OECD work on climate action

OECD work on climate action

Contents OECD work on climate action

1

Climate action and the economy

2

International climate negotiations

4

Moving to low-emissions pathways 6 Climate resilience and adaptation Green finance and investment

8 10

Land-use, ecosystems and agriculture 13 Cities and climate change

15

Further reading

17

For further information: oe.cd/climate-action

b . OECD WORK ON CLIMATE ACTION

OECD work on climate action 2015 was an historic milestone, with the adoption of the Addis Ababa Action Agenda on financing for development, the Agenda 2030 for Sustainable Development Goals, and the Paris Agreement. Developed and developing countries need now to focus on implementation, in order to deliver on the commitments and contributions that they have entered into.

In terms of climate, an unprecedented global infrastructure and technological transformation is needed in just a few decades to achieve the low-emissions, climate-resilient development pathways consistent with keeping global average temperature increase well-below 2°C, with efforts to limit it to 1.5°C. The vast majority of countries are taking action, but aggregate efforts to reduce GHG emissions, in either absolute or relative terms, set out in the Nationally Determined Contributions (NDCs) to 2030 are not sufficient to put us on a cost-effective path to achieve the Paris temperature goal. Action therefore needs to be scaled up and accelerated.

As well as supporting the international climate negotiations over many years, more recently the OECD has increased its efforts to help both OECD members and non-OECD countries move towards low-emissions, climate-resilient development pathways and to deliver on their national and international commitments and contributions. OECD work has focused on the social, environmental, economic and financial dimensions that are central to the success of a low-carbon transition: integrating the climate and economic growth agenda; operationalising and implementing the Paris Agreement; tracking climate finance; designing more effective and efficient core climate policies; aligning policy, financial and planning frameworks with climate and other environmental goals; strengthening the adaptive capacity of our economies; enhancing finance and investment in low-carbon, resilient infrastructure; and promoting a just low-carbon transition, including in cities. This brochure provides further details.

“Strong climate action is not a threat to, but the foundation of, our future economic well-being”.

Angel Gurría – OECD Secretary-General SECTION TITLE RUNNING FOOT . 1

OECD work on climate action

Climate action and the economy Meeting climate objectives and achieving sustainable economic growth are critical to ensure resilience, improving productivity and reducing inequalities. Many advanced economies around the world are caught in a low-growth trap. Low economic growth has persisted since the financial crisis, with recession in some countries. Chronic underinvestment has left its mark on infrastructure and productivity growth has slowed down in many economies. Global trade growth has been stalling and increasing inequality is prevalent.

At the same time, countries are seeking to accelerate

Transitioning to a low-carbon economy later on will be costly with a 2% GDP loss if climate action is delayed until 2025.

an urgent low-carbon economic transformation, spurred by the Paris Agreement on climate change and rapid advances in technology. The urgency, scale and speed of the required economic transformation are unprecedented, and infrastructure choices made over the next few years will be crucial. Yet the national plans put forward for the Paris Agreement are collectively insufficient to meet the global goals that have been agreed. This disconnect is in part due to concerns over the implications of climate action for economic growth and development.

A key step in escaping from the low-growth trap is implementing proactive policy to stimulate investment.

But going for the wrong sort of growth would be to miss a major window of opportunity. Pro-growth reform measures, combined with measures to mobilise investment in low-emission and climate-resilient infrastructure, can spur growth and improve well-being while also achieving climate goals. Rather than adding to economic challenges, decisive action to accelerate the transition could form an integral part of effective economic growth plans.

A decisive transition to spur growth while limiting climate change

growth in the short term, in addition to securing longer-term growth and well-being for all citizens.

Governments can not only build strong growth but also avoid future economic damage from climate change if they collectively act for a “decisive transition” towards low-carbon economies. This requires combining climateconsistent, growth-enhancing policies with well-aligned policy packages for mobilising investment in low-carbon infrastructure and technologies.

New OECD modelling work presented in this report suggests that such a collective “decisive transition” can boost long-run output by 2.8% on average across the G20, when comparing a current policies trajectory to a pathway set to hold warming below 2°C with a probability of 50%. Importantly, the net effect on growth is also positive in the short term.

The modelled growth effect is driven by a combination of investment in: l low-emission, l an

additional fiscal initiative to fund climate-

consistent non-energy infrastructure l pro-growth

The OECD report Investing in Climate, Investing in Growth, delivered to the German G20 Presidency and noted by G20 Leaders in their Declaration, shows how action on climate change can generate inclusive economic 2 . OECD WORK ON CLIMATE ACTION

climate-resilient infrastructure

reform policies to improve resource

allocation l technology l green

deployment

innovation.

Positive growth effects for the G20 by combining climate action with economic reforms in a decisive transition (50% probability of achieving 2°C)* Average across G20, GDP difference to baseline, %

2021

2050 2.07

4.73 -0.88 2.83

1.25 0.07

-0.42

0.93 1.02

0.71

0.12

Effect of net Additional fiscal Structural Energy prices, Net growth initiative reforms & stranded assets investment to effect green decarbonise supportive of & regulatory the transition innovation settings

Effect of net Additional fiscal investment to initiative decarbonise supportive of the transition

Structural reforms & green innovation

Energy prices, stranded assets & regulatory settings

Net growth Total net growth effect including effect estimated avoided climate damages

Source: OECD (2017), Investing in Climate, Investing in Growth, http://dx.doi.org/10.1787/9789264273528-en.

The benefits of combined growth and climate policies

A just transition

more than offset the impact of higher energy prices, tighter regulatory settings, and high-carbon assets that

The transition is unlikely to succeed, however, unless

may become economically stranded before the end of

the low-carbon economy includes and provides

their economic life. Carbon-tax revenues are assumed

opportunities to all actors. The transition will affect

to be used to lower public debt in most countries. The

everyone, from central and local governments to the

overall macroeconomic benefits of the modelled policy

private sector, the labour force and citizens, whose

package therefore also include substantial reductions in

divergent interests and influence will come into play.

most countries’ public debt-to-GDP ratios.

