Highest-value Climate Action is Economy-wide

The global crisis in climate disruption is deepening. Droughts, floods, storms, and wildfires are taking an increasing toll on human beings, straining vital ecosystems, and putting food and water supplies at risk. The Paris Agreement outlines a global collaborative “race to the top”, where nations support each other’s success and innovate as rapidly as possible to achieve climate-smart standards in all sectors.

The mechanism for national planning under the Paris Agreement is the Nationally Determined Contribution (NDC). Each sovereign nation determines its own approach to combatting climate change; those national commitments are contributions to a global response. Smart coordination invites the emergence of synergies that make collaborative action more ambitious, efficient and effective than go-it-alone strategies.

Slow-walking the transition to low-carbon industry, agriculture and transport is no longer a serious option for any nation, but all nations can count on support (both material and in directional signals) from a global race to the top. Now, the NDCs need to move outside the realm of abstract national targets and commitments, and into the realm of economy-wide action.

The intergovernmental climate negotiations, hosted by the UN Climate Change secretariat, are now being restructured to consistently enhance and accelerate national climate action. Some nations will emphasize agriculture or forestry, while others will prioritize energy innovation and emissions reduction.

The global community will only achieve the optimal rate of accelerated climate action, if whole economies are involved, and no innovator is left on the sidelines. Cross-border incentives, climate-smart development assistance and private-sector investment, bilateral and multilateral climate cooperation, and other drivers of climate-related innovation, will be more efficient and effective as all potential contributors are able to find a place and show their value.

Oil economies, like Nigeria, Russia, and Venezuela, need to diversify not only in energy production and export, but in all sectors that can supply the underpinnings of a sustainable economy. None of these mineral-dependent economies can achieve its most prosperous possible future — or even one on par with current standards — without this diversification across many sectors.

Economy-wide national climate action plans (ENCAP) need not be centrally controlled or entirely funded by government spending. They can leverage the most efficient contribution from each segment of the local and national economies, including from government, business, banking and trade.

In the United States, for instance, an ENCAP strategy would go far beyond emissions reduction and technology innovation. Smart land-use policies, such as local, state-level, and national incentives for building carbon-rich soil ecology, can transform climate-related decision-making across many sectors, without requiring strict new government regulation.

Recognizing the higher actual market value of farmland with carbon-rich soil reveals hidden additional value in many sectors:

  1. Carbon-rich land is more resilient against climate impacts and other non-linear risks;
  2. More resilient land means lower costs to insurers, which means they can provide more value at lower cost;
  3. Higher-value, easier-to-insure farmland means more borrowing power for farmers;
  4. Commodities markets can leverage the higher market value of sustainably farmed products;
  5. Enhanced resilience and more efficient incentives reinforce the entire new landscape of value;
  6. All of this makes the food economy more efficient, healthier, and far less risky as relating to other areas of economic stability.
  7. The conventional financial sector will already be working to enhance the value generated by these shifts, even before most institutions consciously choose to make that the rule.

A US ENCAP strategy that includes such careful high-value policy adjustments can benefit all sectors of the macro-economy, while also ensuring best practices for building community-level economic resilience can spread. That replication of smart ENCAP strategies can happen organically or be incentivized through bilateral and multilateral trade deals.

Through the lens of four major international agreements of 2015 (disaster risk reduction, financing for development, the Sustainable Development Goals, and the Paris Agreement), international financial institutions are beginning to consider macro-critical drivers of value. Those national economies that design and mobilize ENCAP strategies that put them ahead of the curve will be leaders in the global economy, as resilience value becomes a critical bellwether.

Climate-smart finance is a new kind of value: instead of adding narrow, policy-dependent return on investment by externalizing harm and cost, climate-smart finance adds value by generating external returns on investment (XROI). This makes it far easier (and less costly) to drive incentives to the creation of new market value.

In other words, ENCAP strategies make room for a far wider landscape of climate-smart finance, which will pull in more and more of the overall amount of finance available, due to this unprecedented new efficiency.

2018 is the year when nations will “ratchet up” or “step up” the level of ambition in their NDCs. Ministers and negotiators should evaluate economy-wide resilience intelligence and map out ENCAP strategies to secure the most prosperous and resilient future possible.

[ The Note for July 2018 ]

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