The following brief is an outcome document from the High-level Climate and Energy Dialogue held on April 20, 2017, at the UN Foundation in Washington, DC, as part of the series Accelerating Progress, Advancing Innovation. The dialogue was moderated by Rachel Kyte, Special Representative of the UN Secretary-General and CEO Sustainable Energy for All.
The following guidance aims to open a discussion among ministers about how to integrate climate-smart fiscal resilience considerations into their already far-reaching day-to-day responsibilities.
For Circulation to Finance Ministers
Tuesday, 4 July 2017
Climate-Smart Investment to Build Fiscal Resilience
Empower people to add value across whole economies and build a more prosperous, more secure future faster.
The financing of climate action can no longer be considered a burden or an added risk to fiscal stability. Investment in climate-resilient priorities (inside and outside of government) shores up resources, builds resilience, and ensures future investments are more likely to succeed. Increasingly, the question is: What are finance ministries doing to catalyze the widest possible landscape of routine financing for climate-resilient priorities?
Finance Ministers can leverage critical overlaps with the Sustainable Development Goals and the Paris Agreement’s targets to achieve more of their core mission and build fiscal resilience. Like these two global agendas, Finance Ministries implicitly map challenges and priorities that will determine future value for whole societies. Policies that build macro-financial stability are strengthened and accelerated by bringing people-centered climate-smart efficiency gains to the front page of Ministers’ crowded briefs.
Ministers can address multiple areas of immediate and long-term concern by recognizing how drivers of overall value potential—like climate-response and energy transition—interact with their usual responsibilities. Optimizing day to day policy actions to fuel these engines of future value builds fiscal resilience and ensures the funds they manage go farther and are better suited to catalyze additional investment across the whole economy.
The following actionable priorities and insights emerged from the Fiscal Resilience dialogue:
- Ease structural market constraints that limit low-carbon investment;
- Address macrocritical areas of concern;
- Decouple future growth from climate-forcing emissions;
- Steer incentives toward low-carbon energy strategies;
- Align core budget areas with durable climate-smart resilience.
These actionable priorities are outlined in greater detail below.
1) Ease structural market constraints that limit low-carbon investment.
Markets are venues and networks of exchange shaped by rules—by laws, regulations, priority investment practices, and by incentives of all kinds. When market structures bind future investment to capital-intensive resource exploitation, they actively limit the value of investable funds. Such front-loaded investments, requiring major public assistance, hide business costs all across the economy, degrade potential for economy-wide efficiency-gain and smart innovation, and sacrifice revenue over time. These inefficiencies are traceable, and they are magnified when they distort public-sector investments in future drivers of overall economic prosperity, such as energy, infrastructure, transportation, education, and food supply.
2) Address macrocritical areas of concern.
Economy-shaping areas of concern that undermine future solvency include: climate disruption, resource dependency and mounting income inequality, especially where tied to outmoded business models. Addressing macrocritical areas of concern (the Sustainable Development Goals provide a useful and complex map of these areas of fiscal and macroeconomic value potential) moves investments toward market dynamics that focus new and added value on people, households, communities, small businesses, and widespread, sustained economic efficiency. Examples are the high return generated by funds invested in education, clean air and water, higher pollution standards for industry, and stable, resilient infrastructure accessible to all.
3) Decouple future growth from climate-forcing emissions.
There is no high-carbon future economic growth scenario, so future value requires funds that are effectively free of carbon liability. There is already a good and detailed record of the efficiency of decoupling economic growth from carbon emissions. High levels of carbon liability map a path to future cost, declining investment, and stagnant innovation and growth. High levels of climate solvency—low carbon liability, optimized climate-smart business practices and local economic development— chart a course toward fiscal health and stability, higher rates of additional private-sector investment, and catalyze new value creation at the human scale.
4) Steer incentives toward low-carbon energy strategies.
Enhanced energy efficiency, clean energy production, and electric transport, actively amplify the value of investable funds (both those invested in these practices and those invested elsewhere, which benefit from a more efficient overall landscape of value distribution). Shifting incentives may be an action-ready policy option, already on ministers’ desks, day to day. Where incentives are attached to performance criteria, cost-effectiveness, or environmental and public health standards, ministers of finance, economic development, environment, energy, labor, and health, may already have at hand ways to shift those incentives toward better performance value for taxpayers, or stricter adherence to safety and rights standards.
5) Align core budget areas with durable climate-smart resilience.
Funds already committed to core budget priorities can be recommitted without disrupting Ministry missions or national needs, to optimize value generation and return on investment. With active consideration of macrocritical drivers of value, Finance Ministers can redefine the optimal investment strategies for core budget areas, without altering the structure or cost of national budgets. By collaborating with their counterparts in other ministries within the same government, ministers can ensure overall direction of funding is optimized to ensure enhanced macrocritical resilience. By building this thinking into standard planning procedures, ministers can ensure public-sector spending optimizes the entire investment landscape of the wider economy.
Catalyzing finance for a climate-smart future makes national economies stronger.
Each of the five actionable priorities listed and detailed above sends clear signals to the marketplace, pointing toward:
- Directly investable low-carbon economic development strategies,
- climate-smart investment opportunities in all sectors, and
- investments that magnify value by leveraging macrocritical drivers.
To ensure current and future investments flow to the highest-efficiency low-carbon growth scenarios, discovery of new technologies and business models will be critical. Low-income countries working toward zero-carbon economies may discover the new business model and technology standards the whole world will benefit from. Investment in, or incentives for the expansion of, their capabilities for innovation and entrepreneurship are a shared good that all nations can count on for building future value.
Early leaders—those who best understand how their day-to-day responsibilities interact with this landscape of opportunity, and who plan for a future in which adaptive inclusive local economies innovate toward climate-smart—will be best prepared to navigate this period of disruption and consistently capture emerging opportunities.
The transition to reliable affordable clean energy for all is the major economic challenge, and the major business opportunity, of our time. The work of achieving economy-wide macrocritical and fiscal resilience is now quantifiably the biggest business opportunity in world history.
New business models, lighter-weight technologies, more efficient energy solutions, empower people and communities to achieve more in less time and at lower cost. Solar micro-grids, for instance, leapfrog the most costly and damaging segments of the old industrial development pathway, allowing marginalized communities to access far more information and opportunity, new and old technologies they could not deploy otherwise, and unleash talent and capability already residing in the people themselves and in their communities.
Context-specific macrocritical priorities Finance Ministries can deal with in the course of day-to-day business will ensure their own investments reliably generate new capacity for sustained success for whole economies.
The 2017 and 2018 meetings of the G20 provide an historic opportunity to expand the value-building contribution of every ministry and every sector in achieving climate-smart fiscal resilience, and a more secure future of sustainable, shared prosperity.
The high-level dialogue series Accelerating Progress, Advancing Innovation is co-convened by the International Center for Dialogue and Peacebuilding and Citizens’ Climate Education, in collaboration with the Norwegian Nobel Institute. For more information about new policy recommendations and decision-support tools emerging from the series, please email CCE Global Strategy Director Joseph Robertson at jr(at)citizensclimate.org