Is it too late to close the emissions target gap?

Photo by Markus Spiske on Unsplash

Happy Finance Friday and welcome back to part two of this three-parter on climate change and muni finance. This series is about the big themes I came away with after attending the University of Chicago’s Center for Municipal Finance’s ESG (part I) conference. Last week’s newsletter was about pricing climate vulnerability in the municipal market. This week, I’ll talk about minding the net zero gap and the final newsletter will discuss the inequities of adapting to or defending against climate risk.

Missing the target

The Paris Agreement on Climate Change, to which many state and local governments have committed, aims at holding global warming to well below 2 degrees Celsius and to “pursue efforts” to limit it to 1.5 degrees Celsius. University of California at San Diego’s David Victor kicked off the conference pointing out that there’s “a huge gap between where we are with the [net zero] pledges and where we are in the overall picture.” 

Courtesy of OurWorldInData.org

In fact, there’s now a 50/50 chance the average global temperature will rise by 1.5 degrees Celsius as soon as in the next five years.

It’s not that net zero pledges aren’t working but “it takes about 20 years of serious sustained effort before we’ll see any type of change,” Victor said. But it does mean that focusing on global climate diplomacy (i.e., putting a lot of energy into getting governments to sign the Paris Agreement) isn’t doing the job fast enough. 

The way forward: Instead, Victor said the next iteration in global climate policy will be marked by a subset of governments focusing on adaptation and resiliency measures and others following in their wake out of the need to ensure their economies can succeed in a warmer climate. In other words, accept that things like extreme heat, drought, tidal flooding and decreased biodiversity are the future, and plan accordingly (while also reducing emissions to limit further damage). 

Tom Doe, president of Municipal Market Analytics, expanded on that point, noting that resilience projects represent an opportunity for municipal market participants to step up their green game. 

• Bankers can work with issuers, particularly resilience officers, to identify current and future financing needs based on climate stress.

• Issuers with high climate risk still have the opportunity to issue debt now before a market penalty is applied from ratings agencies or evaluation services.

Cities are at the core of climate policy. How are they doing?

A recent Kroll Bond Ratings Agency report noted that cities are currently responsible for an estimated 60% to 80% of global energy consumption and up to 70% of energy-related carbon dioxide (CO2) and GHG emissions. But they also tend to be centers of innovation and technology and, necessarily, are leading the way on climate adaptation.  Still, progress toward achieving net zero goals among U.S. cities is varied.