Despite geopolitical headwinds, Biden’s boost offers cause for optimism, according to IPR’s latest forecast.
A big positive shift in US climate policy has kept the world on track for limiting global warming to at least 1.8°C by 2050, still short of the 1.5°C targeted by the Paris Agreement.
This is according to the Inevitable Policy Response’s (IPR) third Quarterly Forecast Tracker (QFT) of climate progress for 2022, which was published alongside an in-depth review of recent developments in US climate policy.
In August, President Joe Biden signed the Inflation Reduction Act (IRA) into law, pledging around US$370 billion in investment to reducing US greenhouse gas (GHG) emissions and upscaling domestic renewable energy production. The bill is expected to cut US emissions by over 40% from 2005 levels by 2030.
This level of ambition has “boosted” US prospects of achieving its 2030 nationally determined contribution (NDC) and reaching net zero by 2050, IPR said.
Specialist climate policy consultancy Kaya Advisory was commissioned by the IPR to assess the US climate policy landscape. The report said that the amount of public money now available in the US for clean energy and climate change mitigation and adaptation is close to US$1 trillion, noting that the impact of the IRA could be “seismic” for the US transition to net zero.
“In the IRA, the US has found a formula that breaks the log jam for scaled federal action on climate,” said Brian Hensley, Partner at Kaya Advisory.
“We see the potential for new innovators to emerge […] in a variety of industries such as biofuels, sustainable aviation, nuclear, hydrogen, and carbon capture.”
However, the potential for political divides between states due to “divergent agendas on climate” could serve as a hindrance to US decarbonisation efforts, the report warned.
US versus rest of the G20
Progress on climate policy fluctuated around the world in the third quarter of 2022.
The IPR’s global QFT tracked 70 climate policy and technology developments between June and October, noting that 37 had “sufficient credibility”.
The IPR tracked 33 developments to the end of Q2 2022, with 26 confirming its 1.8°C forecast, five providing evidence of increased ambition and two indicating a decline, relative to forecasts.
An example of weakened ambition in Q3 2022 includes G20 climate ministers’ failure to agree in September on a joint communique over language used on climate targets, climate finance and war in Ukraine, IPR said.
Alongside developments in US policy, the IPR noted that Australia’s new climate legislation has also increased confidence in policy momentum towards the IPR’s 1.8°C Forecast Policy Scenario (FPS) for “the bulk of OECD nations”, the report added.
Policy ambition continues to build in non-OECD countries, IPR said, noting that China, India, Mexico and Nigeria have all made notable efforts to upscale their ambition.
A report by credit rating agency Moody’s Investors Service noted that regional cooperation between member countries of the Association of Southeast Asian Nations (ASEAN) will support a greater green finance potential, such as a common approach to carbon pricing.
“However, progress is likely to be slow, exposing the region to border carbon taxes in other jurisdictions,” it was noted in the report, ‘Carbon Transition – Southeast Asia: Commodity reliance challenges transition, while regional cooperation supports green finance potential’.
Moody’s suggested ASEAN members would be slow to implement policies consistent with limiting global warming, due to low-cost fossil fuel availability, concerns over energy access and reliability, the higher cost of renewable alternatives in some cases “and high prospective economic growth and power demand”.
“More ambition” ahead of COP27
Developments around the world prove that there is continued climate policy momentum, despite global headwinds caused by Russia’s invasion of Ukraine, as well as the energy and cost-of-living crises, IPR noted.
“The IPR 1.8°C FPS is still achievable with further policy action anticipated, while a 1.5°C outcome requires significantly more ambition,” said Mark Fulton, IPR’s Project Director.
“Land use considerations, especially an end to deforestation remains high on the agenda, with Brazil election results pivotal to global progress.”
IPR has previously launched a database to help investors monitor the impact of global climate policy changes on the value of their portfolios.
In September, the Investor Agenda – a leadership initiative led by seven investor groups – led a call from more than 500 institutional investors for governments to step up their climate policy ambition, ahead of negotiations at COP27 in November.
Collectively representing US$39 trillion in assets, the investors asked governments to ensure their NDCs and 2030 decarbonisation targets are aligned with a 1.5°C temperature pathway, contribute to the reduction of non-CO2 emissions by supporting the implementation of the Global Methane Pledge, scale up the provision of public and private climate finance, and strengthen disclosures across the financial system.
Supported by the UN-convened Principles for Responsible Investment (PRI), the IPR is a climate forecasting consortium which aims to help investors protect their portfolios from climate risks. Research is led by Vivid Economics and Energy Transition Advisors. The QFT’s findings are assessed against the IPR FPS which results in 1.8°C of warming and the Required Policy Scenario (RPS) which results in 1.5°C.