Eurozone crisis could lead to US$45 billion climate change funding gap
London, 17 November 2011 – A large climate change funding gap is emerging because governments can no longer afford previous levels of investment under current austerity measures, a new report published today from Ernst & Young reveals. The aggregate funding gap among ten of the world’s major economies could reach up to US$45 billion by 2015, the report predicts. Current austerity measures across these economies, including Germany, UK, US, Japan, and South Africa, already mean a climate change funding gap of US$22.5 billion will open up by 2015 – but this funding gap could rise to US$45 billion if the Eurozone crisis escalates.
The report, Durban Dynamics: navigating for progress on climate change, shows that the prospect of fiscal constraint is allied with the expectation from the business community around the world that the forthcoming COP17 summit in Durban will not secure an effective global deal on climate change. In a global survey conducted for the report of over 300 business leaders from large multinational corporations in over 50 countries, an overwhelming 83% think that a multilateral agreement is required to tackle climate change but, at the same time, only 18% of senior executives said they thought a deal was likely to emerge. This could have implications for economic growth because more than half (54%) of those questioned said that addressing climate change was an opportunity for their business.
Juan Costa Climent, Global Climate Change and Sustainability Services Leader at Ernst & Young says: “The conditions under which the Durban meeting will take place could not be more challenging. Policymakers head to Durban under storm clouds of fiscal austerity, a global focus on national interests, and widespread skepticism for the prospects of securing a legally binding successor to the Kyoto Protocol. The enormous projected funding gap revealed by this report suggests continuing economic uncertainty is pushing a low carbon economy further out of reach.
“Without a global agreement, rather than working out how to live in a carbon-constrained economy, the emphasis will be on living in a climate-constrained world. This will have enormous consequences for businesses and makes adaptation a key priority in addition to mitigation.”
The study shows that under current austerity measures, the climate change funding gap is set to be most pronounced in Spain, the UK, and France. Spain is forecast to spend US$5.1 billion less on climate change by 2015, relative to a scenario in which government spending grows at an average historical rate1, with the UK spending US$4.2 billion less, and France US$2.9 billion less. In the event the Eurozone crisis escalates and leads to a new banking crisis, Germany would face the biggest climate change funding gap in absolute terms of US$8.3 billion, Spain, Japan and the US would face a gap of more than US$6 billion, and the UK and France would face a gap of over US$5 billion.
Key findings from the report
- Austerity measures being imposed by some governments will alter climate change spending patterns considerably. By comparing a “business as usual” scenario in which governments increase spending according to historic rates (1990-2010) with a situation in which the government spending is constrained by a need to reduce borrowing, some sizable gaps emerge. Among the ten economies in the study, the cumulative funding gap is forecast to reach US$22.5 billion by 2015.
- The study also calculates the funding gap under a scenario in which the Eurozone debt crisis escalates. Under this outcome, the cumulative funding gap widens ever further to a total of US$45 billion in aggregate.
- Among the C-suite and business leaders surveyed for this report, 83% think that a multilateral agreement is required to tackle climate change. But at the same time only 18% of senior executives said that they thought a deal was likely to emerge.
- Seventy-seven percent of survey respondents think that governments have not been investing enough in a low-carbon economy. Among those from Asia-Pacific, the Middle East and Africa, this proportion is even higher.
- The survey among business leaders also shows emerging market businesses are more concerned about climate change than those in industrialized countries. Emerging markets are starting to realize they are typically most affected by climate change and cannot rely on the developed world to deal with the issue.
- Among survey respondents, 44% say that their business’ investment in sustainability has increased over the past year, while another 44% say that it has remained the same.
- More than half (54%) of those questioned said that addressing climate change was an opportunity for their business. Respondents from the manufacturing sector and from the Middle East and Africa were particularly enthusiastic.
Notes to Editors
The study of governments’ spending on climate change was commissioned from Oxford Economics and included Germany; France; UK; Spain; Italy; Japan; US; Australia; South Africa; and South Korea. These countries were chosen primarily based on the availability of comparable data. It calculates the level of climate change-related government spending across these ten major economies and assesses the extent to which expected future austerity in the public sector could impact upon climate change investment. This includes all spending on pollution abatement and certain aspects of environmental protection, renewable energy, clean technology and environmental tax credits and subsidies.
The survey among global business leaders was conducted by the Economist Intelligence Unit (EIU) for Ernst & Young between 1 August and 10 September 2011. Globally over 300 C-suite, Board Directors and senior managers from 58 countries responded.
A panel debate hosted by the EIU and sponsored by Ernst & Young, which analyses the prospects for success at the forthcoming COP17 summit, can be found at www.ey.com/copsummit.
About Ernst & Young’s Climate Change and Sustainability Services
Ernst & Young helps clients navigate their climate change and sustainability journey — from understanding business and regulatory threats and opportunities, delivering strategy, exploring commercial transactions, monitoring performance and adding rigor to public disclosures on progress. Ernst & Young has a global network of professionals who work in the area of climate change and sustainability issues, across assurance, tax, transactions and advisory. This team of professionals, with qualifications across accounting, law, science, social science, engineering and business, have provided climate change and sustainability services since the early nineties across industry, government and professional services sectors.
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1 This was measured as average government spending growth between1990-2010.