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OCT 27, 2021

Happy Wednesday in these busy times!

Cipher has existed for a month! What are we getting right and/or wrong? What content would you like from us that you’re not getting? Email us at news@ciphernews.com or me directly at amy@breakthroughenergy.org.

Today’s edition delves into finance: its central role tackling climate change and the need for finance ministers to take a more central role during annual climate negotiations commencing next week.

In case you missed it, I interviewed Bill Gates at a climate tech conference last week. You can watch it here.

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HARDER LINE COLUMN
Finance ministers urged to fill central role in climate debate
BY: AMY HARDER
Environment ministers have long taken center stage when it comes to the annual United Nations climate change negotiations.

But a growing number of nongovernmental groups and multilateral organizations want finance ministers to take on a larger role at this year's 26th Conference of the Parties (COP26), which kicks off Oct. 31 in Glasgow, Scotland.

"Governments must reflect nature’s true value in all policies, plans and economic systems," U.N. Secretary-General António Guterres said in a speech earlier this month to a low-profile group called the Coalition of Finance Ministers for Climate Action. "As Ministers of Finance, you hold the key to success for COP26 and beyond."

In other words, they hold the purse strings.

"We will not tackle climate change successfully if it’s left only to environmental ministers," said Helen Mountford, vice president of climate and economics at the World Resources Institute. "The finance ministers are the ones who control the budget and taxation policies and are both able to put in place the right taxes, adjust subsidies and put in place direct government investments."

The notion that finance ministers have not filled central seats at the negotiating table may seem surprising, but their increasingly key role reflects a recent shift in the global debate: moving from diagnosis of the problem to solving it.

Environment and foreign affairs ministers have typically led negotiations during the U.N.’s annual climate gathering.

Looking back over the last three decades, this made sense. Diplomats negotiate with foreign countries on global problems, and environment ministers handle environmental problems.

Climate change is the world’s biggest environmental problem. Ergo, environment ministers and diplomats were put in charge.

But unlike most environmental problems and foreign affairs, climate change permeates virtually all parts of the global economy, on top of the physical harm it does to our society and environment through more extreme weather. The solutions to climate change must come with economic opportunity and limiting economic harm to consumers.

This realization, while known to climate-change experts for decades, has begun to reverberate throughout all areas of government and the finance industry in recent years.

As one barometer for change take BlackRock, the world’s largest asset manager. It has been steadily ramping up its rhetoric and action since founder and CEO Larry Fink first highlighted climate change as a financial risk in 2020 in his highly anticipated annual letter to chief executives.

As for the Coalition of Finance Ministers for Climate Action, that was formed in 2019 to serve as an information-sharing group. It’s convened by the World Bank and the International Monetary Fund.

Finance ministers "lack knowledge on climate change, but they have power. We want to increase their knowledge so they can use their power. Nothing important is going to happen unless they’re on board." — Carter Brandon, senior fellow at the World Resources Institute
The fact such a coalition exists is promising, but it also highlights the basic fact that finance ministers aren’t central to climate negotiations. If they were, they wouldn’t need a coalition.

The 2019 U.N. climate conference in Madrid, Spain, was the first time finance ministers went to the annual confab, according to Carter Brandon, a senior fellow at WRI, one of a couple of dozen partners of the coalition.

The coalition plans to hold an event in Glasgow hosted by Rishi Sunak, United Kingdom Chancellor, which will "highlight the role of Finance Ministries in mainstreaming climate and environment into economic policy," according to a spokesman for the coalition.


About 65 countries are currently members, which is double from 2019. But some of the world’s largest-emitting nations aren’t members, including China, Australia and Middle Eastern nations. The United States joined shortly after President Biden was inaugurated.

"They lack knowledge on climate change, but they have power," Brandon said of finance ministers. "We want to increase their knowledge so they can use their power. Nothing important is going to happen unless they’re on board."

Indeed, the world has seen a lot of rhetoric pledging goals for reaching net-zero greenhouse gas emissions by 2050, but little actual policy has been advanced to achieve those goals.

If achieved, these goals would be broadly in line with the Paris Agreement’s ambitions, which is to limit the Earth’s temperature rise to 1.5 degrees Celsius over the next century compared to pre-industrial levels.

Developed countries also have not followed through with nearly enough money to fulfill their pledge of $100 billion to help developing countries meet their climate goals, which Guterres identified as a key challenge for COP26.

The primary reason for the gaps between rhetoric and action boils down to cost, sometimes only perceived but sometimes real, of shifting from cheap oil, natural gas and coal to cleaner energy sources, which in many cases are still more expensive than their dirtier counterparts.

"We cannot afford to fail," Guterres told the finance ministers’ coalition in his Oct. 12 speech. "The world needs your leadership."

