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#Climate change bigger economic risk than #Coronavirus ECB's Schnabel says

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The coronavirus pandemic demonstrates in the clearest terms why central banks must take a bigger role in fighting climate change even if the issue at first appears unrelated to monetary policy, European Central Bank board member Isabel Schnabel said, write Balazs Koranyi and Frank Siebelt.

Initially just a health crisis, the pandemic has set off economic shockwaves around the globe, affecting every nation and forcing central banks to provide unprecedented support to underpin economic activity. With climate change posing an even bigger risk, the ECB must keep this issue high on its agenda as it reviews its policy framework, Schnabel told Reuters in an interview.

“Climate change is probably the biggest challenge we are facing, much bigger than the pandemic,” Schnabel said. “Even though this health shock was entirely unrelated to monetary policy, it nevertheless has huge implications for monetary policy,” she said.

“The same is true for climate change and this is why central banks cannot ignore it.” Through its supervisory arm the ECB could require banks to provide a climate risk assessment, which could then affect their access to central bank funding if this assessment has a direct implication on collateral valuations, Schnabel said.

The central bank should also push the European Union to add a green element to its long-delayed project to set up a capital markets union as a focus on green finance could give the bloc a competitive advantage, she argued. Schnabel, who in the past has expressed scepticism about skewing ECB bond purchases towards green bonds, added that her view on the topic was still “developing”.

“There is the view that we should stick very closely to market neutrality,” she said. “And there is the alternative view that markets are not pricing climate risks properly, so there is a market distortion and therefore market neutrality may not actually be the right benchmark.”

Already one of the biggest buyers of green assets, the ECB holds around 20% of the green bonds that are eligible for its purchases, leaving little scope for more buys under its current rules.

Climate change

Credible net-zero targets need to include explicit plans for carbon dioxide removals

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Limiting global warming to 1.5°C, as stated in the Paris Agreement and assessed by the IPCC Special Report on 1.5°C (2018), will require policy action across two types of mitigation: those resulting in the rapid reduction of greenhouse gas (GHG) emissions and those achieving removal of carbon dioxide from the atmosphere. However, current governmental commitments to address climate change lack specific plans for mobilizing carbon dioxide removal to achieve the required carbon neutrality – namely a balance between emissions and removals – and collaborative policy frameworks under the Paris Agreement are not yet specific enough on how to measure and fund such mitigation action.

To contribute to understanding of how countries can implement Carbon Dioxide Removal (CDR) and how those efforts can be counted as part of their national commitments to achieve the Paris Agreement targets, the NET-RAPIDO project is launching the report Net-Zero Emissions: the role of Carbon Dioxide Removal in the Paris Agreement.

The authors – Matthias Honegger, Axel Michaelowa and Matthias Poralla from Perspectives Climate Research – present a set of concrete recommendations for credibly including CDR strategies as part of national climate strategies and revised NDCs. These include: the setting of specific CDR targets for 2030, 2040 and 2050; the expansion of research on the consequences of CDR for climate targets, a structured and inclusive debate on its development, and the design of specific incentives for the prioritized CDR technologies.

While the current lack of specific CDR measures may be due to the perception that they are costly or unpopular, together with fear of potential environmental side effects and difficulty in making carbon reduction attractive for industry, the authors find that the Paris Agreement’s provisions for international collaboration can be operationalized to provide a credible way forward. To comprehensively address CDR in the Paris Agreement, using existing instruments, the report suggests the use of cooperation mechanisms between countries to leverage carbon markets and results-based climate finance, and strengthening monitoring, review and verification (MRV) to mobilize CDR domestically and abroad in a transparent and consistent manner.

Examining the Paris Agreement’s definition of mitigation, the authors find that countries’ national climate contribution should be underpinned by transparent CDR deployment strategies, plans and policies. They find that, as with emission reductions measures, most CDR approaches will require effective financial incentives or regulation via government action both at national levels and at the global scale.

Limited acceptance and familiarity among civil society, as well as lacking clarity across international governance spheres relevant to CDR may presently be holding back progress on CDR. Minor adjustments and clarifications regarding pertinent provisions (under the UNCBD, the LC/LP, by UNFAO, IMO, UNEP, and others), may allow unlocking permissible and necessary activities.

Dr Axel Michaelowa, Perspectives’ senior founding partner, said: “Despite their long-term nature, net-zero targets pose tangible and immediate technical policy challenges, which require closer attention. We can learn from past climate policy instruments such as the CDM for building opportunities to address and resolve net zero targets issues for domestic and international implementation and collaboration.”

Matthias Honegger, lead author and Senior Consultant at Perspectives, said: “Society urgently needs to start developing a vision of a net-zero emissions future in order to identify critical steps and deliberately start moving in a direction that would be compatible with achieving the transformation required to get there. He mentioned that the policy planning process needed “an infusion of enthusiasm while defining pragmatic intermediate steps to ensure progress.”

Matthias Poralla, author and Junior Consultant at Perspectives, said: “Concerns over the sustainability and social desirability of negative emissions require early and careful deliberation processes for policy to earnestly and credibly address risks and sustainability concerns thus allowing for viable policy pathways.”

