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Climate crisis has an embarrassing problem that only markets and private sector can solve

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Born in Cape Town, Natale Labia lives in Milan, Italy, and writes on the economy and finance. Partner of private equity firm Lionhead Capital Partners. MBA from Università Bocconi. Supports Juventus.

Climate change is the kind of issue that governments least like to confront. The problem itself is complicated, and the conceivable solutions a daunting combination of expensive, inconvenient, long term and multilateral.

Pitching these solutions to voters is far from enticing: if we all work really hard, make meaningful sacrifices, undertake immense adjustments to our lifestyles, and, most importantly, can ensure that absolutely everyone else will do the same thing, then we might – potentially – not be doomed by the time many of us will anyway be dead.

Not confronting the issues, however, is a luxury that politicians, and voters, simply do not have. Although the climate crisis has made it abundantly clear that this is a problem that is not going to be wished away, the question remains whether governments have the wherewithal to solve it.

As we are by now all aware, about 40,000 heads of state, activists, captains of industry and others gathered in Glasgow at the COP26 conference this month to debate these issues and attempt to come up with a clear framework and roadmap to “keep the dream of 1.5°C alive”. But what does it all mean? And was enough achieved beyond the platitudes, promises and pledges?

As UN secretary general António Guterres made clear to the governments who agreed to the Glasgow Climate Pact, signing it was the easy part. The hard part will be whether or not they implement the thing.

At least there is clear recognition by all protagonists that something needs to be done – and urgently. On this all parties attending, representing almost every country on Earth, are in agreement.

Although we now have a rough framework and broad roadmap for solving the problem, many parts of how to implement the solutions are missing, of which the most conspicuously absent is funding. The conference could not have got off to a worse start than the admission that the pledge taken six years ago by the wealthiest countries to commit $100-billion to developing countries to fund their transition had failed.

Roberto Cingolani, Italy’s minister of ecological transition and co-host of COP26, called this failure nothing less than “deeply, deeply embarrassing. It was hard to expect any countries to trust us after we had broken even this tiny pledge.”

The financial promise was made in 2009 and reinforced in 2015, but, as German State Secretary for the Environment Jochen Flasbarth said, “the developed world did not deliver on the commitment”.

That, he said, was “extremely unfortunate… It’s not right that the developed countries didn’t do it in due time.”

These developed world countries have now promised to make up the gap by 2025, which is a welcome step and symbolically important. But it falls laughably short of what is estimated to be needed, which John Kerry, America’s chief negotiator at COP, admitted to in a speech in Glasgow: it is not billions that are needed, but trillions. Somewhere between $2.4-trillion and $4.6-trillion, every year, in funding for low-income countries to mitigate and adapt to the crisis.

These are amounts, Kerry confirmed, that no government – not even the US or China – will provide.

Notwithstanding the $8.5-billion pledge by developed countries to fund South Africa’s coal transition – which immediately drew ire and scorn from Mining Minister Gwede Mantashe – there is simply not enough money. There will be no Green Marshall Plan. The solution, if there is to be one, will simply have to come from private sector balance sheets and not public governments.  

According to Cingolani, the issue that became abundantly clear at the conference was the absolute centrality that banks and capital markets will have to play in terms of funding the transition.

Although it may be far from ideal, the solution to climate change will have to be an essentially neoliberal one.

Capital markets will be the only way to raise the trillions needed to drive a global transition, and on this the Glasgow Financial Alliance for Net Zero – which unfortunately sounds rather like a mid-2000s boyband – will be critical.

Headed up by the ex-governor of the Bank of England, Mark Carney, it is an alliance of global banks and asset managers that purports to represent more than $130-trillion of potential funding for attaining the much vaunted “net zero”. These funds will not be lent to the developing world on a concessional basis, but rather they will be guaranteed by the IMF and the World Bank, which will backstop the loans.

Although many commentators have branded COP26 a failure, with such complex issues the reality will always be less black and white and more a grey area. However, what has become clear is that, although governments will play a critical role in agreeing to the framework of what needs to be done, implementation will require incentivising the private sector. Exactly how this will work remains unclear. The tragedy will be if, by the time this does become clear, it is already too late. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for R25 at Pick n Pay, Exclusive Books and airport bookstores. For your nearest stockist, please click here.

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  • A neoliberal solution to a neoliberal problem? The worst culprits to become the greatest saviours? Not likely. By the time that penny drops and that tipping point arrives it will be far too late. More likely is that growing popular movements, many of them starting small and local and apparently inconsequential, will bring about an irresistible push and a more organic tipping point. Neither government nor the big corporates (when you can actually tell them apart) can be trusted to be consistently committed to the changes that have to happen. It can only come from enough of us actually waking up, radically revising our priorities, and living them out.

  • … and specifically in South Africa today we need to come out vocally in support of Eskom’s plans for energy provision and replacement, and against the faction led by Gwede Mantashe who are foolishly refusing to step into a (marginally, at least) better energy future.