20 September 2023
forbes
Op-eds
We are potentially living through the hottest year in history.
The United States, Europe and China have all seen record-breaking temperatures
during periods of intense heat, with this summer earning the distinction of the warmest
globally by a large margin—0.66 degrees Celsius above average, according
to Europe’s Copernicus Climate Change Service. We’ve also seen extreme weather
events such as the awful flooding in Libya and the powerful Hurricane Lee. In
my own country, India, we’ve seen torrential rain and landslides—some parts
experiencing a month of rainfall in a day.
Despite some encouraging developments at events such as the G20
and COP28 Summit planning meetings, the UN earlier this month warned that the
world is not on target to curb global warming and that more action is
needed on all fronts.
The picture is certainly a concerning one. In advance of Climate
Week NYC, I spoke with global renewable energy and climate policy leaders about
how this can be addressed. The consensus seems to be that there are many things
to be done, but talk is also growing about whether we need a major moment of
institutional reform—a "Climate Bretton Woods."
We seem to have found
ourselves in a situation reminiscent of the mid-1940s, when countries were
confronted with a significant collective task of rebuilding economic systems,
physical infrastructure and, most importantly, trust. In response to this
challenge, several nations joined forces, meeting at a historic conference in
Bretton Woods, New Hampshire, and established the United Nations, the
International Monetary Fund and the World Bank.
In terms of its scale and
reach, climate change has emerged as a challenge that is at least on par with
those faced in the late 1940s. Tackling it effectively requires a similar level
of urgency and cooperation.
The current international
climate regime is at its strongest when it comes to understanding the threats
posed by climate change, through entities like the Intergovernmental Panel on
Climate Change. However, many argue this regime is unable to catalyze action at
the required pace and scale.
One part of it is financing—developed countries have defaulted on their financing commitments, and the Multilateral Development Bank reforms process has simply been too slow and controversial. Equally responsible is the way these issues are handled within the countries—with planning and execution mostly located in ministries of environment or energy. They often lack the analytical power, political heft and enforcement mandates, and hence we see lower ambitions and slower execution.
The ‘Climate Bretton Woods’: A Policy Framework To
Rise To The Global Challenge
So, what are some of the solutions? Could it be that we explore
a modern and climate-focused version of the institutions created in the 1940s?
At its core, this could comprise a new global institution, what we could call a
Global UN for Climate Change, a new climate-focused multilateral development
bank and an agreement to set up within each country bodies similar to the
current central banks.
The Global UN for Climate Change would have one important
difference from current institutions like the UN Framework Convention on
Climate Change: it should have the ability to catalyze faster decarbonization
action. In the past we have experimented with different institutional
frameworks—G20 being one of them—to complement the UNFCCC by enabling
meaningful dialogue among the countries whose financial commitments and
progress on mitigation truly matter.
The UNFCCC process itself has moved from a top-down legally
binding Kyoto Protocol to a bottom-up “self-determined” voluntary Paris
Agreement. Under the Global UN for Climate Change framework, we could begin to
look at some of the alternate frameworks like sectoral treaties to achieve real
transition in energy, transport, agriculture and industrial sectors; building
in mandates for countries, large corporations and other sub-national actors
like cities. A political addition to that of UNFCCC could be the ability to
impose penalties/sanctions—aka the Security Council function of the current
UN—if the actors default on commitments.
The second piece of the proposed system would be a new
climate-focussed Multilateral Development Bank. For now, we could call this the
Global Climate Bank. Unlike the current MDBs, it will be a new institution with
none of the baggage. Its investments would go deep rather than broad,
catalyzing investment in areas that are critical for climate outcomes rather
than for poverty-eradication outcomes. This institution will be staffed with
those having expertise in climate-related investments, and the processes will
be less bureaucratic. It could start with an aim to mobilize $1 trillion per
year for developing countries. With 10% of this amount being offered for
risk-mitigation mechanisms, it will need an initial capital of $100 billion.
This amount will be recycled over future years, as only a small part of the
$100 billion will be invoked in any year. The initial capital could come from
developed countries, whose finance ministers expect to meet the goal of jointly
mobilizing $100 billion for climate financing per year.
The third pillar of the new system would be an agreement to
establish within each major country institutions that are similar to the
central banks. Like the central banks whose main mandate is to regulate the
money supply and credit availability for macroeconomic stability, the function
of the climate central banks will be to set emission reduction targets, monitor
progress in meeting them and issue instructions to different players for
calibrating actions based on analysis. The climate central banks could focus on
managing emissions within a certain range, and if their analyses demonstrate
chances of higher emissions, they should be empowered to limit credit or input
flows to certain sectors or impose taxes/surcharges to provide price signals.
They would need to work closely with the elected governments but be independent
of them and answer to perhaps the parliaments and congresses.
Having new dedicated institutions for climate change is still a
radical idea. But these are the ideas that are increasingly getting discussed
in major international forums. It will certainly be interesting to see how
those conversations progress at Climate Week NYC and the upcoming COP28 Summit
later this year.
Sumant Sinha (CEO of ReNew, India’s leading decarbonization
solutions company.)
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