Creating opportunities for workers most affected by the low-carbon transition will be essential. The aggregate

Avoided climate damages can bring additional economic gains

effect of the transition on jobs may be modest, but reallocation across sectors and activities will be necessary and in some sectors significant.

There are also significant costs involved in delaying action to reduce emissions. If more stringent policies

Climate change is clearly an urgent challenge. But

were introduced later they would affect a larger stock of

meeting that challenge is an opportunity to create new

high-carbon infrastructure built in the intervening years,

sources of growth by placing the climate imperative at

leading to higher levels of stranded assets across the

the core of national growth and development strategies.

economy.

Adopting such an inclusive, low-emission and climateresilient growth agenda could be an opportunity to

Investment in modern, smart and clean infrastructure

reorient G20 growth objectives.

in the next decade is hence a critical factor for the lowcarbon transition and sustainable economic growth.

The OECD report estimates that USD 6.3 trillion of investment in infrastructure is required annually on average between 2016 and 2030 to meet development needs globally. An additional USD 0.6 trillion a year over the same period would make these investments climate compatible, a relatively small increase considering the short and long-term gains in terms of growth, productivity and well-being.

KEY PUBLICATION OECD (2017), Investing in Climate, Investing in Growth: www.oecd.org/environment/investing-in-climate-investing-ingrowth-9789264273528-en.htm KEY WEBSITE http://www.oecd.org/environment/cc/g20-climate/ CONTACT Anthony Cox – Anthony.Cox@oecd.org CLIMATE ACTION AND THE ECONOMY . 3

OECD work on climate action

International climate negotiations

The OECD-IEA Climate Change Expert Group (CCXG) is engaging directly with Parties to improve the understanding of methodological and procedural elements arising from the Paris Agreement. In these areas, the CCXG is undertaking analytical work to

Climate negotiations post-COP21: a focus on operationalising and implementing the Paris Agreement

identify gaps, draw lessons from existing practice and present options for future arrangements. The CCXG provides a neutral, non-negotiating platform for experts from a wide range of countries and other organisations

The adoption at COP21 and earlier-than-expected entry

to facilitate a dialogue and improve understanding

into force of the Paris Agreement provides both Parties

around the technical issues feeding into the UNFCCC

and non-Party stakeholders greater impetus to act on

process. It has an excellent track record of providing

climate change. The focus is now to operationalise

technical input to the UNFCCC negotiations that has

and implement the Paris Agreement. An immediate

resulted in improved outcomes.

priority of the climate negotiations is to finalise the Paris rulebook by COP24 in 2018. This work is expected to

Tracking public and private climate finance

provide details on rules and guidelines for a number of provisions including an enhanced transparency framework,

Tracking climate finance is key to building trust

accounting for the progress towards and achievement of

and accountability when monitoring progress in

nationally determined contributions (NDCs), accounting

the international effort to address climate change.

for internationally transferred mitigation outcomes, and

Tracking can further inform the effective design of

periodic review processes such as the Global Stocktake. In

public interventions to mobilise finance for climate

addition, Parties are progressing in their discussions on the

action, including in the broader context of making

2018 facilitative dialogue whose mandate was established

financial flows consistent with climate objectives as

at COP21 to support the assessment of collective efforts

stated in Article 2.1 c of the Paris Agreement. The OECD

in relation to progress towards the long-term goal defined

is working to help address these issues based on its

in the Paris Agreement. Such work will be crucial in

established expertise in tracking public and private

facilitating the efforts of Parties and non-Party stakeholders

climate finance.

in preparing, communicating and implementing NDCs.

In the 2015 report Climate Finance in 2013-14 and the USD 100 billion Goal, public and private finance mobilised by developed countries for climate action in developing countries was estimated at USD 62 billion in 2014, up from USD 52 billion in 2013, making it an average of USD 57 billion annually over the 2013-14 period.

4 . OECD WORK ON CLIMATE ACTION

Timeline of key events related to climate negotiations Paris Agreement adopted

Submission of new or updated NDCs; Climate finance commitment of USD 100 billion per year to be mobilised by 2020; Second commitment period of Kyoto Protocol ends

Paris Agreement enters into force 2015

2016

2020 2018

Submission of new or updated NDCs; New collective quantified climate finance goal to be agreed by 2025

Submission of new or updated NDCs

2025

2030

2023

2018 facilitative dialogue; IPCC report on 1.5 degrees Celsius; Proposed finalisation of Paris rulebook

2028

First Global Stocktake (GST)

Second Global Stocktake (GST)

The Creditor Reporting System (CRS) of the OECD

methods for estimating publicly mobilised private finance

Development Assistance Committee (DAC) provides

for climate action in developing countries. The OECD

a robust system for monitoring climate-related

DAC and the Research Collaborative, in co-operation with

development finance provided by its members, a few

public finance providers, have made significant progress

non-DAC members and climate-specific funds and

on developing methods and collecting data for measuring

programmes. Since 2013, seven multilateral development

the direct mobilisation of private finance by public climate

banks (MDBs) have also reported project-level data on

finance (Benn et al., 2017). Estimating the effects of public

their climate-related development finance into the CRS.

capacity building and policy interventions on private finance

This provides consolidated activity-level data for bilateral

is more challenging. Further work is being conducted in this

and multilateral climate-related development finance

area for identifying suitable methodologies and possible

via the so-called “Rio markers”, that are considered

reporting formats (e.g. McNicoll et al., 2017).

descriptive rather than strictly quantitative. Many OECD DAC members use this data as a starting point for their

These developments have in particular made it possible

financial reporting to the UNFCCC.

for the OECD to produce first assessments of progress made by developed countries towards the goal of

The OECD-led Research Collaborative on Tracking Private

mobilising USD 100 billion a year by 2020 for climate

Climate Finance aims to develop and assess data and

action in developing countries.

