PARIS2015

Lecture by OECD Secretary-General Angel Gurría

Chaired by Professor Lord Nicholas Stern of Brentford

Friday 3 July 2015

C L I M A T E W H A T ’ S C H A N G E D , W H A T H A S N ’ T W H A T W E C A N D O A B O U T I T

. . . 6 M O N T H S T O # C O P 2 1

Centre forClimate ChangeEconomics and Policy

Ladies and Gentlemen

In my first Climate Change Lecture, nearly two years ago, my key message was that meeting the challenge of climate change required us to achieve zero net greenhouse emissions globally by the end of this century.1 That is because carbon dioxide (CO2) emissions accumulate and are long-lived. Without zero net CO2 emissions, temperatures will just keep rising. When I said that two years ago, it was deemed controversial. But I was only stating what had been apparent for some time. Today, I’m pleased to see that it has become conventional wisdom and a commonly shared goal – including just last month by the G7 Leaders, whose Summit Leadership Declaration refers to the need to achieve “a decarbonisation of the global economy over the course of this century”.2

Not much has changed… except prices

So let me start by reflecting on what has and what hasn’t changed since that day (9 October 2013). First of all, the science has not changed. The IPCC’s recent Fifth Assessment Report has confirmed the seriousness and urgency of the issue. The second key element that has not changed is the predominance of fossil fuels. I noted two years ago that we were awash in fossil fuels. Unfortunately, they still dominate global energy supply, accounting for an aggregate share of 81%.3 In fact, the carbon intensity of the fuel mix has hardly changed since 1990.4

What has changed significantly is the price of fossil fuels. On the day I delivered my first LSE lecture, Brent crude stood at USD 109 per barrel. By mid-January 2015, the price had plunged to less than USD 50 per barrel. It has since followed an upward and volatile trend, but remains well below last year’s peak, fluctuating at around USD 60 per barrel. Of course, coal prices have fallen too, though less dramatic.5

Parodoxically and sadly, the impact of this price roller coaster on the outlook for climate action has been “less than you might think”. When prices were high, it made obvious sense to pursue low-carbon energy supplies and enhanced energy efficiency. However, the times of high oil and gas prices also triggered some massive, higher-carbon investments: for example, coal-fired generation in ASEAN, coal conversion in China, and oil sands in Canada. To make things worse, high prices made removing consumer subsidies difficult.

Today’s lower prices make it easier to reduce subsidies – we have already seen some enlightened measures in countries like Indonesia, India, Malaysia and Thailand. Unfortunately, however, most governments have failed to take advantage of falling oil prices to introduce or increase carbon taxes, which would still have left prices “at the pump” unchanged. The revenue from carbon taxes could have been recycled through changes to other taxes and transfer programmes. Instead, we have the equivalent of a “big rebate” on the cost of each tonne of CO2 emitted. The benefits of falling oil prices have flowed to oil consumers, at the expense of the environment. Not surprisingly demand is increasing. In the USA, for example, the SUVs and the Hummer are making a comeback.7 And we have done this at a time when we are fighting deflation, not

inflation. On the other hand, investments in expensive new fields that were dependent on prices staying north of USD 80 per barrel are being halted or deferred. Rather than investing in clean energy, we now see oil companies returning cash to shareholders through dividends and buybacks.8 Coal companies have seen their market valuations tumble, sometimes dramatically. For instance, the market capitalisation of America’s four largest coal companies is now USD 1.2 billion, down from USD 22 billion in 2010.9 And governments are facing demands from oil and gas producers for softer tax regimes to prop up production and exploration. Here in the United Kingdom (UK), the Government has already granted North Sea oil and gas producers reduced tax rates and more generous investment allowances.10

So lower oil prices create competing market forces that can cut both ways for climate. But one thing is clear - without concerted climate policies, fossil fuels will remain the energy fuel of choice. In the absence of deliberate climate policies, we will see a predictable pattern of responses - consumers will use more of the cheaper resources, demand will increase; and producers will use their formidable technical skills to find new and cheaper ways of bringing to the markets the fossil fuel resources they’ve discovered.

