Our Take on OECD Green Finance 2018

Over 2 days in Paris, 13-14 November business leaders, Government policy makers, NGOs and green finance professionals gathered at the OECD Green Finance and Investment Forum to discuss the urgent matter of how to finance the low-carbon energy transition and align financial flows with the sustainable development goals (SDG’s). Watch a livestream of the 2-day event here.

During the opening session, Michael Liebreich (@MLiebreich) founder of BNEF told  the forum (32mins): “In terms of investment, over the last 14 years, we’ve seen $3trillion added to green infrastructure side of climate action,” however: “we cannot just add on a green economy to a brown economy and call it a success.”

Liebreich continued (42 mins): “We’re at the point now where if we want to talk about green projects, the question is not, is there a pipeline? The question is whether or not we are choking off the pipeline of brown projects. Either by making them uneconomic, by denying them capital, by regulating, or by placing a big fat price on carbon.”

As Liebreich and several other commentators including Assaad Razzouck @AssaadRazzouk  – CEO Sindicatum acknowledged, there is no shortage of money, capital is simply being deployed in the wrong places, namely new-build, brown, fossil fuel infrastructure.

Carbon Tracker CEO Anthony Hobley who attended the event spoke to Vikram Widge  @VWidge ‏- Head of Climate and Carbon Finance at the World Bank Group – Climate Change, to discuss problems around capital allocation and how we choke off brown finance while growing the green infrastructure pipeline.

Renewables are increasingly reaching cost-parity with fossil fuel energy generation, this is disrupting investment in the brown economy & changing the investment landscape in favour of low-carbon technologies. 

Vikram: “Technology is cheaper, and that is part of the reason why developing countries are coming around” – in what is being referred to as the emerging markets leapfrog (watch Kingsmill Bond video explainer here).

One of the concept’s discussed during the forum was peak demand for fossil fuels, and how new emerging technologies like battery storage, EV’s and renewables will disrupt the incumbent fossil fuel industry, even at relatively low rates of market penetration (around 5-15%).

In the image below, both previous and expected peaks of the fossil fuel sector are set out, along with the incumbent victim of peaking fossil fuel demand.

Carbon Tracker’s 2020 Vision report by Kingsmill Bond suggests fossil fuel demand will peak globally around 2023, prompting an increasingly rapid transition into renewables as we breach the major economic tipping point of unsubsidised lower cost renewable energy generation.

Although emerging markets are taking to renewable energy like never before and are now beginning to leapfrog their more developed rivals, new polluting brown energy is still being built, in sufficient numbers to blow the carbon budget and cook the planet. Especially in Southeast Asia, where HSBC has extended a window for new build coal financing out to 2023.

Last week, Fatih Birol of the IEA in World Energy Outlook 2018 warned there is now ‘no room left’ in the carbon budget for polluting new fossil fuel energy, especially coal.

Matthew Gray, Carbon Tracker’s Power and Utilities Analyst in ‘Earth to Investors’ calculated that in order to comply with the Paris Agreement, one coal unit needs to close, every day, until 2040:

The UN’s Intergovernmental Panel on Climate Change says at least 59% of coal power worldwide must be retired by 2030 to limit global warming to 1.5°C and many countries have set phase-out dates.

We still need to be talk about leveraging private capital into renewables and low carbon, but unless we choke off the pipeline of new build coal/ fossil fuel infrastructure and agree a plan for the retirement of the existing coal power fleet, there is no way we can achieve the Paris Agreement target of keeping global warming well below 2 degrees.

There are however, some signs of progress. Spain has committed to a €250million ‘just transition’ deal that will close 90% of its coal mines this year, fund environmental rehabilitation and the retirement or re-skilling of workers to transition to a low carbon economy.

As we look ahead towards Katowice for COP 24, the political commitments made by Governments of Germany, China, India, host nation Poland and their ASEAN counterparts where the majority of the new build coal fleet are planned will be crucial in terms of our ability to deliver upon the promise of Paris and stay within 2 degrees.