The Carbon Cliff

CAPE TOWN – We are perched on the edge of a precipice: a devastating overheating of the planet caused by fossil-fuel use. The implications of stepping into the abyss are far more serious than the consequences of the “fiscal cliff” confronting American policymakers, or of the recession stalking Europe. This week, at the annual United Nations Climate Change Conference in Qatar, global leaders must adopt a new approach.

The magic number is two – the maximum number of degrees centigrade that the planet’s average surface temperature can rise without incurring global warming’s most catastrophic effects. Beyond this threshold, rising sea levels and increasingly extreme weather conditions, including heat waves, floods, and droughts, would become more frequent, disrupting agriculture, destabilizing the water supply, and threatening coastal cities and small islands.

In such a scenario, the world’s poorest, most vulnerable citizens would suffer the most – and receive the least help. But, as Hurricane Sandy has demonstrated, even the world’s richest countries are under threat.

The facts are worrying. According to a report prepared for the World Bank by the Potsdam Institute for Climate Impact Research, the current emissions path will lead to a four-degree increase in global temperatures in the next 50 years, and a six-degree increase by the turn of the century.

Likewise, in its World Energy Outlook report, the International Energy Agency cautions that, unless world leaders take bold action by 2017, all of the carbon emissions allowable by 2035 will be “locked in” by existing energy infrastructure. Indeed, both the IEA and professional-services firm PriceWaterhouseCoopers warn that business-as-usual emissions will cause an increase of 4-6 degrees this century. Moreover, the UN Environment Program’s recent Emissions Gap Report highlights the inadequacy of global carbon-reduction efforts, noting that the concentration of greenhouse gases in the atmosphere has increased by 20% since 2000.

World leaders must take immediate, coordinated action to combat this trend. First and foremost, they must continue to pursue global cooperation, despite past disappointments. But climate-change negotiations must evolve beyond carbon management, and pursue more fundamental reforms, by, for example, establishing climate-sensitive international trade and investment rules.

Second, policymakers must recognize that greening the global economy’s growth trajectory will require annual global investment of roughly $6 trillion. Compared to this, the Green Climate Fund – designed to mobilize the $100 billion that developed countries have pledged will flow to poorer countries annually – amounts to little more than a distraction. The path to success would be far more credible if it precluded all investment decisions that are based on pricing carbon at zero.

Third, governments must use their economic influence wisely. Perverse incentives – such as the $775 billion spent annually on fossil-fuel subsidies worldwide – must be eliminated. Public procurement, which totals roughly $4-5 trillion annually, could serve as a powerful tool for stimulating investment in innovation and green growth. For example, as sovereign-wealth funds assume an increasingly influential role in global capital markets, their investments should be channeled toward projects in line with national sustainable-development agendas. To encourage this, governments must provide long-term policy certainty, while using targeted public funds to leverage private investment in green infrastructure projects.

Finally, policymakers must account for owners of stranded assets (investments that decline in value as a result of policy changes), given that imposing a meaningful carbon price would drive down the value of carbon-intensive investments that are currently worth tens of trillions of dollars. Although these assets’ owners are lobbying against change, they are also championing investments that underpin citizens’ collective savings and pensions. To make progress, the unsustainable economy’s incumbents must be sidelined or paid off, and, where possible, carbon-intensive assets should be converted into low-carbon enterprises.

Global climate cooperation is more urgent than ever. Yet many leaders still do not feel the pressure, so necessary steps should be taken at scale, unilaterally and by small groups of willing countries.

Bold action should be supported by every representative at this week’s climate conference, and amplified by the international media in attendance. Otherwise, falling off the carbon cliff will be unavoidable.