Another change I can identify is a growing awareness that not all fossil fuels are created equal. There will be winners and losers if governments decide to embark on the transition that the 2 degree goal implies. The recent call by six major European oil and gas companies for “widespread and effective pricing of carbon emissions” is something of a tectonic shift.11

This is clearly not driven by idealism, but (in their words) “in order to realise the full and positive impact natural gas can have”.12 In the face of growing pressure to limit emissions, they see their business model threatened by the continued growth of cheap and emissions-intensive coal that will easily eat up most of the remaining carbon budget for a 2 degree world. Their view is not universally shared; Chevron immediately cast doubt on the “effectiveness” of carbon pricing as a strategy, on the premise that “customers want affordable energy”.13

While this call for a carbon price is an intriguing tactical move, Chevron’s scepticism is not without foundation. It all depends on whether you think governments will this time really make a step change on the road to a low carbon economy. If the tortuous pace of negotiations within the UNFCCC is anything to go by, that cannot be guaranteed. The mitigation contributions (“INDCs” or Intended Nationally Determined Contributions) currently tabled by countries do not get us to where we need to be by 2030. We are told that we shouldn’t worry; that this is an iterative process; that ambitions will be revisited. They had better be. Calling something a process doesn’t guarantee an outcome. We have been in a process for over 20 years. And so far, the commitments simply do not add up. The International Energy Agency (IEA) suggests that the INDCs submitted to the UNFCCC by June 2015 only extend the world’s 2 degree-consistent carbon budget by 8 months when taking into account planned energy policies in countries that are yet to submit.14 151 countries have still not even tabled their contributions. These countries should do so as a matter of urgency. The carbon clock is ticking.

2 . CLIMATE: WHAT’S CHANGED, WHAT HASN’T AND WHAT WE CAN DO ABOUT IT

So what is holding governments back?

Let me run quickly through a few of the reasons.

1. The growth dilemmaClearly, there is extreme reticence to do anything that might jeopardise the economic recovery. But we’re talking about charting a long-term transformation involving structural adjustments that will lead to better lives. The New Climate Economy Commission,15 of which I am a member, has convincingly argued that sustainable growth and the transition to a low-carbon economy are not incompatible. And in any case, there are plenty of short term low- or no-cost actions consistent with a 2 degree pathway, such as energy efficiency and subsidy reform.

2. CompetitivenessThen there is the enduring concern that climate policies could significantly alter the competitiveness of particular emission-intensive industries. While such worries cannot be ignored, the scale of most proposed carbon pricing policies pales alongside the “normal” price volatility to which resource users are exposed. In fact, the OECD has not found evidence of significant competitiveness impacts as a result of climate policies to date.16 We need policies that progressively ramp-up to redirect investment and catalyse innovations. And the geographical spread of these policies needs to broaden if we want to remove “carbon leakage” as an excuse that is currently inhibiting climate policy ambition.

3. The tragedy of horizonsMark Carney, Governor of the Bank of England, has talked about the “tragedy of horizons” – a failure by governments and businesses to internalise long-term considerations in decision making. Climate change is a victim of this “tragedy of horizons.” It will unfold over many decades, while political and business cycles at best extend over a few years. Thus, even known catastrophic losses in 100 years’ time do not influence policy and investment decisions today. Jeremy Grantham17 has referred to this as the “tyranny” of the corporate discount rate lens, through which our grandchildren end up having no value.18 Yet there is a real risk that between now and the end of the century, we may face severe, pervasive and irreversible climate impacts. And then we will regret our myopia.

4. Development spaceThere is a flawed but deeply rooted idea that development comes before decarbonisation. While developing economies will inevitably increase their emissions, there is no iron law that requires development in the twenty first century to be as fossil-intensive as it was. Viable alternatives are already commercially available. Today, nobody would propose laying out telephone lines as OECD countries did in the mid-twentieth century. But some leaders and development specialists still imagine tomorrow’s societies engineered around yesterday’s solutions.

5. Carbon entanglementFor my last lecture two years ago, I used the phrase “carbon entanglement” to describe the extent to which many governments and asset owners have deeply vested

and sometimes conflicting interests in the status quo. This is not just a question of lobbying power. For example, most government budgets and pension funds rely heavily on the returns of fossil fuel exploitation. We face some truly bizarre contradictions: summer arctic ice is a huge reflector of sunlight. Once it has gone, there will be a strongly positive temperature feedback. We worry about what that means for tomorrow but busily prepare today for the moment when fresh oil and gas from the Arctic become available!

So how do we untangle ourselves?

Core climate policiesIn the first place we need strong, credible and predictable climate policies, in particular a price on carbon, and the elimination of both consumer and producer subsidies that support incumbent fossil fuels. These are, in climate terms, “sins of commission” for which there is no excuse. I don’t need to say more under this heading. The OECD has been on the record for more than 20 years on this issue.

Aligning policiesSecond, we need to ensure that climate policies are not undermined by other public policies. Consciously and unconsciously, we have wired our economies around fossil fuels for well over a century. Leaving that wiring untouched will mean that climate policies will under-deliver. That, if you like, would be a “sin of omission”. Too many existing policy settings are misaligned with the transition to a low-carbon economy. The OECD, IEA, Nuclear Energy Agency and International Transport Forum have joined forces to produce the first economy-wide global diagnosis of such potential misalignments. Published today, Aligning Policies for a Low-carbon Economy,19 identifies possible misalignments with climate goals across just about every area of government policy, from electricity market regulation to land-use. Governments need to study its 200 pages and consider, in each national context, how to resolve these misalignments, and ensure that all Ministers report regularly on how they are bringing their policies into alignment. This is essential for a more effective and less costly transition to a low-carbon economy.

