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US Secretary of the Treasury Janet Yellen called on finance
ministers to fold climate action into the fiscal and economic
policies.
"Existing fossil fuel infrastructure is working against us,
driving us instead towards reaching climate tipping points this
decade," Yellen warned in remarks made 19 April to the Coalition of
Finance Ministers for Climate Action at the sidelines of the World
Bank and International Monetary Fund spring meetings, which run
18-24 April in Washington DC.
Launched in April 2019, the coalition, which met for its 7th
Ministerial meeting, represents finance ministers from more than 70
countries that seek to promote national climate action through
fiscal policy and use of public finances.
In addition to incorporating the cost of carbon into government
budgetary decisions to achieve climate policies and goals, Yellen
emphasized that "we must also not lose sight of the global needs to
adapt to the impacts of an already changing climate."
Other ministers at the coalition's meeting agreed with Yellen
that carbon pricing should be considered a key policy lever to
address climate change, but they added that careful consideration
should be given to national and international implications when
designing carbon pricing policies. They cautioned that high carbon
prices could lead to heightened carbon leakage risks, where
businesses shift to countries with lax emission regulations, and
related potential negative spillover effects, and distributional
impacts, especially on poor and vulnerable communities.
"Putting a price on carbon is an important step forward in
advancing low-carbon economy policy," Indonesian Finance Minister
Sri Mulyani Indrawati who also serves as the coalition's co-chair,
said in a 19 April statement.
The coalition's report also recommended finance ministers "tip
the balance to green energy by shifting spending and regulation to
eliminate the advantage of fossil fuels and provide a level playing
field for clean energy." It urged greater mobilization of finance
through the use of green bonds, concessional climate financing, and
leveraging private capital for building green, resilient
infrastructure and industries.
The report said the cost of inaction can translate into more
frequent budgetary shocks as physical impacts of climate change,
such as wildfires, droughts, and torrential downpours adversely
affect asset values, economies, and jobs. These in turn would
result in shocks as the failure to assess, mitigate, and adapt to
climate change results in the higher public expenditure associated
with reconstruction, disaster relief, and write downs of stranded
assets.
Diversifying energy supplies
Yellen acknowledged that Russian "war of choice" with Ukraine
has made it more challenging to tackle the goal of limiting global
warming to 1.5 degrees Celsius, as developed countries grapple with
the fallout of a major geopolitical and humanitarian catastrophe
that imperils international economic cooperation.
"Europe is currently focused on its plans to reduce dependence
on Russian fossil fuels by diversifying supply chains and doubling
down on clean energy investments," Yellen said. "These efforts
highlight the need for us all to take actions that safeguard our
energy needs and build resilience to market volatility."
Germany, for instance, is seeking to reduce its dependency on
Russian natural gas exports. The German cabinet announced planned revisions to
the country's energy laws that would require "almost all" of the
electricity to be supplied from renewable sources.
Tapping clean energy
In March, Pierre-Etienne Franc, who heads the pure-play hydrogen
investment fund known as FiveT Hydrogen that has raised
$1 billion to date, toldNet-Zero Business
Daily by S&P Global Commodity Insights that inflation
driven by fossil fuels, or "fossilflation," exacerbated by the war
with Ukraine has made green, renewable sourced hydrogen more
attractive as an investment compared with gray hydrogen derived
from oil and natural gas extraction equipped with carbon capture
and storage technology.
At the 2022 CERAWeek by S&P Global meeting in Houston this
March, financiers said the momentum
for a transition away from fossil fuels picked up in the aftermath
of the COVID-19 pandemic. This momentum has now accelerated further
with the onset of the war in Ukraine, especially as oil and gas
prices remain at record high levels.
Stephen Pang, managing director with TortoiseEcofin, a
renewables investment firm, said investors are looking not only to
capitalize on the near-term opportunities presented with high oil
and gas prices, but also to accelerate the transition to
renewables.
Morgan Stanley Vice President and Managing Director Tom
Greenberg said governments play a key role in pricing carbon, which
is essential to unlocking the allocation of capital for climate
adaptation and mitigation projects.
Once a price on carbon has been set, he said, "you will truly
see capital start to unlock in a significant scale to build the
type of infrastructure that we need to generate for the ongoing
transition."
Posted 19 April 2022 by Amena Saiyid, Senior Climate and Energy Research Analyst
This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.