KEY PUBLICATIONS CCXG Vaidyula, M. and J. Ellis (2017), “2018 facilitative dialogue: Identifying options for outputs and outcomes and key questions for modalities”, OECD/IEA Climate Change Expert Group Papers, OECD Publishing, Paris.

McNicoll, L., R. Jachnik, G. Montmasson-Clair and S. Mudombi (2017), Estimating publicly-mobilised private finance for climate action: A South African case study, OECD Environment Working Papers, No. 125, OECD Publishing, Paris. DOI: http://dx.doi.org/10.1787/a606277c-en

Hood, C. and C. Soo (2017), “Accounting for mitigation targets in Nationally Determined Contributions under the Paris Agreement”, OECD/IEA Climate Change Expert Group Papers, OECD Publishing, Paris.

Link for downloadable CCXG papers on several aspects of the Paris Agreement: http://dx.doi.org/10.1787/2227779X Climate finance Benn, J., C. Sangaré and T. Hos (2017), Amounts Mobilised from the Private Sector by Official Development Finance Interventions: Guarantees, syndicated loans, shares in collective investment vehicles, direct investment in companies, credit lines, OECD Development Co-operation Working Papers, No. 36, OECD Publishing, Paris.

DOI: http://dx.doi.org/10.1787/8135abde-en

KEY WEBSITES CCXG – www.oecd.org/environment/cc/ccxg.htm Research Collaborative – www.oecd.org/env/ researchcollaborative/ OECD Statistics on External Development Finance Targeting Environmental Objectives Including the Rio Conventions – http://oe.cd/RioMarkers CONTACTS Climate Change Expert Group: Jane Ellis – Jane.Ellis@oecd.org Research Collaborative on Tracking Private Climate Finance: Raphaël Jachnik – Raphael.Jachnik@oecd.org Development Assistance Committee: Nicolina Lamhauge – Nicolina.Lamhauge@oecd.org and Giorgio Gaulberti – Giorgio.Gaulberti@oecd.org

INTERNATIONAL CLIMATE NEGOTIATIONS . 5

OECD work on climate action

Moving to low-emissions pathways Climate change mitigation: What is at stake?

Understanding the consequences of climate impacts on the economy and ecosystems plays a key role in building up momentum for policy action. The OECD has found that while the economic impacts of climate change spread across all sectors and regions, the largest negative consequences are projected in the health and agricultural sectors. Regionally, damages are especially strong in non-OECD countries in Africa and Asia. By 2060, global

Early and ambitious mitigation action can help economies avoid half of the macroeconomic consequences by 2060 and could reduce projected global damages from 2-10% to 1-3% of global GDP by the end of the century (OECD, 2015).

macroeconomic costs of climate change are projected to be in the range of 1.0% to 3.3% of GDP, although uncertainties

notably Mexico, India, and Indonesia – have eliminated

are large. Recent analysis also highlights that changes in

all or most of their consumer price support for transport

international competitiveness are driven by the relative

fuels. Several member economies of the Gulf Cooperation

impacts of climate change vis-à-vis competitors, rather

Council have started bringing their domestic fuel prices

than by the sign of the impacts themselves. Climate

into line with international prices. However, production

change also makes other environmental concerns – such

of fossil fuels continues to be supported through tax

as water availability – worse.

incentives in many countries, and policies that keep consumer prices artificially low persist in others. In order

Early policy action is warranted to avoid the lock-in of large

to reduce fossil fuel use and avoid locking in fossil-fuel

damages in the short and medium run, and to avoid the

based capacity, reforms need to be accelerated.

high risks of crossing climate tipping points. Governments should align policies for adaptation and mitigation, and

Taxes or emissions trading systems should result in

take sectoral damages into account, to avoid the largest

carbon prices that reflect the social cost of carbon

negative consequences and reap the most cost-effective

emissions, estimated very conservatively at EUR 30/tCO2.

opportunities to confront climate change.

Across 41 countries, only 10% of carbon emissions from energy use are priced above EUR 30/tCO2, and these are

Pricing carbon for effective climate mitigation

emissions from road transport, where much higher rates are needed to reflect non-climate damages. Of the 90%

The world will need to get to zero net emissions before

of emissions priced below EUR 30/tCO2, two thirds are

the end of this century to limit the global temperature

not subject to a price at all. There is at present a major

rise to below 2°C. Removing fossil fuel subisidies and

carbon pricing gap.

pricing carbon are an essential part of the solution, a necessary part of a larger package of policies that can

Aligning policies for a low-carbon transition

reduce greenhouse gas emissions. OECD work, however, highlights that many national climate strategies have

Core climate policies must be complemented and

not yet integrated these key principles. Fossil fuel

supported by governments ensuring that policies

support needs to be removed and the carbon pricing gap

and regulatory frameworks are aligned with climate

closed urgently to drive the low carbon transition.

policy goals. OECD work has identified a number of misalignments in investment, fiscal and innovation

Countries are increasingly removing fossil fuel subsidies

policies, which, if corrected, could help countries

for consumers. Several large emerging economies –

increase their ambition, improve the effectiveness of

6 . OECD WORK ON CLIMATE ACTION

climate policies, as well as contribute to other policy

KEY PUBLICATIONS

objectives consistent with green and inclusive growth.

OECD (2016), Effective Carbon Rates: Pricing CO2 through Taxes and Emissions Trading Systems, OECD Publishing, Paris.