Finance and investmentA particular priority will be encouraging long-term investment financing for the transition and lowering the cost of capital. Developed countries have committed to mobilise climate finance – from public and private sources - worth USD 100 billion a year from 2020 onwards to support developing countries. But globally, we need to invest trillions in infrastructure.20 Around USD 90 trillion will need to be invested anyway across cities, land use and energy infrastructure over the next 15 years. The low carbon transition actually requires little more money than is already being invested today. For example, the IEA estimates that to be on course for a low-carbon future, cumulative investment in low-carbon energy supply and energy efficiency will need to reach USD 53 trillion by 2035 - just 10% higher than on current policies.21 But it requires a massive shift towards low-carbon, energy efficient systems. This will require new approaches to finance such investments and harness returns such as significant fuel savings. The IEA estimates these savings to be in the order of USD 71 trillion.22

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Institutional investors manage USD 93 trillion in OECD countries.23 The question is how a significant part of these assets can finance the low-carbon transition and receive attractive risk-adjusted returns. Government policies can play a central role in influencing how this private capital is mobilised and shifted. It will only be green if the investment landscape is supportive. Coherent climate policies and good framework conditions for investment are essential, as are measures to reduce financial risk and facilitate transactions. We need to move from a world where green bonds are a novelty to one in which the entire USD 100 trillion bond market reflects a transition towards a low-carbon transformation.24 It is all about having the right policies.

What about coal?

Governments are constantly urged to be “realistic”. Both Glencore’s chairman and its CEO have recently urged governments to accept the “reality” that a lot of fossil fuel is going to be burnt.25 What, and how much, depends on your view of “reality”. Our major new report Taxing Energy Use shows that the “reality” for coal producers is that coal is usually the least heavily taxed of all fossil fuels.26 Coal is also generally subject to very low or no import tariffs all over the world - unlike renewables, which are unhelpfully often subject to import tariffs of 10-20% or higher.27 The “reality” for policy makers is that without a concerted change in these facts, the two degree target will slip from our reach. Again, it is policies that will determine the outcome.

Coal is the most carbon-intensive fuel available for electricity generation. The most urgent threat to climate policy, is the scale of new investments in unabated coal-fired electricity generation still being planned.28 Between now and 2050, if no further mitigation measures are undertaken, coal generation is projected to emit more than 500 GtCO2. That is around half the remaining carbon budget consistent with staying under 2°C.29 Even the most advanced (and costly) coal-fired power plants are not going to be consistent with a 2 degree goal unless they can capture and store the CO2 they produce.

Yet the IEA expects global demand for coal to continue to grow in the near term, which would result in a disastrous 4°C plus trajectory. They have called for a ban on the construction of the least efficient coal-fired power plants in their latest report on Energy and Climate.30 In North America and most of Europe, regulations, carbon pricing and future emissions targets have made investing in new coal power too risky. But that is more than offset by growth in Asia. Particularly in China, where despite signals that the government is moving towards capping coal use nation-wide as part of its war on local pollution,31 new coal plants are still coming on line, even if less rapidly than a few years back.32 The cost of the health impacts of air pollution from energy use in China was about USD 1.4 trillion in 2010.33 Last year, the IEA projected global coal demand growth of 13% on 2013 levels by 2019. China’s consumption growth slowdown is likely to change the magnitude, but not the upwards trajectory of the global picture.

Governments need to be seriously sceptical about whether new coal-fired power provides a good deal for their

citizens. If we muster the political will to set ourselves on a 2°C trajectory today, not all coal assets will be able to run for their full economic lifetime. Unsurprisingly, if we delay action, we will have to strand much more capacity overall as steeper reductions will be required.34

So, is unabated coal for power a rational choice today, against low-carbon alternatives (including, transitionally, gas)? The first point to make is that coal is not cheap. Or at least, it is only cheaper if you ignore all the costs it imposes. It causes a number of environmental problems including significant land disturbance, contamination of water sources, air pollution, damage to ecosystems, and dust and noise pollution. We know that it is dangerous, and that mining accidents and respiratory illnesses impact on the health and life expectancy of miners.

We also know that it is socially difficult to dismantle, as we are witnessing in Poland, Germany and other coal-rich countries. The coal industry employs around 7 million people worldwide. For these people, the social consequences of decarbonisation will be serious and they will need assistance. This is not just a question of stranded assets; it is about stranded communities too.

