While the UK has shown climate leadership to date, more needs to be done both to keep the country on track to meet its own emissions targets and to support global efforts to achieve net zero, while assisting communities on the crucial issue of climate adaptation. This can be done by leveraging not only the UK government’s financial resources, but also by maximising the UK’s leadership on the establishment of financial markets that facilitate innovation.
The UK’s climate and regulatory leadership has been demonstrated through: 1) the Treasury’s 2020 directive that requires our financial institutions and large corporations to disclose the material financial impacts of their exposure to climate change under different temperature scenarios – a vital step in aligning corporate responsibilities to investors and to the planet; and 2) the country’s investments in wind-powered energy that have accelerated the transition away from coal. Since 1990, this has contributed to a reduction in emissions by 40 per cent, more than any other advanced economy.
Most recently, at COP27, the UK government declared it would triple funding for climate adaptation abroad. It also committed to more investment in conservation projects, support for local forest communities and new funding for clean-energy innovation. These efforts are to be commended. However, these pledges come against the backdrop of the UK failing to meet its own legal commitment to spend 0.7 per cent of gross national income (GNI) on official development assistance (ODA). With ODA decreasing to 0.5 per cent of GNI, the budget that remains should not be cannibalised by the UK’s climate commitments.
With finance and development needs as large as they are, the UK could use its position as a global financial centre to accelerate private investment into carbon-mitigation projects and catalyse carbon markets that will also drive economic development in low-income countries (LICs).
For our essential industries where it is difficult to curb emissions in the immediate term, we could help develop green projects abroad while partially opening up the UK Emissions Trading Scheme to them. This would be to the extent that the additional emissions traded do not lead to us exceeding our annual decarbonisation targets, do not cause price instability nor deprioritise territorial decarbonisation. Article 6 of the Paris Agreement envisions precisely this type of trade globally. However, the development of Article 6 rules is likely to be slow so the UK setting a precedent will help accelerate the process. While it is right the UK meets its territorial emissions targets without the use of offsets, we could also use the Article 6 government-to-government flows of finance to offset our historic emissions. Again, not only would this facilitate immediate carbon savings internationally, it would help set a global precedent.
In addition to carbon markets, there are promising markets emerging for low-carbon commodities and finished products. The UK can accelerate their creation through high government-procurement standards, company-emissions-disclosure requirements and the introduction of carbon-import tariffs. However, access to the UK for low-carbon commodities and finished products coming from LICs must be retained. Beyond simply creating these markets, the UK could also strengthen its commitment to low- and middle-income countries with financial support – drawn, for example, from carbon-import tariffs – for the difference between their cheapest, greenest options for infrastructure development and industrialisation.
The UK could additionally consider payments to rainforest nations for their global climate-cooling services to help prevent further deforestation as well as irreversible and cascading climate effects. The price we pay ought to be commensurate with the avoided damage to our economy as a result of these cooling services. For emissions targets that we fail to meet, the aim could be to pay for the damage caused by the associated temperature difference.
It is only by creating new markets and pricing carbon appropriately that the UK will secure both its climate- and market-creation leadership roles.
Tony Blair and our energy experts joined world leaders at COP27 to explore enabling environments, investment mechanisms and delivery of energy-transition plans. Read more about our work on climate and energy here.