UNEP Deputy Executive Director Ibrahim Thiaw: Address to the Islamic Development Bank, Jeddah, Saudi Arabia Wed, Jan 20, 2016
"It is an opportune time, for the Islamic Development Bank to discuss not only Paris but broader notions of sustainability and how Islamic finance can play a part."
Excellencies, distinguished guests, ladies and gentlemen,
Let me begin by saying how honoured I am to be here to deliver this lecture at the Islamic Development Bank's Chief Economist Lecture Series. My sincere thanks to the Islamic Development Bank for the invitation.
You kindly asked me to reflect on the prospects and challenges following the Paris Climate Agreement. This is unquestionably the time to discuss this topic, because what we witnessed in Paris was indeed historic.
The intent in Paris was clear from the beginning. Over 150 heads of state and government were in attendance during the high-level event at the start of the conference. Never before have so many national leaders gathered in one place. If that wasn't a clear signal of commitment, I'm not sure what more they could have done.
And commit they did. Historians may well look back at 2015 as the year when the world began to turn away from traditional carbon-intensive pathways of economic growth to sustainable avenues of low-carbon development.
This turning point was no small feat. For 196 signatories to recognize the severity of climate change, acknowledge the dramatic costs and commit to action that will keep us well below 2 degrees of warming this century is an agreement unprecedented in history.
But where many countries saw threat - to livelihoods, and yes, lives - they also saw opportunity. The Paris agreement implies more than just an agreement to collectively fight back against impending disaster. It demonstrates that nations of the world are looking positively forward to the transition to a new type of economy - an inclusive, green economy.
Scientists have recently provided more evidence that we are living in a new era - what they call the "Anthropocene", where humans have the greatest impact on the planet over any other factor. As this may well be the case, the transition to a new economic era cannot come fast enough. This sustainable development pathway is the way forward.
So the question after Paris has become not "if" the world will transition to such an economy, but rather "how fast". While government policy and leadership provides the impetus for the transition, we know that the private sector will play an outsized role in both financing and innovation. We know there is government support. Fortunately, we are seeing that companies are embracing the opportunities presented by sustainability and recalibrating risk assessments around environmental vulnerabilities.
But sustainability is not only about climate change, as you well know. Sustainability incorporates environmental challenges and opportunities beyond reducing greenhouse gases. From food waste to chemicals to land degradation, environmental issues are at the heart of a sustainable and prosperous future for all.
At UNEP, through our many partnerships across government, industry and civil society, we see the economic and social potential of addressing environmental issues. We are not alone. While the Paris agreement was the marquee headline of COP21, two weeks in Paris offered the public and private sectors opportunities to discuss wide-ranging environmental topics.
I can tell you that a drive to address broader environmental issues ran in parallel and kept pace with the negotiations in the climate change plenary halls. This drive was seen in impassioned speeches by civil society representatives, firm commitments from government officials and inspiring moves from the corporate sector toward sustainability.
It is an opportune time, then, for the Islamic Development Bank to discuss not only Paris but broader notions of sustainability and how Islamic finance can play a part. I'd like to take my time here to share with you UNEP's perspective and experience with these issues and challenges, and convey to you the opportunities we have identified.
We can broadly categorize these challenges and opportunities as the "Four D's": decarbonization, detoxification, decoupling and defence of our ecosystems.
Firstly, I'd like to discuss decarbonization. That is, the transition from high-carbon to low- and non-carbon energy sources. This is at the core of achieving the goals set out in Paris.
Secondly, I'd like to discuss detoxification. When we refer to detoxification, we mean removing harmful substances and chemicals from our environment, and mitigating their impacts on people's lives and livelihoods. Much of this work ties in with Paris objectives, as well.
Thirdly, we have the issue of decoupling. By using fewer resources per unit of economic output produced, and increasing efficient practices in our consumption and production patterns, we have the ability to reduce the environmental impact of the resources we do use. This can mean everything from reducing food waste to increasing energy efficiency.
Next, I will discuss how we can defend our ecosystems and enhance ecosystem resilience in order to protect the planet's resources. This means increasing the capacity of the environment, economies and societies to anticipate, respond to and recover from disturbances and shocks.
Finally, I will touch on how the financial community - and specifically Islamic finance - can help bring about these "Four D's".
There can be no question that the task ahead is momentous. We are talking about an economic transformation that is virtually unprecedented in modern human history. Reinventing our financial, infrastructure, energy and mobility systems is no small challenge.
The good news is that this transition is already underway and we see momentum increasing every year. And it is leaders like you, especially in the financial sector, who can help turn these structural challenges into economic opportunities. Let us dive in and look at where these opportunities lie.
Let me first discuss decarbonization.
As we meet here today, thousands are participating in the Abu Dhabi World Future Energy Summit. Opening this event a few days ago, UN Secretary General Ban Ki-moon, said that "Everywhere I travel, I see solar panels and wind turbines springing up."
Let me echo my boss by providing some facts and figures to back up his observations.
We have already seen a phenomenal deployment of renewable energy. In 2014 almost US$ 270 billion was invested in renewable energy and low-carbon technologies worldwide. That same year, some 50% of all investment in electricity-generating infrastructure was in renewables. And that is excluding large hydro projects. More than 100,000 MW of power was produced by renewables in 2014 - a remarkable figure.