About NET-RAPIDO

NET-RAPIDO is a project implemented between 2018 and 2021 by Mälardalen University, Perspectives Climate Research and Climate Strategies, aiming to research on readiness, policy instrument designs, options for governance and dialogue aims to create a clear understanding of the opportunities, challenges and risks of negative emission technologies (NETs). The project is funded by the Swedish Energy Agency. Find out more here.

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Climate change

What is carbon neutrality and how can it be achieved by 2050?

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Under the Paris agreement, the EU has committed to carbon neutrality by the second half of the 21st century. What does it mean in practice? Climate change is already affecting the entire world, with extreme weather conditions such as drought, heat waves, heavy rain, floods and landslides becoming more frequent, including in Europe. Other consequences of the rapidly changing climate include rising sea levels, ocean acidification and loss of biodiversity.

In order to limit global warming to 1.5 degrees Celsius – a threshold the Intergovernmental Panel for Climate Change (IPCC) suggests is safe –carbon neutrality by mid-21st century is essential. This target is also laid down in the Paris agreement signed by 195 countries, including the EU.

In November 2019, the European Commission presented the European Green Deal, its flagship plan that aims to make Europe climate neutral by 2050.

Paris agreement aims
  • Reach global peaking of greenhouse gas emissions as soon as possible.
  • Undertake rapid reductions.

What is carbon neutrality?

Carbon neutrality means having a balance between emitting carbon and absorbing carbon from the atmosphere in carbon sinks. Removing carbon oxide from the atmosphere and then storing it is known as carbon sequestration. In order to achieve net zero emissions, all worldwide greenhouse gas emissions will have to be counterbalanced by carbon sequestration.

Carbon sink is any system that absorbs more carbon than it emits. The main natural carbon sinks are soil, forests and oceans. According to estimates, natural sinks remove between 9.5 and 11 Gt of CO2 per year. Annual global CO2 emissions reached 37.1 Gt in 2017.

To date, no artificial carbon sinks are able to remove carbon from the atmosphere on the necessary scale to fight global warming.

The carbon stored in natural sinks such as forests is released into the atmosphere through forest fires, changes in land use or logging. This is why it is essential to reduce carbon emissions in order to reach climate neutrality.

Carbon offsetting

Another way to reduce emissions and to pursue carbon neutrality is to offset emissions made in one sector by reducing them somewhere else. This can be done through investment in renewable energyenergy efficiency or other clean, low-carbon technologies. The EU’s emissions trading system (ETS) is an example of a carbon offsetting system.

EU goals

The European Union is committed to an ambitious climate policy. Under the Green Deal it aims to become continent that removes as many CO2 emissions as it produces by 2050. This goal will become legally binding if the European Parliament and Council adopt the new Climate Law. The EU’s interim emission reduction target for 2030 would also be updated from the current 40% reduction to a more ambitious one.

The Parliament’s environment committee voted on 11 September in favour of climate neutrality by 2050 and of a 60% emission reduction target by 2030 compared to the 1990 level - more ambitious than the Commission’s initial proposal of 50-55%. Committee members are calling for the Commission to set an additional interim target for 2040 to ensure progress towards the final goal.

In addition, committee members called for all EU countries individually to become climate neutral and insisted that after 2050, more CO2 should be removed from atmosphere than is emitted. Also, all direct or indirect subsidies to fossil fuels should be phased out by 2025 at the latest.

The Parliament as a whole will vote on the Climate Law during the plenary session on 5-8 October, after which it can start negotiations with the Council.

Currently five EU countries have set the target of climate neutrality in law: Sweden aims to reach net-zero emissions by 2045 and Denmark, France, Germany and Hungary by 2050.

Find out more about how the EU helps to reduce CO2 emissions

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Climate change

Green transition: Global CO2 emissions continue to rise but EU bucks global trend

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The Joint Research Centre of the Commission has published a new study on Fossil CO2 emissions for all world countries, reaffirming that the EU has succeeded in decoupling economic growth from climate changing emissions. Fossil CO2 emissions of EU member states and the UK dropped in 2019, while globally, the increase of CO2 emissions continued in 2019, although at a slightly slower pace.

Since the beginning of the 21st century, global greenhouse gas emissions have grown steadily. However, EU member states and the UK bucked the trend, with their CO2 emissions from fossil fuels combustion and processes dropping by 3.8% in 2019, compared to the previous year. This means the EU and the UK's fossil CO2 emissions were 25 % below 1990 levels - the largest reduction among the top emitting economic areas around the world. Since 1990, there has also been a decreasing trend in CO2 emissions per capita and per intensity of monetary output across Europe.

These reductions have been achieved thanks to a mix of mitigation policies aimed at decarbonising the energy supply, the industrial and the building sectors, and will be continued with renewed effort under the umbrella of the European Green Deal. These are the results of the latest updates of the Emissions Database for Global Atmospheric Research (EDGAR), a unique tool developed by the JRC in support of policy impact evaluation and climate negotiations, which provides a benchmark against which national and global estimates can be compared. More information is available in the JRC press release.

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