The IPCC’s Climate Crisis Wake-Up Call | ENGIE Impact

The IPCC’s Climate Crisis Wake-Up Call

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Benoit Hemon Managing Director, Sustainability Solutions - EMEA
Andreas Ehrenmann Director, Sustainability Solutions - EMEA
Climate Change
Climate Finance
Renewable Energy
Governance
gradient-quote There is a rapidly closing window of opportunity to secure a livable and sustainable future for all. gradient-quote-right
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This leitmotif of the Intergovernmental Panel on Climate Change’s (IPCC) latest report on the climate crisis — the Synthesis Report: Climate Change 2023 — could not be clearer or more conclusive: despite our efforts, the climate crisis is worsening rapidly, so redoubling those efforts is imperative.

To be clear, the message of the report, which summarizes five years of reports on global temperature increases, fossil fuel emissions and climate impacts, is not new. It doesn’t announce dramatic new developments or fundamental shifts in the global outlook, but rather more forcefully sounds the alarm about the perils of delaying action and shows increasing confidence in the types and levels of climate impact we may expect. It pulls no punches when confirming that despite the climate mitigation progress made during the past decade, it is now "likely that warming will exceed 1.5°C during the 21st century."

If the last two or three IPCC reports confirmed the need for climate action, then the 2023 report emphasizes unambiguously that the longer it takes to act decisively, the more rapid and deeper the greenhouse gas (GHG) reductions will have to be. For, in IPCC’s phrasing, there is a “substantial ‘emissions gap’ between global GHG emissions in 2030 associated with the implementation of NDCs [nationally determined contributions, or countries’ climate targets] announced prior to COP26 and those associated with modelled mitigation pathways that limit warming to 1.5°C." The ‘implementation gap’ between what countries have targeted, and what their implemented policies are on pace to deliver, is huge, and needs to be bridged.

ENGIE Impact’s Perspective on the Key Findings of the Report

From ENGIE Impact’s perspective, the key findings from the report refer to issues where global or country-scale solutions dovetail with corporate- and community-level implementation opportunities. Foremost among these are climate finance for transformation measures, the role of technology in reducing carbon intensity, and the need for climate change governance to create the enabling conditions for climate resilience and emissions reduction.

1. Climate Finance

Climate finance is a key area that needs to be addressed to bridge the implementation gap, but financial flows currently fall far short of the levels needed. This is not due to a lack of global capital but is rather because public subsidies for fossil fuels still dwarf those for climate change mitigation, artificially keeping fossil fuel prices low and ensuring the legacy systems continue to thrive. The IPCC has concluded unambiguously that removing fossil fuel subsidies would reduce GHG emissions. Likewise, private investment in fossil-fuel companies surfs on the public support provided to the industry and is rewarded with strong returns, even in times of crisis. The flow of subsidies and private finance to fossil fuels needs to be addressed.

Indeed, a key message from the report is that insufficient mobilization of finance is one of the main barriers holding back the development of green solutions and renewables implementation. A massive increase in climate finance is needed, and while public finance is a significant part of the equation, it is not the only answer.

Private capital also has an important role to play, for instance through public-private partnerships, green bonds and participation in carbon markets. Another piece of the puzzle is feasible initiatives for companies looking to decarbonize, such as debt leasing and service and performance contracts (Energy Savings as a Service, On-Site Solar). Power Purchase Agreements (PPAs) are also an increasingly popular solution, and rightfully so, as they can deliver strong additionality and capital to green projects while providing long-term energy savings to corporations.

Transitioning investments away from energies with an entrenched competitive advantage and redirecting them toward green alternatives not only requires improving the availability of and access to finance for climate action; it also requires communicating about the economic value that green solutions provide to businesses.

Many large companies have already structured a Net Zero trajectory, yet investment plans show that very few of them are prepared to invest the necessary funds.

Unless we start to consider climate a financial issue, the necessary investments will not be made. Similarly, companies should be aware that decarbonizing their operations increases their market value, while investors should be aware that becoming a shareholder in those companies increases the value of one’s portfolio.

2. Technology

The report confirms the role of technology as a critical enabler of decarbonization. Accelerating the development and deployment of renewable energy, specifically solar and wind, should be a priority in scaling up climate efforts. In countries representing 90% of electricity generation, solar and wind energy are now the cheapest ways to produce energy, making them the obvious choices for economic viability. The report notes that from 2010– 2019, there have been sustained decreases in the unit costs of solar energy (-85%), wind energy (-55%), and lithium-ion batteries (-85%), and large increases in their deployment, e.g., >10x for solar and >100x for electric vehicles (EVs), varying widely across regions. Still, the adoption of low-emission technologies lags in most developing countries, again due to limited finance.

While climate technology typically conjures images of direct generation (solar and wind, biomass and hydrogen) and application (EVs, heat pumps, biofuels), rapid transitions across energy systems and urban infrastructure are also necessary to achieve deep and sustained emissions reductions. For instance, widespread electrification, investment in demand-side management, such as storage and energy efficiency improvements, and greater integration of solutions across the energy system will further advance energy reliability and are making decarbonization efforts increasingly cost-effective. These observations point to the fact that investments in renewable energy on the grid and across urban infrastructure not only have environmental benefits, but also significant economic benefits. 

3. Climate Change Governance

Tying finance and technology together is climate change governance, the policies and regulations that incentivize the adoption of renewable energy as well as investments in research and development of new technologies and strategies to improve the resilience of the energy system.

As IPCC states, “Effective climate action is enabled by political commitment, well-aligned multilevel governance… and enhanced access to finance and technology. Regulatory and economic instruments can support deep emissions reductions and climate resilience if scaled up and applied widely.”

Effective governance provides direction on targets and monitoring, can help build consensus and commitment for climate action and foster climate-resilient development, but public authorities need to back these efforts with finance and access to technology, particularly in developing regions.

At this point there are still wide disparities in climate governance, and companies face different climate regulations and constraints depending on their geographical location. ENGIE Impact supports companies in dealing with these constraints by examining which strategy is feasible to implement in the local context, as well as creating a plan for implementing it. Low investment levels make implementation a challenge. This is why it is imperative that more private investors and companies come to see renewables as having economic as well as ecological value. This is also why global low-carbon energy and service operators like ENGIE are playing a key role by taking an innovative, integrated approach.

We know this very well at ENGIE Impact. The solutions we talk about every day are often highly complex, technical, and require significant investment and a great capacity for financing. Finance has a pivotal role to play if we want to achieve sustainability.

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