Already, there are signs that a more robust regulatory policy response to climate change is likely. When it happens, it will force companies to completely rethink their energy use, as well as the “carbon content” of their products and services.
The European Union will be leading the way. The EU is moving toward more ambitious 2030 targets for emissions reduction. The incoming European Commission wants to introduce a kind of WTO-compliant “carbon tariff” on merchandise imported from countries that are not meeting their climate change obligations. It will seek to invest €1 trillion in green technologies over the next seven years and to extend the EU’s Emissions Trading System to cover the maritime sector and to reduce the free allowances allocated to airlines over time.
Moreover, it will enshrine into law a commitment to achieve net zero carbon emissions target by 2050 and to establish rules of global application to determine when banks and funds can claim to launch “green” products or investments. EU Finance Ministers have announced that the bloc’s multi-billion-euro financing of fossil fuel projects should be phased out.
Meanwhile in Osaka, the G20 struck a deal that steps toward a net-zero commitment. “Climate change will determine the destiny of mankind, so it is imperative that our generation makes the right choices,” said Chinese Foreign Minister Wang Yi.
Political progress will of course not be easy. The G20 agreement itself is described as a “19+1” deal, since the US has reiterated its decision to withdraw from the Paris Agreement. In Europe, the Czech Republic, Hungary and Poland are resisting more ambitious targets.
Overcoming these barriers will be tough—but many are convinced that it’s only a matter of time. Even in the US, where the Trump administration has withdrawn from the Paris Agreement and is rolling back key regulations designed to limit the use of fossil fuels, many major cities and states are taking steps on their own, determined to move ahead. Importantly, that includes California, which ranks as the fifth largest economy in the world.
The Principles for Responsible Investment, an investor initiative associated with the United Nations, speaks about the “inevitable policy response” and estimates that the peak of regulatory action will come around 2023 to 2025—when the Paris Agreement’s “ratchet mechanism” really kicks in, starting with the “global stocktake” in 2023 and a third round of climate pledges in 2025.