The second point is that we already have commercial alternatives to coal-fired power generation, in contrast to heavy industries like cement and steel which do not and which pose a major technical challenge. The fact that 60% of total power plant investments since 2000 have been in low-carbon technologies illustrates the point.35

Depending on the region, cost-competitive renewables include onshore wind, biomass and hydro-based generation, solar and geothermal. Some challenges remain, but the bottom line is that low-carbon options can and should play a much greater role in energy supply. Their costs are still decreasing, some much faster than others, and the challenges of integrating new renewable energy are being overcome. Technologies that fall within the levelised cost range of USD 0.045 to USD 0.14 per kilowatt hour for fossil fuel power plants include onshore wind, biomass and hydro on all continents; geothermal in Asia, Eurasia, Europe, North America and Oceania; solar photovoltaic in North and South America; and offshore wind in Asia.36

Knowing these risks, will new coal investments be decided any differently from here on? Some investors are looking at coal in a new light. The Portfolio Decarbonization Coalition launched at Ban Ki-moon’s Climate Summit last year, for example, is gathering a coalition of investors to commit to decarbonising USD 100 billion of institutional equity investment by COP21.37

But it is the drive for development that raises the most difficult questions. One of the proposed Sustainable Development Goals is “access to affordable, reliable, sustainable and modern energy for all.” To implement that in the context of a world that has to decarbonise its energy system in the coming decades, governments - particularly in developing and emerging economies - will need very good information to filter out proposals that may be affordable, but are neither modern nor sustainable. The New Climate Economy Commission recommended that governments should reverse the burden of proof, building new unabated coal-fired plants only if other

4 . CLIMATE: WHAT’S CHANGED, WHAT HASN’T AND WHAT WE CAN DO ABOUT IT

options are not competitive after accounting for the full environmental, health and financial costs of coal. This is particularly important for developing countries, some of which have never before generated power from coal, and which are in the process of building new infrastructure from scratch. They need to weigh the full social benefits and the full costs, even if they don’t want to formally put a price on carbon. Pre-eminent among these should be health costs and claims on water and other scarce resources, as well as the benefits and costs of clean energy generation technologies.

If the combined costs and benefits of any clean alternatives win out, there should be no debate, nor delay. If, however, coal still has an edge, then governments need a reliable way of judging how long that advantage is likely to last, because the cost of clean technologies will continue to fall. While access to energy and alleviating poverty rightly come first in developing countries, the energy planners need a trustworthy appraisal tool to help them ensure that the benefits of coal are not being over-estimated or short-lived.

We have to move to the point where claiming that coal is cheaper or that is the “only” solution is no longer good enough. Political and business leaders who make this claim have to be able to substantiate it against the alternatives. I would appeal to leaders to subject such claims to a close scrutiny. If the only thing separating coal from cleaner alternatives is a purely financial gap then we need to mobilise climate finance to bridge it.

Some aid donors and multilateral development banks are now providing support for coal-fired power only when there are no feasible alternatives. These cases must really be exceptional. Without a rigorous means of testing these propositions there is a real risk that inertia and conventional wisdom will underwrite assets that should never be built.

Of course, all of this applies in spades to developed countries as they face the retirement of old generating capacity. We cannot continue building coal-fired plants simply because we have been doing so for the last 150 years. And we should not strand or give up on clean energy sources like existing or future nuclear capacity. Nuclear will be a part of the solution in many countries and we must guarantee that safety concerns are fully addressed to ensure that this option remains available.

Innovation

We also need to support research, development and appplications (RD&D) of the next generations of low-carbon technologies. Yet the share of public R&D spent on energy in the OECD countries today is less than half what it was at the end of the 1970s. We therefore warmly welcome the ambition and focus of the “Apollo” initiative, launched here in the UK, to secure USD 150 billion for R&D into energy storage and smart grid technologies to unlock the full potential of variable renewable power generation.

And although the Apollo project specifically excludes technologies such as carbon capture and storage (CCS), governments need to continue to support these endeavours too since there will be fossil fuel emissions sources that cannot be easily eliminated without them –

for example in industrial sectors. The launch of the first commercial-scale coal-fired power plant with CCS in 2014 was an important milestone, but the slow pace of CCS deployment shows much more policy focus is needed if CCS is to reach its emissions mitigation potential.38

What path do we need to be on?

Systemic transformationZero net emissions by the end of the century will require the systemic transformation of power generation, industry, transport, buildings and land-use. Infrastructure is long-lived – changing it takes time. Climate change, too, is a process that unfolds over decades. So the challenge is not to meet an emissions reductions target in a given year but rather to create credible pathways for each country that will bring us collectively to the zero carbon world needed by the end of the century.

