OECD Secretary-General, Mr. Angel Gurría
Today our understanding of the scale of the risks posed by climate change is much better developed and supported by seriously tested and globally accepted evidence. The IPCC report released on 27 September stated that warming of the climate system is unequivocal, and since the 1950s, many of the observed changes are unprecedented over decades to millennia. The report is also clear that it is extremely likely that human influence has been the dominant cause of the observed warming since the mid-20th century.
While governments need to start taking action now to put us on a pathway to achieve zero net greenhouse emissions globally in the second half of this century, our dependence on fossil fuels appears to be unshaken. We need to learn from the policies some countries are implementing to drive the investment and technology shift needed to break that dependence, and to highlight the stumbling blocks that will require strong political will to be overcome.
It would be hard to imagine a more complex risk management issue than that posed by climate change. But let me start by looking at how governments have recently managed another major risk. For the last five years, we – and many other institutions – have been trying to understand how developments in the financial sector managed to wreak havoc on the real economy and millions of lives.
The financial crisis has been estimated by the GAO to have cost the U.S. economy alone more than $22 trillion. Unemployment in OECD countries now stands at 49 million (8%). It is 16% on average for those under the age of 24 and still growing in some countries. Inequalities are also growing. The cost of reconstructing the financial sector has also been enormous. If you had asked, in advance, those who oversaw the system that led to this train wreck whether they were comfortable living with risks on this scale and would happily pay the costs should they materialise, I suspect their answer would have been no. The risks were either not understood, or ignored.
In parallel, over these same years, governments have also been grappling with how to cope with the risk of climate change. Here the time frames are much longer but, unlike the financial crisis, we do not have a “climate bailout option” up our sleeves. Interestingly, and despite all the press attention given to climate deniers, our understanding of the scale of the risk is much better developed than our understanding of the financial risks pre-crisis. It is not based on financial models but on several decades of extraordinary research and – here models do come in – trying to understand the consequences of how it may evolve.
We know how costly extreme events can be – Hurricane Sandy cost about USD75 billion or 0.5% of 2011 US GDP. Recent analysis by ourselves and research partners estimates that the flood exposure of coastal cities is going to worsen substantially, with the annual costs of flood losses expected to increase to over USD 50 billion per year by 2050. Even with massive new defensive investments of the type New York is now considering, the magnitude of losses when defences are breached is set to rise. Increases in the number of extreme events will involve costly change and adaptation.
In 2009 in Copenhagen, governments endorsed the view that the increase in global average temperature resulting from human activity should be kept below two degrees. That isn’t a costless threshold – it will still require some expensive mitigation and adaptation investments. But we think it remains – just – a manageable and affordable problem to deal with, and much less costly in human and economic terms than the alternative of unmitigated climate change.
The end goal of zero emissions is achievable, but it will not be achieved if we continue with current policies. It will all depend on the way in which every country answers the following question: is our government contemplating a policy mix that is, over time, credible given the scale of the transformation we have to make? While answering this question, we recommend that our countries take a close look at the mirror and evaluate their progress in tackling four key policy challenges:
All this adds up to a lack of credibility if we mean what we say about climate goals. This is much more than a political issue. It is a crucial economic issue. At the moment, most businesses don’t believe that governments are serious, and they are investing accordingly – thus perpetuating the carbon entanglement.
Policy progress in turn, will not be made through gestures – but rather by convincing all sectors of society that the path that has been charted is credible, sustainable over time and that it will deliver.