The G20 does not have a great track record when it comes to climate change. This is a problem, because the group includes the world's main greenhouse gas emitters. G20 countries have agreed to a global target not to warm the earth more than 2°C above pre-industrial levels as part of the UN Framework Convention on Climate Change.
Mark Carney, governor of the Bank of England and chair of the Financial Stability Board. (Flickr/Bank of England.)
However, there is little to show for this promise because of squabbling over individual commitments.
In order to meet the 2°C target, only a third of estimated current fossil fuel reserves can be used before 2050. If we are going to leave those reserves in the ground, governments and companies are going to face substantial losses. These reserves will become 'stranded assets' – up to 80% of the reserves of private companies would be 'unburnable', according to the Carbon Tracker Initiative. In addition, fossil fuel assets could lose value even if they are used, a problem referred to as the 'carbon bubble'. These losses are particularly relevant for Australia and were covered in a recent Lowy Institute paper by Howard Bamsey and Kath Rowley.
Why does it matter that some investors will lose money in the short term when the long-term stakes are so high?
Because the extent of the loss in such large companies could lead to significant financial instability. For this reason the G20 has asked the Financial Stability Board (FSB) to direct a public-private inquiry into the stranded asset problem and to model the financial implications of a credible 2°C target. This follows a Bank of England report last year that assessed the risk that climate change action poses to the solvency of insurers. This is no coincidence; Mark Carney is both Governor of the Bank of England and Chairman of the FSB.
If we are to take real action on climate change, we need a contingency plan to mitigate negative side-effects. Last year Hugh Jorgensen warned that if the G20 failed to add value to climate change negotiations it would be a missed opportunity. Pressure continues to build for an agreement at COP21 in Paris after disappointments at Lima last year. The G20 leaders' summit in Antalya this year is two weeks before the COP21 meeting.
The G20 cannot put off climate change action any more. The FSB inquiry signifies real consideration of what a low-carbon future involves, a process that has been delayed for too long.
*The G20 Studies Centre is holding a conference on 20-21 May on the future of international economic governance and the G20. In Session 4, Leon Berkelmans will moderate a session on G20 climate and energy policy with papers presented by Barry Carin and Christian Downie.