Thread by @KellerZoe

#COP26 Finance Day.
High finance can help the world hit net zero. A $130 trillion Investor Club has signed up to empower #NetZero with vast sums of capital — as we indeed already understood from Draghi words on opening day.
telegraph.co.uk/business/2021/…

— thread from AEP article

Those $130 trillions are the asset base of the 450 banks, fund managers, and wealth funds that have signed up to help. Those are not the sums about to flow, but vast sums of capital are indeed there for the taking.

Global plutocrats are crawling over each other to get into the lucrative business of decarbonisation before rivals beat them to it, and to get out of fossils before they begin to lose serious sums and face the long-tail ‘asbestos’ risk of perennial litigation.

“Make no mistake, the money is here, if the world wants to use it,” said Mark Carney, UN climate envoy and Great Convenor of global green finance. “But that money needs net zero-aligned projects... to turn this into a very powerful virtuous circle: that’s the challenge,” he said.

The problem is not the lack of money. There is a mountainous stash of willing wealth looking for a low-carbon home. And there are dozens of developing countries that crave green investment and are eager to do the right thing if... the dating agencies could match the two together.

“I need just $270bn,” said Indonesia’s feisty finance minister, Sri Mulyani Indrawati. Her country is trying to shut down its coal plants but is still paying a penal borrowing cost for green Sukuk bonds to finance wind, solar, and geothermal as an alternative.

Chancellor Sunak says we must “rewire the entire global financial system” in order to shift abundant capital to where it ought to go, with the World Bank, the IMF and multilateral bodies helping the developing countries get their act together so that the money can be absorbed.

Kenya has shown what can be done, mobilising its central bank and regulators to align all the country’s projects to meet the gold net-zero standards. Investors are impressed. Its power system will be 100% carbon-free by 2030.

Contrary to general belief — or the pious certitudes of those protesting outside the #COP26 perimeter — high finance has already slashed fossil funding. That is why we now have a global energy crunch, and why it will become progressively more serious over the next two years.

Upstream and downstream investment in oil, gas, and coal peaked at $1.3 trillion in 2014. It has since collapsed to nearer $350bn and has not rebounded in the usual cyclical fashion with rising prices.

Nor have the shares of oil majors such as Shell or Exxon, still languishing far below even pre-pandemic levels despite the oil rally. Markets are pricing in terminal run-off.

But renewable growth has not been enough to pick up the slack. Total energy investment is running at $700bn, half the maintenance funding needed to power the world’s $86 trillion economy when it is in full expansion mode. We have a colossal mismatch.

“There is no green switch we can flip, and move from being economies where 4/5 of global energy is supplied by fossil fuels today, and overnight be 5/5 supplied by renewables,” said Mr Carney.

It has been a mistake to vilify the whole fossil industry, lumping good with bad, in an indiscriminate rush to disinvest. Campaigners treat drillers with very low rates of methane leakage as if they were scarcely different from bad actors spewing out 20 times the stuff.

Our heating, power, and industrial infrastructure still depend on gas, so the green imperative is to buy it from the right sources, rather than abdicating in spasms of emotion. We are only now groping towards a coherent policy that rewards best practices and shuts down violators.

The easiest way for Western listed oil and gas companies to lower their carbon footprint and to get activists or courts off their backs is to sell the dirtiest assets, typically to predators operating in the moral twilight.

But the investment deficit must be plugged from the green side, and accelerated by orders of magnitude. One might think the money is not available if you are distracted by the wrangling over $100bn of annual funding promised by rich nations in 2009 and never entirely delivered.

This shadow boxing has been overtaken by technology: new wind or solar today undercut new fossil power for 2/3 of the global population. The World Bank says the cheapest way to reach the 800 million people in Africa and Asia without electricity is to go straight to solar.

Mr Carney said that vastly greater sums are required to come close to cutting emissions 50% by 2030 — the UN’s ‘red alert’ target and the relevant date at this juncture (2050 is so passé). Those funds will flow of their own accord once obstacles are removed.

“We need to scale up dramatically by an extra trillion a year. It means 2% of GDP every year for decades, in every corner of the world”. It takes some alchemy (seed money from multilateral agencies to derisk projects, leveraging private money 10-12x over), but it is doable.

Janet Yellen — US Treasury Secretary — breezily floated a figure of $100 trillion to $150 trillion to reach #NetZero but with equal breeziness in Glasgow described this as a jolly good thing, the “greatest economic opportunity of our time”.

A Keynesian speaks. 10 trillion here, 10 trillion there, peanuts to Croesus. Yet that is broadly the orthodoxy of the world’s economic establishment today. It is hard to get your head around, but yes, the money is there.