By Ed Baker, Head of Climate Policy, and Margarita Pirovska, Director of Policy, PRI
The past two weeks have seen the unfolding of a crisis that has affected global markets and international relations in an unprecedented way. The invasion of Ukraine by Russia, unthinkable until it became a reality, has drawn a massive response by governments and companies around the world.
First and foremost, it is a human catastrophe. Three million Ukrainians displaced in two weeks, thousands of injured and dead, over $120 billion of civil infrastructure damaged or destroyed in the conflict areas. For those outside Ukraine and Russia, we watch these dramatic events worsen every hour in disbelief. Like so many citizens around the world, we feel deep compassion for the Ukrainian people and everyone affected by the conflict. We also feel anger for this unjustifiable military aggression. But this crisis also threatens our broader, shared aspirations and goals in the field of sustainable investment.
The ongoing war in Ukraine is a threat to the rules-based international order and shared sustainability goals
We work in a field that requires stability and confidence in the international governance framework. This includes the protection and promotion of human rights as articulated in international law, international treaties and commitments such as the International Bill of Human Rights, the SDGs and the Paris Agreement. Governments around the world continuously work on enabling a broad transformation of our economies towards those commitments. But in the current context, warnings on the impending crises on climate (IPCC report) and progress on environmental pollution (UN Plastics Treaty) have passed largely unnoticed.
A longer or expanded war not only risks a collapse in global trust and cooperation. It also threatens the necessary focus on key policy processes related to sustainable finance, long-term commitments such as aligning with net zero, ensuring that people’s fundamental dignity and human rights are upheld, and governments’ ability and effectiveness to pursue long-term goals to achieve inclusive societies and net zero economies.
The national security imperative for net zero
Globally, many major military conflicts have been linked to fossil fuel supply crises. In Europe, for the past 50 years, international relations have been regularly disrupted by tensions related to the supply of fossil fuels from the USSR, and then Russia. Gas imports from the USSR started in the middle of the cold war, and have increased ever since, thanks to the building of controversial transit pipelines that have locked many European markets. The EU has just stated that this dependency will be significantly reduced.
The difference now is that there is an increasing understanding that there can be no more investments in any unabated fossil fuel energy supply infrastructure, including coal, oil and gas if we are to mitigate the worst effects of climate change. The present crisis may reinforce the need to accelerate the just transition away from fossil fuels at a much faster pace than previously expected.
In the near term, utilising all available energy resources to reduce countries’ dependence on Russian oil and gas is an overriding priority for countries, especially in Europe. Yet in the mid to longer term, the national security case for accelerating the net zero transition by 2030 has been strengthened substantially. This provides new impetus for climate policy.
Towards an acceleration of the energy transition in Europe
In Europe, the IEA ten-point plan and the European Commission’s own plan offer wide ranging and practical proposals for reducing dependence on Russian gas, as well as scaling up the clean energy transition. Turning this vision into reality will require the Fit For 55 package to be swiftly finalised in an ambitious manner, as well as:
Robust policy mechanisms to incentivise the accelerated adoption of not just renewables, but also clean energy solutions for heating, which accordingly to the IEA accounts for 50% of European demand for gas. A new bold package of policy measures and incentives both in Europe and around the world is needed to drive adoption of heat pumps, residential solar panels and energy efficiency solutions, alongside mechanisms to mitigate potential social implications of short-term price increases.
Clarity on what “renewables” are. Presently, around 60% of EU renewables come from bioenergy, the vast majority of which is biomass4. However, the regrowth rate of some forests are over 100 years, meaning there is a substantial difference between the point at which emissions are released and then re-sequestered. The pending review of the EU Renewables Energy Directive is an opportunity to revisit definitions of what a renewable source of energy in the EU is, using science-based standards, and thereby qualifying for climate policy support.
Developing a strategy to diversify and increase the resilience of clean energy supply chains. Beyond oil and gas, the conflict in Ukraine has implications for other commodities such as wheat and metals like nickel, a key component in electric vehicle batteries. Developing, diversifying and addressing potential human rights risks and impacts in supply chains for key raw materials for the net-zero transition may increasingly matter to both policymakers and responsible investors in an era of elevated geo-political risk.
Coordinating finance across the EU towards energy infrastructure that is aligned with the Paris climate goals. EU leaders have committed to “channel coordinated investment in energy systems”, and the European Commission is expected to present a plan for funding by the end of this month. It is important that such a plan uses all available levers the EU has at its disposal (e.g. fiscal measures, common EU debt issuance, etc.); and that strict conditions are applied to avoid lock-in of carbon emissions and/or stranded assets.
Addressing climate change through an accelerated net-zero and just transition lens offers valuable co-benefits: increased energy policy security, a shield for businesses and consumers to help protect them against future price spikes in oil and gas, as well as a path to achieving sustainable development objectives. It is time to not just redouble but supercharge our efforts towards these ends.
Further insight and analysis will follow from the PRI commissioned IPR programme.
This blog is written by PRI staff members and guest contributors. Our goal is to contribute to the broader debate around topical issues and to help showcase some of our research and other work that we undertake in support of our signatories. Please note that although you can expect to find some posts here that broadly accord with the PRI’s official views, the blog authors write in their individual capacity and there is no “house view”. Nor do the views and opinions expressed on this blog constitute financial or other professional advice.If you have any questions, please contact us at email@example.com.