Remember, it’s all about policies. This means that policies need to be able to link long-term and short-term objectives. The UK’s path-breaking Climate Change Act, with its long term goal of reducing UK emissions by at least 80% by 2050 compared to 1990 and rolling five-yearly targets for emissions reductions, is the right approach. Other governments should follow the UK’s lead as they develop their national policy responses.39

Different time scales, same end pointThe timescale and sequencing of actions will vary across countries, reflecting their different circumstances.40 Many emerging economies are still on steeply rising emissions pathways. They too need to peak soon and start falling. I welcome the Chinese government’s INDC announced this week that it will achieve a peak in CO2 emissions around 2030 and make best efforts to peak early, and that they will drastically reduce their dependence on coal.41

For the least developed countries, peaking may be further away but even here there is significant scope for mitigation actions that bring other benefits in terms of air pollution, health and the quality of life in cities.

The size of the carbon budget that we can emit consistent with 2 degrees depends on how big a risk we are prepared to take to meet that goal or to wind up on a higher temperature pathway. But one thing is clear - we are currently emitting some 38 billion tonnes of CO2 per year and this will exhaust that budget at an alarming rate.42 The IPCC concludes that to have a greater than 66% chance of limiting warming to 2 degrees, cumulative CO2 emissions since the 19th century should not exceed 1000 Gt. This budget is reduced to 790 Gt when non-CO2 forcings are taken into account. 515 Gt of that amount had already been emitted by 2011.

Furthermore, the 2 degrees goal relies on a carbon budget which only provides for a 66% chance of meeting the target. If we want a lower level of risk, we should be even more ambitious. After all, we’re betting the planet. This is the “cheerful recklessness” towards our common home lamented by the Pope in his recent climate change encyclical.43 Two degrees already implies costly change. But we’re currently on course for around 3-5 degrees.44 We continue to be on a collision course with nature. As we continue to emit, the risks are becoming increasingly unpredictable and uninsurable.

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How can COP21 help?

The OECD has been actively supporting the 21st Conference of the Parties next December. The fundamental issue is how we develop pathways to transition from the carbon-intensive present to a zero net carbon future.

Three things are critical: engagement, evaluation and evolution

COP21 should send clear directional signals that countries, as well as non-state actors must, can and will create their own pathways to a zero net-carbon future. This requires the full engagement of all the major economies of the world, both developed and developing.

Countries will be interested in comparing the ambition of others relative to their own, and will want assurances that others’ actions match their promises. One of the critical roles of the UNFCCC will therefore be to monitor and evaluate country commitments. These are challenging issues. What does a 30% reduction in emissions from a hypothetical baseline mean? And how can we tell if a country is on track to meet its commitments?

The same issues surround commitments to provide financial and other resources. Meeting the commitment made by developed countries at Cancun in 2010 to jointly mobilise USD 100 billion per year by 2020 from public and private sources is important to build trust in the UNFCCC process.45 One of the OECD’s tasks is to keep countries accountable for their commitments by monitoring and reporting on donor countries’ contributions. This strengthens accountability and transparency and helps build trust. This year’s calendar hasn’t made any easier. While UN members will meet in Addis next week to renew their commitments to financing for development, it will not be until September that 169 targets for 17 sustainable development goals will be decided, and until December when climate commitments are sealed. Governments will need to ensure coherence in their various commitments as they navigate the various 2015 forums.

Monitoring and evaluation will be crucial to the credibility of any commitments made. Through our country-tailored economic, environmental and investment reviews46 the OECD can help assess whether country policies are likely to deliver the emissions cuts promised.

What about evolution? With current commitments well short of what is needed, the Paris COP21 needs to reaffirm governments’ long-term ambition to get onto a pathway that leads to zero net carbon globally by the end of the century. In addition to a high level of initial ambition, we need a regular reporting, review and updating process to check whether national targets and pathways are consistent with that ambition; and if they are not, to spark a dialogue about how we get on track. We need ambitious long-term targets now and we need to stick to them. A robust review process has to be instigated as a means of ensuring we meet our commitments, to track where we are, to act as our climate GPS!

In closing

There is little time left. Governments cannot afford to treat this year’s COP like just another round of an endless trade negotiation – the carbon clock is ticking! The international community has other priorities to address. Attention spans are limited. Since the failure of Copenhagen, it has taken six years to get back to the same level of focus. It is a bit like landing the Rosetta probe on a comet, which took ten years to align. Windows for alignment are temporary – we do not have time to wait for another one.

If we fail to make sufficient progress, we will be we will be plunged later into an even more costly and disruptive round of national adaptation responses, where the costs will fall most heavily on the least resilient societies. In other words, if we fail on climate, we will fail on the sustainable development goals too.

