Hello from London, where Prime Minister Rishi Sunak is under pressure to confirm that he will show up to a global climate and development summit French president Emmanuel Macron will host across the channel later this month.
Civil society organisations are worried that the gathering, which will primarily be held in a Parisian palace that used to host the city’s stock exchange, has been organised too speedily to be of much use on issues such as phasing out fossil fuels or raising disaster funds for developing countries.
It was announced only in November, and clashes with a state visit by Indian prime minister Narendra Modi to Washington as well as a conference on Ukraine’s postwar reconstruction hosted in London.
But as my colleagues wrote last week, there are graver concerns that December’s UN climate conference, COP28, is at risk of being undermined by the leadership of United Arab Emirates oil executive Sultan al-Jaber. “It’s like putting the tobacco industry in charge of ending smoking,” a German Green party member of the European parliament told the FT.
This makes other attempts to build consensus among world leaders, away from the COP jamboree, more important than ever. Along with Macron’s summit, the Africa Climate Summit in Kenya, the G20 in India and a summit focused on sustainable development goals at the UN’s headquarters in New York will all look to make progress on climate change and other pressing problems over the coming months.
Today, we look ahead to the burning issues that will be high on the agenda in Paris. And Kaori explores why coal giant Indonesia is finding it hard to give up the black stuff. (Kenza Bryan)
‘A place to eat and a place to sleep’: how useful will Macron’s finance summit be?
Climate-vulnerable countries have long argued that redirecting their often punitive interest payments towards conservation and climate resilience projects would benefit the whole world.
But reimagining debt frameworks to free up funds for countries to spend on challenges such as climate change, biodiversity loss and poverty is a complex task.
Heads of state including German chancellor Olaf Scholz and Barbados prime minister Mia Mottley will discuss how to bring about this “overhaul of the international financial system” at a summit in Paris on June 22 and 23, alongside development bank representatives such as the World Bank’s Ajay Banga and non-profit groups.
“It’s not a subject where France itself has a magical idea to solve the whole problem,” Amélie de Montchalin, France’s permanent representative to the OECD club of developed economies, said at a briefing on the summit late last month. The point is to be a convening place that can contribute by offering “le gîte et le couvert” — “a place to eat and a place to sleep” — she added.
In the most recent high-profile example of nature-themed debt relief Credit Suisse repackaged $1.63bn of Ecuador’s debt using a development bank guarantee, in exchange for the country agreeing to fund conservation in the Galápagos islands. But the deal was a drop in the ocean of a debt crisis that, fuelled by rising interest rates and a strong dollar, has hit hardest the emerging economies most vulnerable to climate change.
Paris summit attendees will discuss what a “good” debt-for-nature swap looks like, Montchalin told Moral Money. “The issue is how you can move from specific projects to effective models that can be replicated and be put at scale to become the norm,” she said.
Marcos Neto, director of the United Nations Development Programme’s sustainable finance hub, said the summit was in part an attempt by France to “find a space” in climate discussions. But he hopes it will deliver a more effective type of debt swap that frees up significantly more cash and does not tie governments down to specific projects. “The important point here is you are not imposing the utilisation of the money but letting governments use it for their own priorities,” he told Moral Money.
So far the G20’s “Common Framework” for debt restructuring, which seeks to bring bilateral creditors of countries with distressed debt to the table for discussions, has been “struggling to deliver”, Neto said. The solution, he suggested, could be increasing the role of multilateral development banks. These hold about a fifth of developing country debt but can punch above their weight by providing credit guarantees to get private investors on board with these deals, he said.
Neto made the case for a climate-themed “2.0” version of so-called Brady bonds, which helped slow the 1980s Latin American debt crisis. (This idea, inspired by then US Treasury secretary Nicholas Brady’s attempts to make sovereign debt safer and more liquid for private investors, was put forward by Boston University professor Kevin Gallagher in the FT earlier this year.)
Two other nitty-gritty issues will be discussed. One is a potential global tax on shipping fuel, to be administered by the International Maritime Organisation, to accelerate the decarbonisation of transport and feed into a loss and damage fund for developing countries. Another is how far developed countries should funnel their unused IMF special drawing rights, emergency funds that were issued to central banks in 2021, to the African Development Bank.
Organisers also hope the summit can address resentment among countries of the global south. These countries “may feel that we do not understand the challenges they face, that we neglect the need for them to grow and develop”, Jean-Pierre Landau, Macron’s special envoy for the summit, told Moral Money. “For that reason, we need a vision of the transition that is respectful of the specific needs, constraints and circumstances of each country,” he said.
French organisers describe the gathering as an opportunity for leaders to do their “homework” — so they can figure out ahead of COP28 how to put big ideas into practice. (Kenza Bryan and Kaori Yoshida)
A ‘win-win’ plan to reduce Indonesia’s emissions
Indonesia could save $2bn and avoid emitting 1.3 gigatonnes of CO₂ if it closes its least profitable coal-fired power plants, new analysis from TransitionZero, a UK climate analytics non-profit, has estimated.
Indonesia is the world’s biggest coal exporter and also relies on the dirtiest fossil fuel for more than 60 per cent of its electricity generation. For Indonesia and other south-east Asian countries, “there’s a huge opportunity . . . to reform their electricity markets to lower electricity costs for consumers”, Matt Gray, chief executive of TransitionZero, told me.
For context, one gigatonne of CO₂ is nearly triple the annual amount emitted by all passenger cars in the US, according to the Environmental Protection Agency.
TransitionZero estimates that replacing roughly 21 gigawatts of coal plants (roughly a quarter of the country’s current generating capacity) with renewables would come with no net cost for Indonesia, if it uses capital from the Just Energy Transition Plan, a $20bn public and private financing mechanism.
The JETP was agreed last year between Indonesia and wealthier nations such as the US, UK and Japan to support Indonesia’s energy transition.
“It’s a win-win because these coal plants are not particularly profitable,” Gray said. “They’re being underutilised and therefore they can be shut down and replaced with something cheaper.” The obvious choice would be solar photovoltaic (PV) power, TransitionZero says, given Indonesia’s sunny climate and the dramatic decline in that technology’s cost in recent years.
However, “the bottleneck is our state-owned enterprise utility PLN”, Fabby Tumiwa, executive director at the Institute for Essential Services Reform (IESR), a Jakarta-based energy think-tank, told me.
The Indonesian state-owned power company is concerned that solar is an intermittent power source that could increase its overall costs, Tumiwa said. And as long as it refuses to close coal power stations that are operating well below capacity, PLN has an incentive to block or avoid measures that would exacerbate that low utilisation rate — such as expanded solar.
Tumiwa said that since 2021, PLN had been trying to “limit the growth of rooftop PV” by restricting the capacity that can be installed by consumers, and lengthening the permit process.
While the utility has laid out plans to expand its mix of solar, its progress so far means PLN will probably miss its targets “not only for PV but also other renewables”, he said. (Kaori Yoshida, Nikkei)
Smart Read
Companies that buy lots of carbon credits are more likely to decarbonise their own supply chains than those which buy just a few, according to analysis of more than 4,000 companies by Trove Research, a data consultancy. Given evidence of the widespread use of bogus offsets, some of which make dubious claims about removing carbon from the atmosphere, it’s a counter-intuitive finding.
Source: Economy - ft.com