These include the need to scale up and shift

http://dx.doi.org/10.1787/9789264260115-en

infrastructure investments away from fossil fuels.

Continued investment in carbon-intensive infrastructure will result in a carbon lock-in. Economic policies – particularly those linked to taxation – should be tailored

OECD (2015), The Economic Consequences of Climate Change, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264235410-en

to push consumers into making low-carbon choices.

OECD (2015), Aligning Policies for a Low-carbon Economy, OECD

Taxation favouring carbon-intensive products (e.g.

Publishing, Paris.

favourable personal tax treatment of company cars)

http://dx.doi.org/10.1787/9789264233294-en

should be revised. Policies focusing on innovation,

OECD (2015), Climate Change Mitigation: Policies and Progress, OECD

support for green technology deployment as well as on international trade also have a considerable role to play in achieving climate mitigation goals.

Publishing, Paris. http://dx.doi.org/10.1787/9789264238787-en KEY WEBSITES

In the years to come, the OECD will deepen and

www.oecd.org/site/tadffss/

expand its work to help governments move to low-

www.oecd.org/tax/effective-carbon-rates-9789264260115-en.htm

emissions, climate resilient development pathways.

www.oecd.org/environment/action-on-climate-change/

It will provide tools to diagnose misalignments and

www.oecd.org/env/indicators-modelling-outlooks/circle.htm

prioritise and phase climate action across sectors and time. Understanding the political economy

CONTACTS

factors surrounding the transition (e.g. identifying

Mitigation:

communities at risk of being stranded; revenue losses

Virginie Marchal – Virginie.Marchal@oecd.org

for governments; benefits of climate action on air quality) will be a key component of a successful low-

Effective Carbon Rates:

carbon transition. The OECD’s upcoming contribution in

Kurt Van Dender – Kurt.VanDender@oecd.org

this field aims to be decisive in order to help countries

Economic Cost of Climate Change:

heighten their mitigation ambition set out in their

Rob Dellink – Rob.Dellink@oecd.org

nationally-determined contributions and ultimately achieve the Paris Agreement mitigation goal.

Effective carbon rates of OECD and select partner countries on energy use, all energy, road transport, and non-road transport, EUR/tCO2 All energy

Road

Non-road

2% 4%

3%

10% 15% 20% 11%

46%

60%

70%

48%

10%

EUR 0

EUR 0-5

EUR 5-30

EUR >30

Source: OECD (2016) Effective Carbon Rates: Pricing CO2 , Taxes and Emissions Trading Systems, http://dx.doi.org/10.1787/9789264260115-en.

MOVING TO LOW-EMISSIONS PATHWAYS . 7

OECD work on climate action

Climate resilience and adaptation Climate change poses risks to people, ecosystems and every sector of the global economy. Significantly reducing greenhouse gas emissions is not enough – impacts of climate change are increasingly being felt today and need to be met with co-ordinated action to increase resilience. Climate adaptation polices reduce the adverse consequences of climate impacts that are already underway and help societies proactively prepare for the future.

How do we make the right decisions in the face of uncertainty and long-term time horizons? What needs to be in place or be overcome to implement adaptation?

What does success look like? The OECD is working with countries to address these and other key issues and put in place the right policies to prepare for the effects of a changing climate.

Adaptation planning

provides an iterative process for managing the risks from climate change, gives an overview of costs and benefits of adaptation at the national and regional scale and discusses adaptation finance in OECD countries.

Sectoral Action Adaptation challenges, opportunities and constraints vary by sector. The OECD is supporting the implementation of adaptation at the sectoral level through targeted recommendations. l Climate

change is leading to shifts in the water

cycle, which requires managing the resulting risks of scarcity, floods, degraded water quality and disruption of freshwater ecosystems. Water and Climate Change Adaptation: Policies to Navigate Uncharted Waters (2013) surveys the policies for adapting water management in a changing climate across OECD countries and sets out policy guidance to improve the efficiency and effectiveness of adaptation responses. l Reliable,

adequate and cost-effective infrastructure

underpins economic activity. By building resilience into The characteristics of risks are increasingly difficult to

decisions both to upgrade existing systems and build

predict over long time-horizons. Proportionate, flexible and

new networks, there is the scope to enhance overall

iterative approaches are required to manage these risks.

resilience to climate change and avoid the risk of costly retrofitting in future. “Climate-Resilient Infrastructure:

l The

policy response should improve knowledge about

Getting the Policies Right” (2017) provides a framework

the risks from climate change through national

for action aimed at national policymakers in OECD

assessments and use these assessments to plan for a

countries to help them ensure new and existing

range of possible outcomes rather than one “most likely”

infrastructure is resilient to climate change.

projection. It will not be possible to eliminate risks entirely, so effective response and recovery systems are

l Developing

countries are disproportionately affected

needed to address those that remain. Climate Change

by the rising trend of losses from extreme weather

Risks and Adaptation: Linking Policy and Economics (2015)

events, which is due both to increased exposure of

8 . OECD WORK ON CLIMATE ACTION

Climate change costs from urban floods by 2080 (Billions of USD, 2005 PPP exchange rates)

Below 0 From 0 to 1 From 1 to 10 From 10 to 100 Above 100 N/A Source: OECD (2015), The Economic Consequences of Climate Change, http://dx.doi.org/10.1787/9789264235410-en.

