Just when you thought that the financial crisis couldn’t have any more serious ramifications, we discover that the health of the planet is also at stake
A new report – Durban Dynamics: navigating for progress on climate change – published by professional services firm Ernst & Young, reveals that European governments are unable to afford their previous levels of investment into carbon emission efficiencies and green projects because of their self-imposed austerity measures. According to the report, the so-called ‘funding gap’ among 10 of the world’s major economies could reach approximately $45bn by 2015, a figure that is likely to increase if the eurozone crisis is compounded by national defaults.
The report suggests that, under current austerity measures, the climate change funding gap is set to be the most pronounced in Spain, the UK and France, with Spain forecast to spend $5.1bn less on climate change by 2015 – relative to a scenario in which government spending grows at an average historical rate – with the UK spending $4.2bn less, and France $2.9bn less. In the event that the eurozone crisis could escalate and lead to a new banking crisis, Germany would face the biggest climate change funding gap, estimated to reach as much as $8.3bn. In addition, Spain, Japan and the US would face a gap of more than $6bn, and the UK and France would see a gap of over $5bn.
Furthermore, there are suggestions that the financial crisis is being used as an excuse to push the issue of climate change on to the back burners. And it is easy to understand that, when governmental policies are focused on achieving economic recovery, emissions reductions are taking a back seat.
One step forward, two back
According to the EU’s annual report on renewable energy investment trends, the eurozone debt crisis and the accompanying austerity measures taken by member states have had a significant impact on investment in renewable energy. The report states that several EU governments have cut their support for renewables in order to alleviate short-term budget gaps.
The report goes on to describe how initiatives of countries including Germany, Italy, Spain and the Czech Republic in making photovoltaics tariffs less profitable contributed to reduced investment in 2011. Both the Czech Republic and Spain made retroactive cuts for feed-in tariffs for projects already set in place, hindering investment in the sector.
Germany and Italy also began to reduce feed-in tariffs at the beginning of 2011.
Furthermore, The Global Carbon Project – a think tank comprising a group of climate scientists and economists – details that between 2008 and 2009, the global financial crisis had virtually no impact on the long-term increase in greenhouse gases released from the burning of fossil fuels and other industrial activities. According to research, the amount of man-made carbon dioxide released in 2010 reached a record 10 billion tonnes – almost six percent higher than in 2009.
According to a report carried out by Bloomberg – Global Trends in Renewable Energy Investment 2011 – there has still been some progress made, especially in asset finance of utility-scale projects such as wind farms, which rose 19 percent to $128bn in 2010.
Meanwhile, venture capital investment increased by 59 percent to $2.4bn and public market investment gained 23 percent to $15.4bn. Even more successful was the realisation of some of the “green stimulus” funds promised after the financial crisis hit which saw an increase by 121 percent of government-funded research and development to $5.3bn.
Small-scale projects also increased by 91 percent from 2009-2010 to $60bn.
The areas that fell short of the progress made in 2009 were corporate research, development and deployment, which combined fell 12 percent to $3.3bn, and provision of expansion capital for renewable energy companies by private equity funds, which fell one percent to $3.1bn. A positive trend however – if you want to see it that way – is that for the first time developing countries overtook developed economies for the first time, totaling $72bn to $70bn respectively. This fact is even more impressive for the developing world if you take into account the high performance of China for the developed nations, which amassed $48.9bn (28 percent) of the total investment. What is discouraging is the slowdown across continental Europe, which remains preoccupied with survival of the euro.
Unlike previous global recessions, which caused long-term dips in carbon dioxide emissions lasting several years, the current downturn caused just one year’s fall of 1.9 percent, which was quickly reversed by a dramatic rebound in 2010 and 2011. And the Kyoto agreement – the United Nations’ framework on climate change – seems to be doing little to alleviate the issue.
In November 2011, Canada announced that it would withdraw from the agreement, because, as a spokeman said, “the country would face crippling fines for failing to meet its targets.” This is the first country to withdraw from the treaty. The protocol, initially adopted in Kyoto, Japan, in 1997, is focused on fighting global warming. Canada’s obligations under Kyoto would cost $13.6bn, representing $1,600 from every Canadian family. In spite of this cost, greenhouse emissions are expected to continue to rise, as two of the world’s largest polluters – the US and China – are not covered by the Kyoto agreement.
Following Kyoto there have been other attempts to reach an agreement on climate change targets, with varying degrees of success. Whereas the 194 attending nations that convened at the Copenhagen climate summit failed spectacularly to reach a satisfactory agreement to cut emissions of the greenhouse gases, the UN’s Climate Change Conference 2011, held in Durban, South Africa, in December 2011, resolved for the first time to negotiate a legally enforceable agreement to control all nations’ emissions. However, while this did break new ground in terms of agreed emissions quotas, the rules of the agreement will only come into force after 2020.
The financial crisis in 2008-09 had been an opportunity for the global economy to move away from high emissions growth, but all signs indicate that this opportunity has not been seized upon. Governments will need to do more to encourage action in this area if they are to ensure the issue isn’t pushed to the bottom of the pile altogether.