Posted on 17 May 2021

Economic historians will look back on 2021 as the year when the structural decarbonization of the global economy became irreversible. Identifying tipping points as they happen is bold, to say the least, but there are good reasons to think that a new, climate-aligned economy is definitively starting to emerge.

Its emergence depends upon the coming together of a number of factors – science, politics and economics. Climate science has been clear for years, regardless of the misdirection and denial from those who don’t like its implications. Landmark studies such as the Intergovernmental Panel on Climate Change’s 1.5°C report have provided a rigorous scientific underpinning to what is intuitively clear to most people – namely that the climate is changing rapidly, and future change risks catastrophe.

The politics, meanwhile, shifted markedly with the election last November of Joe Biden, on the clearest pro-climate action platform of any US president. The clean break with his predecessor was marked by the US rejoining the Paris Agreement, effective on his first day in office.

The Climate Leaders Summit, convened in April by President Biden, brought 40 world leaders together virtually, and led to breakthrough announcements from leading emitters: the US’s unveiling of its pledge to reduce emissions by half by 2030; announcements of improved targets by Japan, the UK and Canada; a slew of governmental commitments on halting the use and financing of coal, increasing investments in renewables and protecting forests.

The summit is the latest expression of cumulative climate momentum that has been building over the last year. It follows bold announcements by the UK and the European Union at the UK-hosted Climate Ambition Summit late last year, and the steady drum-beat of national net-zero targets, pegged for 2050 (or, in the case of China, 2060).
 
What has made these targets politically possible, especially governments’ near-term goals for 2030, is the third element: the economics. Competitive low-carbon technologies, changing consumer preferences and a deeper appreciation of increasing climate risk is encouraging companies to commit to emissions goals through the Science Based Targets initiative and report according to the recommendations of the Task Force for Climate-related Financial Disclosures. 

Particularly noteworthy is the speed with which the financial sector is moving. Firms managing a staggering $70 trillion in assets joined the Glasgow Financial Alliance for Net Zero, which brings together a number of existing net-zero initiatives, such as the Net Zero Asset Owners Alliance. And the banking sector used the summit to unveil a new initiative, the Net-Zero Banking Alliance, which aims to “accelerate and support” the decarbonization strategies of its clients. They recognize both the imperative to reduce emissions and the opportunity it presents.

The extensive participation of the private sector, often in partnership with government, in the initiatives that will deliver climate action on the ground, is evidence of the new economic paradigm in action. For example, at the Biden summit, multinationals including Amazon, Bayer, GSK, Nestle and Unilever launched the Lowering Emissions by Accelerating Forest finance coalition. Alongside the governments of Norway, the UK and the US, it aims to raise at least US$1 billion in financing to protect tropical forests.

The political and economic signals are converging. But there is much that needs to be done to cement and accelerate progress.

Subsidies for fossil fuels remain stubbornly and perversely high. The OECD recently reported a 5% increase in subsidies for fossil fuels across 50 countries between 2019 and 2020. Despite the rhetoric, few countries are using COVID-19 economic recovery packages to “build back better” – Vivid Economics has found only $1.8 trillion of $14.9 trillion of stimulus spending has been green.

As they draw up emissions targets, and the plans and policies to achieve them, too few governments are making the connections between climate and nature. Nature loss is driving climate change, while making nature more resilient can reduce emissions and create jobs. And, to draw all these efforts together in the most economically efficient manner, governments must follow in the footsteps of the EU, China and California, and jurisdictions accounting for almost a quarter of global emissions, in introducing carbon pricing.

These measures will help speed the creation of a new climate-aligned economy and, increasingly, an economy that properly values nature and directs capital towards its preservation. But market economies create winners and losers. Many poor countries face severe impacts from climate change, without either the responsibility for causing the problem or the resources to adequately respond. They urgently need support from the rich world, primarily through public finance. Justice dictates it.

But while we believe the emergence of a climate and nature-aligned economy is inevitable, as we saw in 2016, progress can be fragile. The international community must lay the foundations to make sure there is no going back, commiting to structural policy action at the G7 meeting in the UK in June, at the G20 in October in Italy and, crucially, at the COP26 climate talks in Glasgow in November. If they do so, the world’s leaders have an opportunity to make 2021 the point of no return.

Manuel Pulgar-Vidal is WWF’s Global Lead Climate & Energy.