Note: BlackRock is a partner with Breakthrough Energy’s Catalyst program.
Amy’s Lunchtime Reads
and Hot Takes

Germany is still razing villages for coal mines despite pledges to cut carbonThe Washington Post
My take: This richly reported story paints a clear picture of the hypocrisy of developed countries continuing to develop their fossil-fuel resources while cutting off financing for poorer countries to do the same.

Energy-Stock Surge Leaves Climate-Focused Investors BehindThe Wall Street Journal
My take: The paper writes that the S&P 500 energy sector, made up largely of oil and gas firms and other traditional energy companies, has rebounded 54% this year, becoming the best trade of the year based on financial returns. At the risk of being that obnoxious person who says I told you so, I did write in April 2020 that the oil and gas industry would bounce back.

COP26: Document leak reveals nations lobbying to change key climate reportBBC News
My take: Oh the irony of this nugget: Australian government officials asked U.N. scientists to delete references to the roles lobbyists played in watering down action on climate policy in their country and the U.S.

Exxon Debates Abandoning Some of Its Biggest Oil and Gas ProjectsThe Wall Street Journal
My take: It’s worth noting that the reasons given to shelve the specific two projects the story highlights is about acute geopolitical concerns, not climate change. Tucked away toward the end are nuggets about increasing Exxon’s spending on low-carbon technologies and a net-zero by 2050 pledge. If Saudi Aramco can pledge such a goal, so can Exxon.

Nuclear Fusion Edges Toward the MainstreamThe New York Times
My take: I was waiting for the "yes, but" part of the article that clearly articulates the remaining challenges to fusion. I’m inherently wary whenever a story is all rah-rah with no catch.

U.S. to Invest Billions in Clean Energy InnovationsBloomberg
My take: I love the following quote from this Q&A with Jigar Shah, lead of the Energy Department’s loan program, about how he communicates what the office does to applicants: "What we’re doing is, frankly, very confusing. We have 10 new outreach people in the office, and they are literally holding people’s hands through the process."

To Strike a Climate Deal, Poor Nations Say They Need Trillions From Rich OnesThe Wall Street Journal
My take: What a ride this story was as it covers a lot of ground and buries a potentially juicy story: That the Global Climate Fund is a mess. But some good news too: The fund’s money helped bring solar costs down in Egypt and BlackRock has launched an effort bringing climate financing to poorer nations alongside governments.

'Breakthrough': IMF develops fund to help debt-laden nations address climate risksClimate Home News
My take: This appears to be one of the most concrete ways the International Monetary Fund has used its financing powers to address climate change, and explicitly with lower-income countries. This stands in contrast to issuing reports about how helpful a carbon tax would be to tackle climate change. Such reports are advisory-based, while this is action-oriented.

More of what I'm reading:
  • Australia Pledges ‘Net Zero’ Emissions by 2050. Its Plan Makes That Hard to Believe. — The New York Times
  • COP26: Instead of lectures to India, West needs to pay up — The Times of India
  • The biggest green hydrogen hub in the US could be coming soon to Mississippi — Canary Media
  • 'Symbol of trust': Progress on finance key to climate talks — E&E News
  • Activists battle high costs, travel curbs to make climate talks — Reuters
  • Climate tech 2.0 must sell venture capital on its future — Financial Times (paywall)
DATA DIVE
Private sector leads in financing for climate action
Source: International Energy Agency • Announced climate pledges include commitments by more than 50 countries and the entire European Union. The net-zero scenario posits that the entire world achieves net-zero emissions by 2050.
Private-sector investments are projected to far exceed public-sector investments in a world drastically cutting greenhouse gas emissions, according to the International Energy Agency.

But public financing is critical in unlocking that private finance, IEA says in its annual World Energy Outlook (page 48) released earlier this month.

Current financing from both sectors lags significantly behind what’s needed, the IEA says. The chart features two scenarios by the IEA about stated commitments and a world that achieves net-zero emissions by 2050.

Importantly, these are not scenarios for what would happen if the status quo continues, which would mean much less financing in both sectors.
AND FINALLY...
Charging into a warming future
My take: I snapped this photo of Tesla charging stations in August while in Leavenworth, Wash., a mountain town a few hours’ drive from Seattle. With climate-change-fueled wildfire smoke casting a haze over the sky, it really sank in: Imagine if all or most gasoline stations were owned by one oil company. That’s what it’s going to be like as we go full-steam ahead into a clean-energy future and Tesla opens its charging network to all electric-car models.
Each week, we feature a photo that is somehow related to energy, the thing we all need but don’t notice until it’s expensive or gone. Email us your ideas and photos to news@ciphernews.com.
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