The COVID-19 pandemic, for all its misery, did demonstrate that countries can align in times of crisis. The risk is that climate change must affect wider swathes of the global population, before significant action is taken. Until there is a direct and tangible threat to the way of life for millions more, people will not demand action from governments. As a result, countries will continue on separate, and sometimes contradictory, tracks towards Net Zero.
For simplicity, I have grouped the global community into three broad energy transition groups, which I have named the ‘ESN Economies’ – Enablers, Slow Movers and Non-Movers.
"International alignment usually only occurs when there is an identifiable benefit for all parties. The process of alignment must be fair, allowing countries to engage willingly and seriously."
Enablers
These economies are actively working towards achieving net-zero emissions. They lead the way in adopting green technologies and policies, along with innovative financing methods that support projects facilitating the green transition. At the same time, they make it increasingly difficult to finance carbon-producing projects.
Slow Movers
These economies are reluctant to accelerate the energy transition due to several factors:
High Capital Costs: The significant investment required for transitioning to a greener economy can lead to “green inflation”, making the status quo more politically appealing in the short term.
Dependency on Carbon Economy: Economies heavily reliant on carbon-based income face substantial economic challenges in transitioning. The shift could curtail their GDP growth and reduce their competitive advantage.
Income from Taxation: With many economies facing significant public debt constraints, governments find it more fiscally attractive to implement carbon taxes, which generate revenue, rather than providing substantial financial subsidies for the green transition. These subsidies represent an additional cost to their budgets, which many can ill afford.
Non-Movers
These economies struggle to progress due to macroeconomic constraints, such as lower credit ratings. Circumstances hinder their ability to access capital, acquire the necessary technologies and expertise, and develop essential infrastructure for energy transition.
The challenge is aligning the three groups. International alignment usually only occurs when there is an identifiable benefit for all parties. The process of alignment must be fair, allowing countries to engage willingly and seriously.
One way of achieving alignment would be the development of an international and globally accepted carbon trading market. Currently, there are established and emerging carbon markets, the EU Emissions Trading System (EU ETS) being the first and most actively traded carbon market globally. Additionally, the North American market is divided into two key separate but distinct markets: the Western Climate Initiative (WCI – California & Quebec) and the Regional Greenhouse Gas Initiative (RGGI). Other markets, such as those in Japan and China, each have their own systems, resulting in a fragmented and inefficient global carbon market. This precludes carbon trading between blocs outside of the voluntary carbon market which some corporations use on a discretionary basis to offset their carbon footprint.
The international community in recent years has become more protectionist; geopolitical blocs are hindering global trade, cooperation, and international alignment. Countries should be able to trade carbon credits and be incentivised across all geographical borders without barriers.
The international community must also seek to create a global net zero fund. At COP 29 the signatories of the Paris Agreement should discuss a scoring method considering each country's historical emissions since industrialisation. The heavier carbon producing and omitting economies would assume greater economic responsibility by contributing into an international carbon reduction fund. This fund would be managed by multilateral banks and support poorer economies to achieve net zero with defined targets. Countries providing financial and technical innovation and resources to enable net zero should benefit by receiving discounts on their financial contributions to the international fund.
“Countries should be able to trade carbon credits and be incentivised across all geographical borders without barriers.”
These steps will create a co-operative framework by which the ENS Economies can accelerate global progress on climate. The Enablers will be better incentivised to lead by example; the Slow Movers will be coaxed to pick up the pace; and the Non-Movers will receive a much needed jump start.
Further reading: Financing the energy transition in emerging economies
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