If on the other hand we succeed, there is so much positive upside.47 The IEA suggests that we could peak global energy-related emissions and coal demand by 2020 based on available technologies, with no negative growth impacts on any region.48 There is a growing momentum behind solutions to energy, industry, urban organisation and food production that are simply better than what we have today. It is hard to believe governments would cling to technologies whose climatic and health side-effects are so insidious. Why would we not embrace a transition that makes the world a more efficient, cleaner and healthier place?

N O T E S

1. Thanks to the IPCC, we now know the scale of the transformation needed to reach a 2°C target: emissions in 2050 need to be between 40-70% lower than in 2010 and near zero or below by 2100. IPCC (2013), “Summary for Policymakers”, Climate Change 2013: The Physical Science Basis: Contribution of Working Group I to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, www.climatechange2013.org/images/report/WG1AR5_SPM_FINAL.pdf.

2. Leaders’ Declaration G7 Summit, 7-8 June, G7 Germany 2015, Schloss Elmau, www.g7germany.de/Content/EN/_Anlagen/G7/2015-06-08-g7-abschluss-eng_en.html?nn=1282190.

3. This represents a marginal decline from 84% in 2000. IEA (2015), World Energy Statistics and Balances, www.oecd-ilibrary.org/fr/energy/data/iea-world-energy-statistics-and-balances_enestats-data-en.

4. IEA (2015), Energy Technology Perspectives, IEA/OECD, Paris.

5. IEA (2014), Coal Medium-Term Market Report, page 48; Adopted from McCloskey (2014), McCloskey Coal Reports 2010-2014, McCloskey’s, London, http://cr.mccloskeycoal.com.

6. A USD 45 drop in the price of a barrel of oil is the equivalent of a USD 100/tCO2 fall in terms of its carbon content.

7. www.washingtonpost.com/blogs/wonkblog/wp/2014/11/10/the-hummer-is-back-thank-falling-oil-prices/. The share of SUVs in total sales has come back up – and even if they have become more efficient thanks to fuel economy standards, they are still markedly less efficient than regular cars.

8. Since last year, oil company earnings have plunged 50%, S&P 500 energy companies’ capex plans are down by USD 21.4 billion, or 14.1%and some of the industry’s biggest projects are on ice. Energy companies are also starting to slow, freeze or decrease returns to shareholders in recent months. See www.ft.com/intl/cms/s/0/c6ff2624-c994-11e4-b2ef-00144feab7de.html#axzz3ce4SbLxc.

9. www.economist.com/news/business/21653622-coals-woes-are-spreading-it-still-has-its-fans-black-moods.

6 . CLIMATE: WHAT’S CHANGED, WHAT HASN’T AND WHAT WE CAN DO ABOUT IT

10. The annual Budget statement to Parliament delivered on 18 March 2015 cut North Sea oil and gas taxes (BBC News, 18 March 2015). In the Autumn Statement delivered in December 2014, the Chancellor promised the Government will set out major reforms to the oil and gas fiscal regime, to make sure that the UK Continental Shelf continues to attract investments. See www.gov.uk/government/news/oil-industry-support-set-out.

11. www.shell.com/global/aboutshell/media/speeches-and-articles/articles/joint-letter-to-financial-times.html.

12. www.shell.com/global/aboutshell/media/speeches-and-articles/articles/joint-letter-to-financial-times.html.

13. www.ft.com/intl/cms/s/0/0625af4c-0a10-11e5-82e4-00144feabdc0.html#axzz3bkSn0tG6.

14. IEA (2015), Energy and Climate Change: World Energy Outlook Special Report, IEA/OECD, Paris.

15. The New Climate Economy (2014), Better Growth, Better Climate: The New Climate Economy Report, http://newclimateeconomy.report/.

16. Arlinghaus, J. (2015), “Competitiveness impacts of carbon pricing: A review of empirical findings”, OECD Environment Working Papers, No. 87, OECD Publishing, Paris; Flues, F. and B. Johannes Lutz (2015), “Competitiveness Impacts of the German Electricity Tax”, OECD Environment Working Papers, No. 88, OECD Publishing, Paris.

17. Jeremy Grantham is a co-founder and chief investment strategist of Grantham Mayo van Otterloo (GMO), a Boston-based asset management firm.

18. www.bloomberg.com/bw/articles/2012-03-01/shortcomings-of-capitalism-our-grandchildren-have-no-value.

19. OECD (2015), Aligning Policies for a Low-carbon Economy, OECD Publishing, Paris.

20. Even this scale of investment required is well capable of being absorbed by the financial system. See The New Climate Economy (2014), Better Growth, Better Climate: The New Climate Economy Report, http://newclimateeconomy.report/.