Supporting learning and accountability Given the scale of the adaptation challenge, it is essential

assets and the changing climate. Effective policies are

that effective approaches are being adopted, implemented,

needed to reduce the accumulation of risk, combined

and lessons are shared to continue to build on success.

with instruments and tools to help retain, share or transfer financial losses if an extreme event occurs.

l Robust

monitoring and evaluation is needed to inform

These tools and instruments, collectively known as

policy development. Monitoring and evaluation can

financial protection, can help cope with the impacts of

improve policy learning and strengthen accountability

climate-related disasters, reduce costs of recovery and

by tracking how resources are spent and whether the

reconstruction, and encourage risk reduction. “Climate

policy or project is delivering as expected. National

Change Adaptation and Financial Protection Synthesis

Climate Change Adaptation: Emerging Practices in

of Key Findings from Colombia and Senegal” (2017)

Monitoring and Evaluation (2015) draws upon emerging

identifies priorities for development co-operation

monitoring and evaluation practices across developed

providers in supporting financial protection against

and developing countries to tools that countries can

climate risks.

draw upon for their climate adaptation policies.

KEY PUBLICATIONS Climate-resilient infrastructure: Getting the policies right, Environment Working Paper, April 2017 http://dx.doi.org/10.1787/19970900

KEY WEBSITES www.oecd.org/environment/cc/adaptation.htm www.oecd.org/env/cc/developmentandclimatechange.htm www.oecd.org/water/

Climate change adaptation and financial protection: Synthesis of key findings from Colombia and Senegal, Environment Working Paper, April 2017 http://dx.doi.org/10.1787/0b3dc22a-en

CONTACT Michael Mullan – Michael.Mullan@oecd.org

National Climate Change Adaptation – Emerging Practices in Monitoring and Evaluation, April 2015 http://dx.doi.org/10.1787/9789264229679-en CLIMATE RESILIENCE AND ADAPTATION . 9

OECD work on climate action

Green finance and investment

among other areas. It also provides a global platform for engaging with key players and harnessing the marketplace intelligence of private sector partners.

The flagship event of the Centre is the annual OECD

Investment in the green economy needs to take place on

Forum on Green Finance and Investment, (formerly

a far greater scale over coming decades to achieve the

know as the Green Investment Financing Forum),

Sustainable Development Goals (SDGs) and the ambition

which has been held since 2014. This event brings

of the Paris Agreement. This will require the demand

together leading actors from the green finance

for, and supply of, financing (e.g. debt, equity and other

and investment community to promote effective

channels) to significantly increase while its cost (i.e. the

engagement, collaboration and action on green finance

return financiers demand) to significantly decrease.

and investment, including institutional investors, asset managers, ministries of finance and central banks,

Green finance and investment addresses these and other

financial regulators, commercial and investment banks,

issues relating to the transition to a green, low-emissions

international climate funds, multilateral development

and climate-resilient economy. To help catalyse and

banks, green investment banks, corporations, civil

support this transition through the development of

society, philanthropic sectors and more.

effective policies, institutions and instruments for green finance and investment, the OECD established in

A range of recent OECD publications contributing to the

2016 a Centre on Green Finance and Investment. The

Centre been developed on topics relating to renewable

OECD Centre provides a focal point for developing new

energy investment and innovation; investment channels,

OECD work on green finance and investment within

interventions and institutions for a low-carbon transition;

and across several directorates, drawing on expertise in

green finance and investment in developing countries;

finance, environmental policy, development and cities,

and tracking and measuring private climate finance.

Since 2010 50% of private finance in infrastructure (USD 1.3 trillion) has been directed to renewable energy (Investing in Climate, Investing in Growth, OECD 2017).

10 . OECD WORK ON CLIMATE ACTION

Renewable energy investment and innovation

“Mobilising finance for the transition”. Additionally, the report Mobilising Bond Markets for a Low-Carbon

The newly released working paper “The Empirics of

Transition (2017) demonstrates the contribution that

Enabling Investment and Innovation in Renewable

bond markets can make to a low-carbon transition.

Energy” (2017) assesses empirically how the investment

Further, Green Investment Banks: Scaling up private

environment and climate policies impact investment in

investment in low-carbon, climate-resilient infrastructure

renewable power in G20 and OECD countries. It provides

(2016) provides the first comprehensive study of green

empirical evidence about the importance of core climate

investment banks, analysing the rationales, mandates

policies and an enabling investment environment (see

and financing activities of this relatively new category of

for example, Policy Guidance for Investment in Clean Energy

public financial institution. Further work in 2017-18 will

Infrastructure [2015]). A follow-up paper examines the

explore the role of green investment banks in fostering

issue of “State-Owned Enterprises and the Low-Carbon

investment opportunities and sustaining new markets.

Transition” (Prag et al., 2017 forthcoming).

To plug the knowledge gap on pipeline of bankable

Investment channels, de-risking interventions and institutions for a low carbon transition

infrastructure projects and enable countries to effectively implement NDCs, the Centre is developing a report on the role of project pipelines in supporting

Transitioning to a low carbon economy will require

the delivery of low-carbon strategies. The first phase

institutions, instruments and market designs that

will explore design elements of project pipelines and

efficiently allocate capital to zero emission, energy

their utility in mobilising and scaling-up investment,

efficient infrastructure and technologies. The OECD

while the second will undertake case studies to identify

report for the German G20 Presidency, Investing in

emerging examples of the use of the design elements.

Climate, Investing in Growth (2017), highlights the changing role of public and private finance in its chapter

Potential for low-carbon bond issuance ranges between USD 620 billion and USD 720 billion per year by 2035 USD billions

Amount outstanding

Issuance

5 500

1 700

4 500

1 500 3 500

1 300 1 100

2 500

900 1 500

700

Annual bond issuance in the four regions

Bonds outstanding in the four regions

1 900

500 500 300

0 -500

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

100

Source: OECD (2017), Mobilising Bond Markets for a Low-Carbon Transition, DOI: http://dx.doi.org/10.1787/9789264272323-en.

GREEN FINANCE AND INVESTMENT . 11

OECD work on climate action

OECD Policy Perspectives “Blended Finance: Mobilising resources for Sustainable Development and Climate Action in developing countries” collates the latest OECD work on this topic.

