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

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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.

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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.