We believe 2014 will mark the beginning of a new climate agenda. The traditional narrative was that climate risks are in the future, that carbon has to be priced to be cut, and that low-carbon alternatives are high risk and speculative. We see three issues that will give new impetus to the climate economy in the year: impacts, carbon risk and green bonds.
Climate impacts are already here: 2013 ended with Typhoon Haiyan devastating the Philippines just before the annual climate talks in Warsaw. The future is now. We should expect much more focus in 2014 on the present danger of climate vulnerability, impacts, loss and damage.
This could be among the ten all-time hottest years. Indeed, the UK Met Office’s central forecast for global average temperatures in 2014 of 14.57C would make it the hottest year since records began in 1880.
New detail on observed climate impacts, plus guidance on the severity of climate risks to humans, will be revealed in a report from the Intergovernmental Panel on Climate Change (IPCC) to be published in March 2014.
Climate impacts are already here: 2013 ended with Typhoon Haiyan devastating the Philippines just before the annual climate talks in Warsaw
The IPCC report will also assess regional vulnerability to climate impacts, such as heatwaves, droughts, floods and wildfires. It will likely emphasise that although developing countries are worst hit, many have not yet embedded adaptation and resilience into their economic strategies. Within the G20, we believe India, China, Indonesia, South Africa and Brazil are most vulnerable.
Turning to carbon risk, to meet global climate goals, inefficient sub-critical coal-fired generation must be replaced with low-carbon alternatives. The two “carbon elephants” – China and the US – account for more than 40 per cent of global carbon pollution but both see environmental regulation as the tool of choice for dealing with emissions, particularly from coal.
They established a US-China Climate Change Working Group in April 2013 and friendly co-operation should strengthen in 2014. Bilateral agreement on phasing out fossil-fuel subsidies would be hugely positive and a China-US pact could have a transformative impact on realising a global deal at international talks in 2015.
This year will also bring an intensification of interest in green bonds – mobilising the world’s largest asset class for the world’s largest problem. Bonds are increasingly being used to raise capital for the low-carbon transition. As part of this there is a fast-growing segment of badged “green bonds” with funds ring-fenced for renewable energy, environmental clean-up and energy efficiency. Issuance of USD9 billion of green bonds by international financial institutions, as well as agencies and corporates, made 2013 a record year. We expect issuance to expand further in 2014.
Beyond these three themes, we expect a year of preparation in climate policy. General elections in 2014 in Brazil, India, South Africa – plus mid-term polls in the US and elections for the European Parliament – will serve to postpone climate ambitions until 2015 when governments are set to make a new set of pledges.
An important stepping stone will be the UN climate summit in September, which will aim to raise ambition levels for the crucial year of finalising a new climate agreement in December 2015.
This research was first published on 6 January 2014.