21. IEA (2014), World Energy Investment Outlook, OECD/IEA, Paris.

22. The IEA calculates that the additional investment needed to decarbonise the energy system in line with a 450 scenario by 2050 is more than offset by around 115 trillion in fuel savings – resulting in net savings of 71 trillion. See IEA (2014), Energy Technology Perspectives, OECD/IEA, Paris.

23. For OECD Institutional Investors Statistics, see www.oecd-ilibrary.org/finance-and-investment/data/oecd-institutional-investors-statistics/oecd-institutional-investors-statistics_data-00498-en.

24. BIS Quarterly Review, March 2014: www.bis.org/publ/qtrpdf/r_qt1403y.htm.

25. See www.ft.com/intl/cms/s/0/3de407ba-ef14-11e4-a6d2-00144feab7de.html?siteedition=intl#axzz3doEr0aLH; www.theguardian.com/environment/2015/apr/29/fossil-fuel-companies-defy-warnings-on-burning-reserves; and www.bloomberg.com/news/articles/2015-04-28/biggest-coal-exporter-says-climate-change-won-t-strand-assets.

26. OECD (2015), Taxing Energy Use 2015: OECD and Selected Partner Countries, OECD Publishing, Paris.

27. OECD (2013), Inventory of Estimated Budgetary Support and Tax Expenditures for Fossil Fuels, OECD Publishing, Paris; Bahar, H., J. Egeland and R. Steenblik (2013), “Domestic Incentive Measures for Renewable Energy With Possible Trade Implications”, OECD Trade and Environment Working Papers, No. 2013/01, OECD Publishing, Paris

28. In energy modelling scenarios consistent with a 2°C target, unabated coal typically faces the sharpest decline of all fossil fuels. In the IEA’s 2DS scenario, coal generation falls 56% between 2012 and 2050, even as overall total primary energy use increases by 18%. If carbon capture and storage is not widely deployable by 2050, coal’s decline will need to be even greater. IEA (2015), Energy Technology Perspectives, OECD/IEA, 2015.

29. Yet in energy modelling scenarios consistent with a 2°C target, unabated coal typically faces the sharpest decline of all fossil fuels. In the IEA’s 2DS scenario, coal generation falls 56%fall between 2012 and 2050, even as overall total primary energy use increases by 18%. If carbon capture and sequestration is not deployable at scale by 2050, coal’s decline would need to be even greater. IEA (2015), Energy Technology Perspectives, OECD/IEA, 2015. IEA (2015), Energy and Climate Change: World Energy Outlook Special Report, IEA/OECD, Paris.

30. IEA (2014), Medium-Term Coal Market Report, OECD/IEA, Paris. IEA (2015), Energy and Climate Change: World Energy Outlook Special Report, IEA/OECD, Paris.

31. Growth in Asia will more than offset declines in Europe and the United States. The IEA’s 2014 projection for global coal demand growth was 13% on 2013 levels by 2019. Signals this year of a potential peak or major slowdown of growth in coal consumption on China are likely to change the magnitude, but not the upwards trajectory of the global picture.

32. In 2013, Hydro capacity increased by 32 GW; coal-based power grew by 37 GW, a sharp decrease from 56 GW and 62 GW in the last preceding years (IEA ( 2014), Medium-Term Renewable Market Report, OECD/IEA, Paris).

33. OECD, 2014, The Cost of Air Pollution: Health Impacts of Road Transport, OECD Publishing, Paris.

34. Johnson, N., V. Krey, D. L. McCollum, S. Rao, K. Riahi, and J. Rogelj. 2015, “Stranded on a Low-Carbon Planet: Implications of Climate Policy for the Phase-Out of Coal-Based Power Plants”, Technological Forecasting and Social Change 90 (Part A): 89–102. Note that 50 GtCO2e is already significantly higher than the 42 Gt level required to have a likely chance to meet the 2 degree target: www.unep.org/publications/ebooks/emissionsgapreport2014/portals/50268/pdf/EGR2014_EXECUTIVE_SUMMARY.pdf.).

35. IEA (2014), World Energy Investment Outlook, OECD/IEA, Paris.

36. IEA (2014), Medium-Term Renewable Market Report, OECD/IEA, Paris.

37. Large institutional investors that have announced plans to reduce or eliminate fossil fuel exposure in their portfolios include the Norwegian sovereign wealth fund, the Rockefeller Brothers Fund (fossil fuel coal and tar sands divestment), AXA (French insurance company; sale of EUR 500 million in coal investments), Oxford University and Stanford University (coal divestment), and the Church of England (tar sands divestment). Other investors are aiming for a more gradual decarbonisation approach. For example, the fourth national pension fund of Sweden (AP4) aims to lower the carbon intensity of its US equities and emerging markets portfolios by 50%- 80% without sacrificing performance, and to decarbonise its entire equities portfolio (USD 20 billion) as soon as possible. These measures form part of the Portfolio Decarbonization Coalition: www.unepfi.org/fileadmin/documents/PortfolioDecarbonizationCoalition.pdf.

