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G20 capitulates to $120bn in fossil fuel recovery packages

Industrial pollution nature disaster concept, double exposure.

The G20 global funding plans that seek to manage the impact from covid-19 come at a crucial time, as emission trajectories by nations are already way off the Paris climate goal.

But data has shown that governments have put the urgent challenge to combat climate change on the back burner by supporting fossil fuel over clean energy in their commitments, which could ruin a unique chance to resolve the climate crisis.

Ulrich Volz, founding director at the Soas Centre for Sustainable Finance, said that, depending on how things play out, the recovery packages could be the needed big investment push in low-carbon energy and transport, or also “our last chance to meet the Paris climate targets and avoid catastrophic climate change”.

Research by 14 organisations, including the International Institute for Sustainable Development (IISD), has revealed that total support for unconditional fossil fuel policies as part of covid-19 recovery packages has reached $120bn (€105bn) across the G20.

A further $30bn for the fossil fuel sector is granted in conditional commitments, ie only distributed under certain climate targets.

This compares to $16bn in unconditional clean energy support and $72bn in conditional clean energy.

The data is published online via the Energy Policy Tracker tool and will continuously be updated. It shows that fossil fuel producers and high-carbon sectors are currently receiving 70% more recovery aid than clean energy, the organisations said.

Ivetta Gerasimchuk, leading sustainable energy supplies at the IISD and the Energy Policy Tracker project, said: “National and sub-national jurisdictions that heavily subsidised the production and consumption of fossil fuels in previous years have once again thrown lifelines to oil, gas, coal, and fossil fuel-powered electricity.”

Influential fossil fuel industry

Angela Picciariello, senior research officer at the Overseas Development Institute, explains that “the tracking system shows how the fossil fuel industry has continued to aggressively lobby policy-makers”.

But observers believe that this will backfire on economies.

Volz told Expert Investor that “countries that now invest in technologies of the future will prosper much more than those that choose to continue subsidising dying industries”.

But that isn’t to say that the $30bn in conditional funding, to help the fossil fuel sector transition to low carbon, will not be meaningful.

Céline Bak, founder and president of Analytica Advisors, a consulting firm engaged in building global capital markets for sustainability leaders, told Expert Investor that oil and gas producing countries “have made multi-purpose corporate bail-out programmes contingent on annual disclosures of climate-related financial risk”.

This includes that recipient companies commit to publishing annual climate-related disclosure reports in accordance with the Task Force on Climate-related Financial Disclosures, including how their future operations will support environmental sustainability and national climate goals, she explained.

The EU recovery package

Given the lack of international leadership in the sustainable transition, some have argued that the EU needs to take the helm, as it has been driving sustainable finance.

At a webinar, organised by media network Euractiv, Yvon Slingenberg, director at DG Climate Action at the European Commission, said that we should “not pretend it’s going to be easy, but really picture the pros and cons of [pursuing the transition] and encourage governments to take some serious choices now”.

She explained that “if we don’t take this [chance] now, we will be seeing some serious consequences”.

Florian Sommer, head of ESG strategy at Union Investment, commented that “no other region has shown such a green ambition”.

He explained that, as Europe seeks to recover from the crisis by fostering green growth, it is focusing on renewable energy, cleaner transport and logistics, green buildings and the hydrogen economy.

“The EU taxonomy [a classification system] will play an important role in defining and channeling green investments,” Summer believes.

At a summit on 17 July, the EU will discuss the size and content of the recovery package.

It is believed that negotiations will be difficult, as some of the ‘richer’ member states have been seeking to toughen the conditions in the draft plans against ‘poorer’ and receiving members.

The EU aims to get the private sector involved and attract investments through financial tools, such as the InvestEU programme, Slingenberg said.

She also explained that the recovery measures will follow the EU’s yet-to-be-released renewed sustainable finance strategy, looking at mandatory requirements, corporate governance, and commitments by companies, such as science-based targets.

Investment opportunities and risks

Speaking from an asset owner perspective, Frédéric de Courtois, general manager of Generali Group, explained that investee companies need to have the ‘right’ governance while pointing to a needed revolution.

“It’s all about moving the focus of private companies from the very short term to the mid to long-term and to risk management.

“[But], in the end, even sincere companies need pressure; they need incentives and they need the right opportunities,” he noted.

Union Investment’s Sommer told Expert Investor: “As active investment managers, we are identifying winners and losers of change by analysing future green cashflows and adjusting our models.

“We avoid companies that are facing high risks during the green transition. We favour enterprises with future-proof business models benefiting from green growth, eg in the energy and transport sectors.”

As the realities of climate change become increasingly apparent, it is inevitable that governments will be forced to act more decisively than they have so far, it was claimed in a project called the Inevitable Policy Response (IPR), created by the Principles for Responsible Investment, Vivid Economics and Energy Transition Advisors.

It forecasts a government response by 2025 that will be forceful, abrupt, and disorderly because of the delay in action and aims to prepare investors for the associated portfolio risks.

One of the lead authors, Mark Fulton, founding partner Energy Transition Advisors, commented: “The Inevitable Policy Response expects a build-up in forceful climate policies by the 2025 Paris ratchet. Covid-19 stimulus packages in the EU are aiming in the right direction while [those] both in the US and China need further greening.”

 

The data is provided by 14 organisations: International Institute for Sustainable Development (IISD), Institute for Global Environmental Strategies (IGES), Oil Change International (OCI), Overseas Development Institute (ODI), Stockholm Environment Institute (SEI), Columbia University in the City of New York, Forum Ökologisch-Soziale Marktwirtschaft (FÖS), Fundación Ambiente y Recursos Naturales (FARN), Instituto de Estudios Socioeconómicos (INESC), Institute for Climate Economics (I4CE), Instituto Tecnológico Autónomo de México (ITAM), Legambiente, REN21 and The Australia Institute (TAI).

Elena Johansson

Senior Reporter

Part of the Bonhill Group.