With a focus on green investment in developing countries, a working paper entited “Engaging the Private Sector for Green Growth and Climate Action” (2017) takes stock on the role of development finance in mobilising the private sector. New work on “Development banks and development finance institutions: scaling up green investment in developing countries” will have a complementary focus on enabling institutions, highlighting the critical and changing role of development banks as well as national, regional, bilateral and multilateral development finance institutions (DFIs) in promoting sustainable infrastructure in developing countries.

Promoting green finance and investment in developing countries

Tracking and measuring private climate finance: Country specific case studies for practical insights

Blended finance, an approach to mix different forms

The OECD-led Research Collaborative on Tracking

of capital in support for development, is emerging as

Private Climate Finance together with Trade & Industrial

an important solution to help meet the infrastructure

Policy Strategies (TIPS), in collaboration with the

investment gap in developing countries by using

South African National Treasury and Department of

public support to mobilise commercial finance. OECD

Environmental Affairs, has jointly led a case study

Blended Finance Principles have been endorsed by the

on “Estimating Publicly-Mobilised Private Finance for

Development Assistance Committee and will guide the

Climate Action” (2017).

use of development finance in blended approaches going forward. The new OECD report, Making Blended Finance

In addition, building on the OECD’s Financing Climate Action

Work for the SDGs (forthcoming) is a comprehensive

in Eastern Europe, the Caucasus and Central Asia, an OECD

assessment of the state and priorities for the use of

project on green finance mobilisation in Georgia supports

blended finance in developing countries, and a new

increasing current levels of finance for green projects.

KEY PUBLICATIONS Ang, G., D. Röttgers and P. Burli (2017). “The empirics of enabling investment and innovation in renewable energy”, OECD Environment Working Papers, No, 123, OECD Publishing, Paris. http://dx.doi.org/10.1787/67d221b8-en

KEY WEBSITES Centre on Green Finance and Investment: www.oecd.org/cgfi/ OECD Blended Finance: www.oecd.org/dac/financing-sustainabledevelopment/development-finance-topics/blended-finance.htm

Crishna Morgado, N. and B. Lasfargues (2017), “Engaging the private sector for green growth and climate action: An overview of development co-operation efforts”, OECD Development Co-operation Working Papers, No. 34, OECD Publishing, Paris.

OECD (2017), Mobilising Bond Markets for a Low-Carbon Transition, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264272323-en 12 . OECD WORK ON CLIMATE ACTION

CONTACTS Green Finance and Investment: Robert Youngman – Robert.Youngman@oecd.org; Private Finance for Sustainable Development: Paul Horrocks – Paul.Horrocks@oecd.org

Land-use, ecosystems and agriculture

programmes and biodiversity offsets, are also relevant for climate change mitigation (OECD, 2016). Climate change also impacts on water quality and quantity (droughts and floods), with potentially adverse impacts on aquatic ecosystems and agricultural productivity. The Water Risk

Land-use systems play a crucial role in achieving

Hotspots for Agriculture report (2017) identifies and proposes

a number of the Sustainable Development Goals,

targeted responses to address these issues. OECD Green

including those relating to climate, biodiversity, water,

Growth Indicators (2017) provides new indicators on land

sustainable energy, food security, and ending poverty.

use and land use conversion across a range of OECD and G20 countries, data that can help to ensure more

Land use, including agriculture and forestry, is also

informed policy-making.

critical for meeting climate goals under the Paris Agreement, with 24% of global greenhouse gas emissions

Climate change and marine ecosystems

stemming from agriculture, forestry and land use change (see Figure on page 14). Effective climate change

Climate change is also rapidly impacting marine

mitigation and sustainable land use and management

ecosystems and species. As highlighted in Marine Protected

practices are also crucial for meeting the biodiversity

Areas: Economics, Management and Effective Policy Mixes

goals under the Aichi Targets of the Convention on

Policy (2017), it is estimated that climate change has

Biological Diversity. The linkages and interactions

already resulted in either loss or degradation of 50% of

between climate change, land use, ecosystems and

salt marshes, 35% of mangroves, 30% of coral reefs and

agriculture are inextricable, offering both opportunities

20% of seagrass worldwide. The report highlights the key

for synergies and the need to reconcile trade-offs when

pressures on oceans and examines how instruments such

devising policies. The OECD conducts multiple areas of

as marine protected areas and blue carbon payments for

work across this diverse nexus of issues.

ecosystem services can be scaled up to help to mitigate climate change and enhance ecosystem resilience.

Climate change, land use and terrestrial ecosystems

The need for coherent policy responses

Climate change is a key pressure on biodiversity and

As highlighted in OECD/IEA/NEA/ITF (2015), Aligning

ecosystem services, with the OECD Environmental Outlook

Policies for the Low-Carbon Economy, sustainable land-

to 2050 modelling showing that this pressure is projected

management practices – reduced deforestation,

to increase in the future. OECD (2013), Scaling Up Finance

restoring degraded land, better agricultural practices

Mechanisms for Biodiversity, highlights that various land-use

and increased carbon sequestration in soils and

related climate mitigation strategies, such as Reducing

forests – could make a large contribution to the global

Emissions from Deforestation and Degradation (REDD+),

climate change effort while delivering the productivity

as well as ecosystem-based climate adaption strategies,

improvement needed to respond to growing food

can also offer significant co-benefits for biodiversity and

demands. The economic potential of options for

ecosystems. Moreoever, biodiversity policy instruments

reducing agricultural GHG emissions is highly dependent

that help ensure the conservation and sustainable use

on their cost-effectiveness. The OECD paper “Cost-

of forests, such as payments for ecosystem services

effectiveness of greenhouse gas mitigation measures LAND USE, ECOSYSTEMS AND AGRICULTURE . 13