38. IEA (2015), Tracking Clean Energy Progress, IEA/OECD, Paris.

39. The UK Climate Change Act established a system of five-yearly carbon budgets. The first four carbon budgets, leading to 2027, have been set in law. The UK is currently in the second carbon budget period (2013-17). The UK Climate Change Committee provides recommendations to the government concerning the size of the budgets and monitors progress towards them.

40. Since 2005, GHG emissions excluding land use change have decreased in Canada, the EU, the US and Norway, have plateaued in Japan and New Zealand, and have increased in Australia, Russia, Korea, Turkey and Mexico.

41. www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2015/06/Chinas_new_normal_green_stern_June_2015.pdf.

42. The IPCC estimates that world CO2 emissions from all anthropogenic sources were 38 Gt in 2010. If that rate is sustained, the 2°C carbon budget will be exhausted in just under 30 years. IPCC (2013), “Summary for Policymakers”, Climate Change 2013: The Physical Science Basis: Contribution of Working Group I to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, www.climatechange2013.org\\images\\report\\WG1AR5_SPM_FINAL.pdf

43. http://w2.vatican.va/content/francesco/en/encyclicals/documents/papa-francesco_20150524_enciclica-laudato-si.html.

44. According to the IPCC, the likely increase in global mean surface temperature for 2081-2100 in the RCP 8.5 scenario is 2.6-4.8 °C relative to 1986-2005, or 3.2-5.4 °C relative to 1850-1900. IPCC, 2013, “Summary for Policymakers”, Climate Change 2013: The Physical Science Basis: Contribution of Working Group I to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA. www.climatechange2013.org/images/report/WG1AR5_SPM_FINAL.pdf.

45. Outcome of the work of the Ad Hoc Working Group on Long-term Cooperative Action under the ConventionDecision 2/CP.17, http://unfccc.int/resource/docs/2011/cop17/eng/09a01.pdf.

46. Available at www.oecd.org/eco/surveys/; www.oecd.org/env/country-reviews/; and www.oecd.org/investment/countryreviews.htm respectively.

47. The New Climate Economy (2014), Better Growth, Better Climate: The New Climate Economy Report, http://newclimateeconomy.report/.

48. IEA (2015), Energy and Climate Change: World Energy Outlook Special Report, IEA/OECD, Paris.

OECD . 7

www.oecd.org/env/cc#COP21 @OECD_ENV PHOTO

Jer Thorp

Simon.Upton@oecd.org - OECD Environment Director

Anthony.Cox@oecd.org - OECD Environment Deputy-Director

Simon.Buckle@oecd.org - Climate, Biodiversity & Water Division, OECD

CLIMATE CHANGE, ADAPTATION, DEVELOPMENT

Jan.Corfee-Morlot@oecd.org

Michael.Mullan@oecd.org

Henri.Paillere@oecd.org

CLIMATE NEGOTIATIONS INCLUDING INDCS, TRANSPARENCY,

TRACKING CLIMATE FINANCE

Jane.Ellis@oecd.org

Raphael.Jachnik@oecd.org

Sara.Moarif@oecd.org

Yoko.Nobuoka@oecd.org

CLIMATE FINANCE AND INVESTMENT

Robert.Youngman@oecd.org

Karim.Dahou@oecd.org

Geraldine.Ang@oecd.org

Gregory.Briner@oecd.org

Kate.Eklin@oecd.org

Christopher.Kaminker@oecd.org

Jan-horst.Keppler@oecd.org

MITIGATION POLICIES

Gregory.Briner@oecd.org

Mikaela.Rambali@oecd.org

ALIGNING POLICIES FOR A LOW-CARBON ECONOMY

Richard.Baron@oecd.org

Virginie.Marchal@oecd.org

ENERGY TAXES

Kurt.VanDender@oecd.org

Michelle.Harding@oecd.org

Florens.Flues@oecd.org

Johanna.Arlinghaus@oecd.org

MONITORING CLIMATE-RELATED DEVELOPMENT FINANCE

Stephanie.Ockenden@oecd.org

Valérie.Gaveau@oecd.org

CITIES AND CLIMATE CHANGE

Tadashi.Matsumoto@oecd.org

AGRICULTURE AND CLIMATE CHANGE

Ada.Ignaciuk@oecd.org

Franck.Jesus@oecd.org

FOSSIL-FUEL SUBSIDIES

Jehan.Sauvage@oecd.org

#COP21 C O N T A C T S