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Why government executives should focus on decarbonization strategies
In this episode of the Government Insights podcast, host Kait Borsay explores varying government approaches and best practices to decarbonization around the world.
In this episode of the Government Insights podcast, host Kait Borsay discusses with her guests Amanda Evans, EY-Parthenon Global Government and Infrastructure Leader, and Marco Duso, EMEIA Sustainability Leader for Strategy and Transactions, varying government approaches and best practices to decarbonization around the world. They share insights and best practices for government executives into the current state of global climate action, the importance of inclusive policy-making, and the role of public-private partnerships in facilitating the transition to a greener economy.
Bolster public-private partnerships through strategic finance, encouraging private sector investment in sustainable projects and incentivizing innovation to meet 2030 goals.
Foster equitable transitions by supporting workers and communities affected by decarbonization, using policies that balance environmental objectives with social and economic needs.
Implement and streamline regulations to facilitate green initiatives, including clear emissions targets, simplified permit processes, and sector-specific strategies, while ensuring dialogue and clear incentives for industry compliance and transition support to a low carbon-economy.
Teaser
Government Insights from EY-Parthenon.
Kait Borsay
Hello and welcome to Government Insights a new podcast series from EY-Parthenon for government leaders around the world. I'm your host Kait Borsay, and we'll be looking at how governments can transform to strengthen services for their citizens.
In this episode, our topic is decarbonizing the economy equitably. Joining us to share their insight and opinion on this subject are Marco Duso, EY-Parthenon Sustainability Leader, EY Advisory S.p.A. Hello, Marco.
Marco Duso
Hello, Kait.
Borsay
And Amanda Evans, EY-Parthenon Global Government and Infrastructure Leader. Hi, Amanda.
Amanda Evans
Hi, Kait, great to be with you.
Borsay
Great to have you both with us.
Marco, let's start with you and with the COP28 Climate Summit agreement signaling the beginning of the end of the fossil fuel era, are countries really accelerating climate action?
Duso
Absolutely. If you think about climate policies that are coming into place this year and in the next two years, you know we're just starting to see the full effects of them. If you think about the IRA, which just recently funded more than US$5 billion of decarbonization projects in the US.
If we think about what is happening in Europe, with CBAM coming into place. We have corporate sustainability directive for reporting. We have multiple regulations that still have to come into place and take full effect. So, we're definitely seeing an acceleration. We tend to perceive things as linear, but in reality, this change is going to happen exponentially and it's going to be bumpy. So we are going to have some small setbacks on specific policies, on specific geographies, but overall the trend, the trend is inevitable.
And I would even say we really live in a new era in which we moved from a place where basically countries were worried about taking first steps to a place where actually countries are racing to win in a world that will decarbonize.
Borsay
And Amanda, what actions do governments need to take to deliver the green transition?
Evans
I think the opportunity for governments to deliver the green transition, it comes from how governments decide to govern the effect of the transition. The choices they may need to make is will they choose to create clear pathways for stakeholders to be involved and be engaged in designing the strategy. Or will they choose a more top-down process?
And I think that the former is likely to lead to better, more equitable outcomes, whereas the latter is probably where we're seeing governments run into trouble from communities who fear that they might be adversely impacted by change. Or they might be left behind as a result of those changes.
So while governments approach change, in a way that think about the transition as an iterative process, they will also need to steward and work to sustain that over time. And the broader the buy in they have, the easier it will be to overcome whatever obstacles they might come across.
I think lastly that one place that government leaders can start is to play a coordinating role across different parts of community together with business leaders to help determine what progress has been made so far. Find where gaps are, identify public supports that are still needed to manage the transition.
A good example of that is Scotland's Just Transition Commission that was really a coming together of different parts of the community to identify the priority needs and actions for different stakeholders. And that's been a really powerful example of collaboration.
Borsay
That's interesting. Can I get you to expand on some of the challenges that governments have had implementing climate policies?
