Broad-based economy-wide transformations are required to avoid closing the window of opportunity to limit global warming to well below 2°C, preferably 1.5°C, according to the United Nations Environment Programme. Since COP26, there has seen significant progress towards the implementation of commitments made by countries. But the chances of limiting global warming to 1.5°C are quickly declining, and the objective will only remain credible if COP27 and subsequent COPs, together with nationally agreed policies and actions, deliver both:
- Further acceleration of emissions reductions in major developed countries.
- Large financial flows to help middle- and low-income countries peak and then reduce emissions as soon as possible.
The report by Energy Transitions Commission (ETC) titled “Degree of urgency: accelerating action to keep 1.5°C on the table” does a stocktake on the progress made through country commitments and the National Determined Commitments (NDCs) since COP26, the delivery on existing commitments, and the actions required to make progress at the country level and across sectors which are of critical importance to emission reductions. The report also provides insights into how financial flows can increase action and ambition. The report identifies that both capital investments and transfer / subsidy payments are key financial flows for reaching the worlds 1.5°C objectives.
The transition to net zero will be capital intensive, requiring significant investment, around 70 per cent of which will go into low-carbon electricity generation. On average, the ETC report estimates that around USD4 trillion/year of capital investment is required to 2050, up from less than USD1 trillion/year today. By 2030, annual investment needs to reach around USD3.3 trillion/year. This will largely be driven by high income countries and China (c.70 per cent of global investment), as they accelerate progress in decarbonising their power systems, conduct buildings retrofits, and take the lead in getting early stage technologies off the ground. The scale up in investment in middle and lower income countries is also going to be huge, and needs to reach around USD1 trillion/year by 2030.
Beyond investment, payments to stop the most harmful activities – such as deforestation and burning coal for power – are essential to keep 1.5°C alive. Together action in these sectors represents around 50 per cent of the gap towards a 1.5°C pathway in 2030. Transfer/subsidy payments from high income to lower income countries, totalling up to USD350 billion/year, can be one of the most effective solutions to compensating economic actors and driving action towards emission reductions, especially in the short-term while it takes time to implement well-designed real policies.