One of the pivotal steps is to eliminate fossil fuel subsidies. The OECD Companion to the Inventory of Support Measures for Fossil Fuels found that subsidies in OECD countries and key emerging economies, which make use of approximately 80% of the world’s energy, amounted to $160-200bn a year over the period 2010-14.The relevance and impact of fossil fuel support measures have to be re-examined in today’s context; particularly since about two-thirds of them were introduced before 2000. As a private financier put it in a recent discussion, “the train system would never have advanced if governments were subsidising horses!”
"A gradual carbon price rise is one way of transmitting the low-carbon message in a realistic and cost-effective manner"
Governments have to take a serious look specifically at coal, which remains the least-heavily taxed of all fossil fuels despite being the most carbon-intensive fuel available for generating electricity. Moreover, burnt coal creates significant costs to public health, land disturbance as well as water, dust and noise pollution. The OECD has estimated that the cost of healthcare resulting from outdoor air pollution was about $1.7tn for OECD countries in 2010.
A gradual carbon price rise is one way of transmitting the low-carbon message in a realistic and cost-effective manner. Moreover, moving to a low-carbon economy will necessitate an unprecedented commitment from all stakeholders and imply a transformation that will cut across every sector of the economy and affect many policy domains – as highlighted by the OECD report, Aligning Policies for a Low-Carbon Economy.
For developing countries most of all, this is a crucial moment. Any new international deal agreed at COP21 will have to be grounded in trust. In this respect, it is important to provide transparency on developed countries’ progress on their commitments made at Cancun in 2010 to mobilise US$100bn a year by 2020 from public and private sources. At the request of the current and incoming COP Presidencies, the OECD has, together with the Climate Policy Initiative, been working closely with developed countries’ climate finance providers – the MDBs, bi-lateral agencies and others – to produce a robust, transparent and objective estimate of current climate finance flows.
The message emerging from this work is encouraging, as the public and private finance mobilised reached $62bn in 2014. This report also contributes directly to the transparency that’s necessary to build trust in the conversations ahead. The analysis provides the basis for a strong call to keep up the effort on the mobilisation of funds, and on the transparency of information, definitions and methodology.
Putting the financing in place is an important step forward in helping countries with large infrastructure investment needs, and also ensures that they can afford to filter out proposals that may appear cheaper in terms of outright cost, but are neither modern nor sustainable. Through studies such as Mobilising Private Investment in Clean Energy Infrastructure, we have focused on providing policy advice to facilitate clean energy investment and to highlight weak regulatory environments and barriers to international trade that hamper efforts to deliver green growth around the globe.
"One of the pivotal steps is to eliminate fossil fuel subsidies"
We at the OECD are also paying more attention to the environmental dimension of growth through innovative projects such as our work on taxing fossil fuels, our green growth strategy and our New Approaches to Economic Challenges (NAEC) initiative, which was launched in 2012 and which I supervise personally. NAEC has played a crucial role in helping us to learn lessons from the crisis and improve the way we tackle long-term economic, environmental and social challenges by strengthening our analytical frameworks and policy instruments. We will keep exploring and implementing NAEC as a contribution to the SDG and COP21 outcomes, particularly through a systematic assessment of the joint policy impacts on productivity, equality and the environment.
The COP21 negotiations in Paris in December are a once-in-a-generation opportunity to reach a new international agreement that can boost our transition to low-carbon economies and effectively combat climate change. Negotiators, though, need to know that the carbon clock is ticking, and there is very little time left to realise a greener, healthier and better world.
Image credit: FLICKR/DAVID HOLT