Evans
I think one of the primary challenges we've seen happens when governments decouple decarbonization policies from the aspiration of a just green transition. For example, say top-down emissions reductions targets without the enabling policies that can create really sort of unmanageable, upfront costs to going green. And that causes political pressure to slow down the transition. So that's one of the challenges.
We saw that dynamic play out during 2022 when high energy prices for consumers caused some governments to start to backtrack a little bit on their climate commitments. Or perhaps continue with unplanned investment in fossil energy extraction. And we're also seeing it play out in a consumer sense, with lower than expected electric vehicle adoption rates. Cost of living is increasing and that's impacting the consumer's ability to absorb those initial costs of going green, despite in some areas, the provision of government subsidies.
So, I think what all that points to is the ability to integrate those most impacted into decarbonization design, can help government leaders better anticipate and address those sorts of concerns and challenges.
Borsay
Marco, what have you been hearing about perceived support versus real support for climate policy?
Duso
Yeah, I think this links very well to what Amanda was saying. Like, ultimately, policymakers need public support in order to implement successfully climate policies.
And if we just hear the noise from daily news, we would perceive, that actually this support may be fading. But actually, there was a very interesting study conducted, a scientific paper conducted recently on 70 countries and more than 70,000 people. 86% of people had a belief climate change was real, and even the lowest country had 73%.
Secondly, 86% of people thought that their country should try to fight global warming. Even more important, 70%, 69%, said that they would be willing to contribute at least 1% of their income to tackle the climate challenge.
So this also proves the point that there is actually a willingness to pay. And when we think about the climate transition, it's overwhelming numbers in absolute value. But then actually when you look at them in terms of GDP with 1 to 2% per year, you actually can put in place, you know, the capital that is needed for a fast transition in most economies.
Borsay
All right let's get both your thoughts on private sector participation. You know, governments will regulate, but action sits with businesses that are struggling with economic uncertainty, higher interest rates and political conflict.
How can public and private players innovate together to achieve the 2030 goals for decarbonization, Amanda.
Evans
So, I think the name of the game here is blended finance. If the world really wants to reach its 2030 decarbonization goals, Kait. I think of a study that EY recently published in conjunction with FIDIC, which found we need to more than double infrastructure investment by 2030 and sustain that level of funding through 2050 to reach net zero.
And that's a massive endeavor. And with public budgets already constrained, much of that funding and action will inevitably need to come from private sector. So, we are starting to see a rise in interest in blended finance mechanisms, involving the strategic use of public sources of capital to attract private investment.
Say an example in South Korea of a program called the Green New Deal, which is used post COVID economic stimulus funding to commit to a really large-scale green infrastructure overhaul. China and Germany, for example, have both successfully used feed in tariffs to stimulate private investment in the renewable energy sector.
I think beyond funding, bringing communities and workers into the development of public and private decarbonization will be one of the really critical enablers of success.
There's been growth in the number of Just Transition agreements between local governments and business to transition fossil fuel dependent regions to sustainable development. And I think most countries have since followed Spain's early example, which used a Just Transition agreement to transition its coal dependent regions.
Ultimately, I think governments and the private sector need to really double down on climate action over the next five years if they actually want to reap the rewards of winning the race that Marco talked about towards net zero.
Borsay
Marco, anything else you'd like to add?
Duso
So, you have like for example a U.S. model which is really putting in place incentives. I think we are counting arguably up to 2 trillion dollars of incentives for climate action. But we also should not forget that countries such as China and India are really going fast in the transition, and actually have been going really fast. So in multiple climate technologies, we actually see that many companies from Asia are actually winning.
If we think about solar, if we think about electric vehicles, I think if you look at the number of patents filed in the last couple of years in carbon capture, almost 80% of them come from China, right. So, we really start to see different models emerging and a healthy competition, I would say to really benefit the development of climate technologies and the adoption of infrastructure.
Borsay
Amanda, with about 70% of greenhouse gas emissions coming from infrastructure, what can governments do to decarbonize infrastructure?
