsidies amounted to USD 373 billion and the sum of total assets under management amounted to USD 71 trillion. Clearly, at global level there is more work to be done to make “finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development”, as Article 2.1.c of the Paris Agreement states. Phasing out financial flows going to carbon-intensive activities and market-based mechanisms, such as carbon taxation and other forms of carbon pricing, should be used as a cost-effective means to reduce emissions. Such initiatives form part of the Helsinki Principles of the recently launched Coalition of Finance Ministers for Climate Action. Work is also currently under way in the UN Tax Committee on presenting a handbook on carbon taxation.

In parallel, the recommendations of the Task Force on Climate-related Financial Disclosures are gaining ground. The Network for Greening the Financial System has put forward six recommendations for action. The Institutional Investors Group on Climate Change has announced an initiative to explore how investors can align their portfolios to the goals of the Paris Agreement. The group includes several European pension funds, key actors in the transition to zero-carbon economies.

The Paris Agreement recognises the important role of capital markets in mobilising investors and raising long-term finance for green assets to support the implementation of NDCs. Green bonds, which raise financing for climate-smart projects, are an essential channel to broaden and deepen capital provision for the global transition. The new Stockholm Sustainable Finance Centre has been established to accelerate and promote the shift in capital investments required to deliver on the SDGs and climate targets.

We look forward to continuing to engage in dialogue with all relevant actors to ensure the fulfilment of the commitments made under the Paris Agreement. Financing the transition will be a challenge, but the money is out there – and by integrating climate action in national implementations of the AAAA, as well as creating conditions for private investment, we will tackle the challenge.

Written by Mattias Frumerie, Swedish Ministry for Foreign Affairs