‘Climate change is very bad for the economy’

The United Kingdom, the host country, will present a leading group of countries that want to stop investing in fossil fuels at the Climate Summit in Glasgow on Thursday. If no action is taken, it will be bad for the climate, but it will also have dire consequences for the economy. This says the European Investment Bank (EIB), which supports the British plan, to NU.nl.

Countries backing the proposal on Thursday will not provide loans and credit insurance for polluting fossil energy projects.

The goal is to bring investment policy in line with the highest ambition of the Paris Climate Agreement. There, countries agreed six years ago to “make efforts” to limit global warming to 1.5 degrees. “Redirecting” polluting money flows is also one of the three main objectives of the Paris Agreement.

Without an additional approach, this 1.5 degree is in danger of being exceeded quickly and far: countries’ new political climate targets lead to roughly 2.7 degrees of warming – and in fact increasing carbon dioxide emissions.

Choosing between climate change or financial risk

We really don’t have a choice, says Nancy Seche, chief climate expert at the European Investment Bank. “We cannot accept that warming exceeds 1.5 degrees and becomes higher and higher. The risks of this are very clear: the rise of climate change will lead to increasingly dire consequences, which are increasing at an accelerating pace. It will also be very harmful for the global economy.”

“But if we prevent warming, this also has consequences. Then many long-life fossil energy projects will have to be stopped, because the CO2 emissions they cause no longer meet the goal of limiting warming to 1.5 degrees.”

According to Saish, this means that the investments now being made in such projects, such as the search for new oil fields or the construction of new gas stations, have financial risks. With an effective climate policy, investments can be called “Stranded assets‘ converted to. Investors can then lose their money, or credit insurers, who cover the investments again – sometimes with government money.

Now, governments often guarantee a portion of the financial risks of large fossil energy projects. As a result, private investors, such as banks and pension funds, are more likely to invest in those projects. When governments withdraw, other investors withdraw more quickly – that’s the strategic idea.

“If we want to keep temperature rises below 1.5 degrees, we urgently need to work on this,” Seich concludes. The International Energy Agency also recently emphasized that in its annual energy report – new fossil investments are at odds with our climate goals.