Evans
It's an interesting question, Kait, because the infrastructure challenge is not only about building the trillions of dollars’ worth of new infrastructure that's required right across the globe, but also about adapting old infrastructure to reduce emissions. And that's important, because retrofitting existing infrastructure is in large part a matter of transforming publicly owned and privately owned buildings. And that accounts for 39% of global carbon emissions.
Since reducing emissions from buildings is such a huge part of the puzzle, then governments need to focus on how they can incentivize retrofitting existing buildings rather than selling them off, which, if done well, could result in up to 75% less carbon than rebuilding that same infrastructure from scratch.
I think to make the switch easier, some governments have adopted tax-based incentives, for instance to reimburse people to make those sorts of upgrades. There's been some examples in the U.S. and the UK where rebates for things like heat pump installation has been quite successful.
In cases where assets are stranded so they cannot be repurposed, then governments will have to think about how they specify decommissioning requirements to ensure that the decommissioning of those buildings is both safe and sustainable. And just, as is the case for building new low carbon infrastructure, there has to be a work ready skilled labor force to take on those sorts of rehabilitation and construction projects for them to proceed at scale and importantly to proceed at the required pace.
Borsay
Finally, some governments have made substantial commitments to a greener future. Others, though, focus on traditional sectors without Environmental Protection measures. To decarbonize the economy equitably, using policy as an enabler, what does good industrial policy need to look like, Marco?
Duso
Thank you, Kait. I would say there is probably 4 key ingredients for successful climate industrial policy, and the first one is dialogue.
We have to make sure that we bring industry sectors on board as well as people. So, it's really, really important that as we set transition pathways, it's done in constant communication and with the input of the actual sectors and the people in those.
The second one is putting incentives into place. Companies have to perceive it as an opportunity. There needs to be incentives that will signal that. And we started to see it in many geographies.
The third is that they're going to need support, so the transition is going to be bumpy, it's not going to be linear. There is likely going to be winners and losers. We're going to have to reskill people. So, we actually need to think about those policies that will actually support the transition.
And finally, I would also say to keep it relatively simple in the way that regulation does not become overwhelming. The example of that would be permits in the renewables sector. So, making sure that the bureaucracy and the complexity does not take over as we implement climate policies.
Borsay
Amanda, same question to you. What does good policy look like?
Evans
And I would echo many of Marco's thoughts there. I think good policy really needs to balance economic growth, environmental sustainability and social equity. First and foremost, good industrial policy focuses on promoting sustainable practices across all sectors through things like specific emissions and waste reduction requirements. And then critically imposing deadlines and consequences for compliance.
It also needs to couple those sorts of incentives with support for innovation, for workforce transformation and for community transition. And ultimately, I think, good industrial policy should be the result of government leaders working with businesses and labor leaders, really coming together to create sector specific strategies. And there's some great examples of that. For example, Canada's Jobs and Growth Fund allocated resources to help workers in the fossil fuel sector develop skills for the clean energy economy, and that is really consistent with the four points that Marco made.
I think fundamentally good industrial policy needs to account for the needs of all those impacted in the prospective transition and that's why democratizing decarbonization and centering those most impacted in the design and implementation of the solution, is really key to ensuring that transition doesn't inadvertently harm low income households or small businesses.
Borsay
Well, that's it. We are out of time. Thank you very much to both of you for such a valuable conversation.
Marco, thank you to you.
Duso
Thank you, Kait. Thank you, Amanda.
Borsay
And Amanda, thanks to you.
Evans
Thanks so much.
Borsay
Well do join us again soon when we'll continue to look at how governments can transform to strengthen services for their citizens. And please subscribe to this series so you won't miss an episode.
From me, Kait Borsay, thanks for listening and bye for now.
Teaser
Government Insights, back soon.
End of podcast.
Presenters
Kait Borsay
Journalist, author, TV presenter, Radio moderator at Times Radio