OECD work on climate action

for agriculture” reviews the international literature and

mitigation and agricultural productivity” (2017,

discusses barriers to their adoption. The OECD paper

forthcoming) highlights that many agricultural policy

“Overcoming barriers to the adoption of climate-friendly

instruments send inconsistent signals across the three

practices in agriculture” examines options to deliver

objectives of adaptation, mitigation and productivity

both mitigation and adaptation benefits.

enhancement and that there is a need for improved policy coherence. More coherent policy frameworks

Sustainable land-management practices can also

will therefore be needed to address the multiple and

improve the resilience of our economies to a changing

overlapping challenges. On-going OECD work on Land

climate by protecting ecosystems. OECD analysis

use, climate mitigation, ecosystems and food: aligning policies

on Land use and ecosystem services in agriculture (2017,

in the land use sector is examining the interactions,

forthcoming) illustrates that market and agricultural

potential synergies and trade-offs across these areas.

policy drivers have significant impact on ecosystem

The work will draw on insights from a selection of

services and that there is room for improving the design

OECD and non-OECD countries, with a focus on

of the policy mix in OECD countries to address the

those that have high GHG emissions from the land

provision of ecosystem services linked to agriculture.

use sector, or have made progress in reducing these.

Overall, achieving sustainable land use will require

Another strand of on-going OECD work on Deepening

an integrated approach which breaks down the silos

the sustainable productivity framework by strengthening

between climate change, agriculture, food security,

policy coherence examines the coherence of government

forestry and biodiversity policies. The OECD Synthesis

policies in enhancing productivity growth and several

report “Synergies and trade-offs between adaptation,

environmental sustainability dimensions.

Greenhouse gas emissions by sector (2010) Global GHG emissions, 2010

Breakdown of AFOLU emissions, 2010 10 000

Buildings 6%

AFOLU 24%

Other energy 10% Transport 24%

Other land use

8 000

Industry 21%

Other agriculture Mt CO2 - eq

Electricity & heat 21%

6 000

N2O from manure CH4 from enteric fermentation

4 000

2 000

0

CO2 from land use

2010

Source: Adapted from IPCC (2014) and FAOSTAT (2017). Prepared for OECD (forthcoming), Land Use, Climate Mitigation, Ecosystems and Food.

KEY PUBLICATIONS OECD (2016), Biodiversity Offsets: Effective Design and Implementation. OECD Publishing, Paris.

OECD (2016), Mitigating Droughts and Floods in Agriculture: Policy Lessons and Approaches, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264246744-en.

14 . OECD WORK ON CLIMATE ACTION

KEY WEBSITES www.oecd.org/env/resources/biodiversity www.oecd.org/cc/redd www.oecd.org/tad/sustainable-agriculture/agriculture-andclimate-change CONTACTS Katia Karousakis – Katia.Karousakis@oecd.org Jane Ellis – Jane.Ellis@oecd.org

Cities and climate change

Growth initiative in March 2016, the OECD has created a coalition of more than 50 mayors from around the world committed to tackle inequalities and promote more inclusive economic growth. By signing the Seoul Implementation Agenda for Inclusive Growth in Cities,

Cities are home to more than half of the world’s

Mayors recognised the importance of bridging strategies

population (54.5% in 2016), consume 70% of the world’s

for climate change and inclusive growth as one of the

energy, and account for a roughly equivalent share of

two key priorities.

global greenhouse gas emissions. Given the way in which they concentrate physical, human and financial assets,

The OECD helps cities identify knowledge gaps, advance

cities are also disproportionately vulnerable to climate

research, and ultimately promote best practices

impacts. Cities also compete for human talent and inward

and policy solutions for achieving more inclusive,

investment. Quality of life and quality of infrastructure

sustainable cities. The OECD Case study of Inclusive Growth

are critical and will have major consequences for our

in Seoul, a first of its kind, diagnoses inequalities in Seoul

ability to manage and adapt to climate risks.

and assesses key dimensions of its Inclusive Growth policy framework, including the interaction between

Inclusive climate action in cities

climate change and inequalities.

Cities will be key to the “just” low-carbon transition.

Water and cities

Cities are in the frontline of climate action, and in the search for concrete solutions to ensure that

Cities face emerging water-related challenges, such as

climate strategies effectively respond to major social

more-stringent health and environmental standards,

and economic challenges such as rising inequality,

diffuse pollution, competition to access water resources,

unemployment, poverty and unequal access to

increased intensity and frequency of extreme weather

opportunities. While many cities have put climate

(affecting precipitation and evaporation), and higher

change and rising inequalities at the top of their policy

uncertainty about future water availability and demand.

agendas, climate change and inclusive growth have

Cities in OECD countries face a particular challenge in

been addressed through separate policy portfolios, with

that most are locked-in to specific technical trajectories

limited attention paid to the trade-offs or synergies

and retrofitting existing infrastructure to address new

between these two areas.

and emerging pressures is particularly expensive and technically difficult.

The OECD is supporting local governments in delivering on both the climate and inclusion agendas. By

The report Water and Cities: Ensuring Sustainable Futures

launching the OECD Champion Mayors for Inclusive

explores policy responses at both the central and local CITIES AND CLIMATE CHANGE . 15

OECD work on climate action

government levels and focuses on four mutually dependent dimensions: finance, innovation, urban-rural linkages, and governance. The report builds on OECD work on water economics and governance. Ten cities provided detailed case studies on the water challenges they face, the innovative responses they are putting in place, and the barriers that had to be overcome to implement these responses. New information was collected through two surveys, on water governance in cities and on the governance of water regulators.

KEY PUBLICATIONS Inclusive climate action in cities OECD (2016), Making Cities Work for All: Data and Actions for Inclusive Growth, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264263260-en OECD 2014, All on Board. Making Inclusive Growth Happen, OECD Publishing, Paris. www.oecd.org/inclusive-growth/All-on-Board-MakingInclusive-Growth-Happen.pdf.

dedicated reports.

Water and cities OECD (2013), Water and Climate Change Adaptation: Policies to Navigate Uncharted Waters, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264200449-en

Spatial Planning Instruments and the Environment (SPINE)

OECD (2015), Water and Cities: Ensuring Sustainable Futures, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264230149-en

SPINE is an ongoing OECD project to assess the

SPINE OECD 2018 forthcoming, A new perspective on urban sprawl

The detailed results of the surveys are presented in

environmental effectiveness and economic efficiency of spatially-related policy instruments, such as those focusing on land-use and urban transport. SPINE examines the urban form patterns in OECD countries to identify how the organization of built environment affects the energy needs of modern cities, their dependency on private modes of transportation and, in turn, their CO2 footprint. The above work is carried out with city case studies and cross-country comparative analyses.

Every city case study aims at deriving evidence-based conclusions regarding the long run effect of relevant policy instruments on the shape of future cities and their carbon footprint. These instruments involve, but are not limited to: road pricing, parking fees, incentives for the adoption of electric vehicles, zero-emission zones, density regulations and property taxation. Case studies are currently underway for a series of cities, including Auckland and Santiago with full-blown results expected in 2018.

In parallel, SPINE has undertaken the largest comparative analysis for the evolution of urban sprawl ever attempted. Using data from satellite images, urban sprawl indicators were constructed for 1156 OECD urban areas for different years (1975, 1990, 2000, 2014).

An important finding of the study is that many cities continue to sprawl in ways not reflected in their average population density. In the future, these cities may be trapped in car dependency, as the provision of public transport in them will be more expensive.

16 . OECD WORK ON CLIMATE ACTION

Cárdenas Rodríguez, M., L. Dupont-Courtade and W. Oueslati (2015), “Air Pollution and Urban Structure Linkages: Evidence from European Cities”, OECD Publishing, Paris. http://dx.doi.org/10.1787/5jrp6w9xlbq6-en KEY WEBSITES Inclusive climate action in cities www.oecd.org/regional/greening-cities-regions/ Seoul Implementation Agenda – www.oecd-inclusive.com/ champion-mayors-doc/seoul-implementation-agenda.pdf OECD Case Study of Inclusive Growth in Seoul – www.oecd-inclusive.com/champion-mayors-doc/seoul-policyhighlights.pdf Champion Mayors platform – www.oecd-inclusive.com/ champion-mayors/ Water and cities The Roundtable on financing water – www.oecd.org/ environment/resources/roundtableonfinancingwater.htm SPINE project www.oecd.org/env/tools-evaluation/spine-spatial-planninginstruments-and-the-environment.htm CONTACTS Inclusive climate action in cities: Marissa Plouin – Marissa.Plouin@oecd.org Virginie Marchal – Virginie.Marchal@oecd.org Water and cities: Xavier Leflaive – Xavier.Leflaive@oecd.org SPINE project: Walid Oueslati – Walid.Oueslati@oecd.org

Further reading Climate action and the economy IEA (2017), Chapters 1 and 2 in Perspectives for the Energy Transition: Investment Needs for a Low-Carbon Energy System, International Energy Agency/OECD Publishing, Paris, www.energiewende2017.com/wpcontent/uploads/2017/03/Perspectives-for-the-EnergyTransition_WEB.pdf.

OECD (2015), Aligning Policies for a Low-carbon Economy, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264233294-en.

Vallejo, L., S. Moarif and A. Halimanjaya (2017), “Enhancing mitigation and finance reporting”, OECD/IEA Climate Change Expert Group Papers, OECD Publishing, Paris, http://dx.doi.org/10.1787/2227779X. Moving to low-emissions pathways Dellink, R., et al. (2017), “International trade consequences of climate change”, OECD Trade and Environment Working Papers, No. 2017/01, OECD Publishing, Paris, http://dx.doi.org/10.1787/9f446180-en.

International climate negotiations Moarif, S. (2017), “Information needed for the clarity, transparency and understanding (CTU) of mitigation contributions”, OECD/IEA Climate Change Expert Group Papers, No. 2017/01, OECD Publishing, Paris, http://dx.doi.org/10.1787/2227779X.

OECD (2015), OECD Companion to the Inventory of Support Measures for Fossil Fuels 2015, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264239616-en.

OECD (2017), OECD DAC Rio Markers for Climate: Handbook, OECD, Paris, www.oecd.org/dac/environment-development/ Revised%20climate%20marker%20handbook_FINAL.pdf.

Climate resilience and adaptation Kato, T. and J. Ellis (2016), “Communicating progress in national and global adaptation to climate change”, OECD/IEA Climate Change Expert Group Papers, No. 2016/01, OECD Publishing, Paris, http://dx.doi.org/10.1787/5jlww009v1hj-en.

OECD (2016), 2020 Projections of Climate Finance Towards the USD 100 Billion Goal: Technical Note, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264274204-en.

Vaidyula, M. and J. Ellis (2017), “Information needs for the 2018 facilitative dialogue: issues and options”, OECD/IEA Climate Change Expert Group Papers, OECD Publishing, Paris, http://dx.doi.org/10.1787/2227779X.

OECD (2015), Climate Change Risks and Adaptation: Linking Policy and Economics, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264234611-en.

Land-use, ecosystems and agriculture OECD (2017), The Land-Water-Energy Nexus: Biophysical and Economic Consequences, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264279360-en.

“Ambitious climate policy is simply good policy.”

Angel Gurría – OECD Secretary-General

FURTHER READING