Costs are being driven down and more and more large-scale projects are being implemented. In spite of the precipitous drop in oil prices, utility-scale solar and onshore wind generation have become cost-competitive with fossil-fuel based generation in many regions. The cost of solar photovoltaic modules has fallen by about 75% in the last 5 years alone.
Decentralized renewable energy hybrid systems are also coming of age and are particularly attractive for rural energization. Abundant renewable energy resources in many countries, declining technology and project costs, and the fast pace of renewables deployment make a "renewables rich" energy future both feasible and logical.
To take a local example, Saudi Arabia has committed to build 41,000 MW of solar capacity by 2040, which would account for up to a third of power consumption domestically. This makes sense. All it takes is a few moments blinking outside to see the solar potential in the Kingdom.
In developing countries, renewables continue to make sense as well. Some 1.1 billion people in the world are without access to reliable electricity, mostly in Asia and Africa. In the latter, up to 90% of rural residents lack access to modern energy, yet the continent has immense exploitable renewable energy resources. To date, poor infrastructure, insufficient investment, fragmented approaches and weak institutions have kept much of Africa un-electrified. The continent is in dire need of energy, and governments at this moment are determining its future energy mix.
For Africa, as elsewhere, investing in renewables is the way forward. The historic pathways that saw carbon-intensive development give rise to developed nations need not be followed today. Africa has the opportunity to technologically leapfrog stages of development, moving onto a modern energy path that can not only help it achieve energy independence but reduce its carbon footprint as well.
At COP21, we saw the appeal of such an approach to development. The Africa Renewable Energy Initiative (AREI) is an Africa-led effort to harness the continent's huge renewable energy potential. The initiative aims to double renewable energy generation on the continent by 2020 by adding 10,000 MW of renewable energy capacity. A second phase will see 300,000 MW of capacity by 2030. Incredible numbers. Incredible ambition.
While the Initiative was not part of the formal Paris agreement, we witnessed donor countries in the EU and G7 pledge over US$10 billion in public funding for the project. This was indicative not only of the spirit of common cause in the negotiations, but also of a clear interest in seeing Africa develop its access to cleaner energy.
UNEP was there at the start of this initiative, helping bring together African partners to see it through to fruition. We have been thrilled to see the project evolve into a potential game-changer for the continent.
While AREI is promising for development, it also goes to show just how much potential there is in economic terms for renewable energy. Developing efficient, reliable, cost-effective and environmentally friendly energy infrastructure not only reduces poverty and drives sustainable development, it carries massive economic opportunity for the right investments.
If we look at the national climate plans submitted in Paris, we can see emphasis on renewables from the least to the most developed countries. All of the national pledges in Paris have some form of clean energy programme incorporated. Countries like Paraguay, Iceland and Norway are powered by virtually 100% renewables already. I have mentioned Saudi Arabia's ambitions already, but consider also the example of Kuwait, which intends for renewables to make up 10% of its energy mix by 2020.
I have mostly been discussing decarbonization in terms of utilities, but it comprises much more than that. In its climate plan, Morocco aims to achieve an urban collection rate of household waste of 90%, and to rehabilitate or close illegal landfills by 2020. As landfills are a source of methane, a potent greenhouse gas, we can consider this a positive goal in terms of decarbonization.
Another key area is the transport sector. Today, it contributes about one quarter of all energy-related CO2 emissions. This is set to increase to one-third by 2050. In addition, transport fleets are a major source of black carbon, a pollutant which is harmful to human health and has been linked to respiratory problems. This brings serious costs in terms of healthcare and lost productivity and is yet another drag on developing economies.
Millions die each year from outdoor air pollution and many millions more suffer health consequences. Data to be released by the World Health Organization next month is expected to show the situation has worsened over the last two years?so much so that they may call it a "global public health emergency".
Therefore, sustainable mobility is a necessity for economies. Simply replicating the 20th century model of transport will impose heavy costs on countries. We already see many cities clogged with traffic and mobility will be further reduced as a result of poorly planned infrastructure.
We also see emissions increasing in countries where fleet sizes are expanding. This is one reason why UNEP joined with a number of other international organizations to launch the Global Fuel Economy Initiative and set a target of doubling fuel efficiency by 2050. If we follow this path, by the year 2025 we will already be removing 1 gigatonne of emissions from the atmosphere and generating savings of over US$ 300 billion dollars.
Fortunately, in many places electrification of the transport fleet is already underway.
In Norway, one quarter of car sales are now electric vehicles. A decade-old Chinese initiative to replace petrol-powered two- and three-wheeled vehicles with electric equivalents has experienced enormous success. Electric bikes and trikes have all but replaced petrol versions, with some 230 million on Chinese streets today.
The jury is out on precisely when electric vehicles will majorly disrupt markets. Some say it will be in the next decade, while others think it will take several decades to effectively replace petrol-powered vehicles. But one thing is certain: Paris again provided an indication that we are rapidly heading in the right direction.
At COP21, stakeholders and representatives from the transport industry called for the electrification of the transport sector to rise by 20% by 2030. This would mean a doubling of the use of electric bikes, and going from 1 million electric vehicles today to 100 million electric vehicles by 2030.
In climate plans, we have seen ambition to improve domestic transport sectors with a view toward emissions reduction. The Democratic Republic of Congo identified the improvement of urban and intercity transportation as one key strategy to tackle emissions.
Developing nations in particular can reduce the costs of mobility, expand accessibility and achieve climate benefits through decisive action in the transport sector.
Especially in Africa, this change can bring huge benefits. In places like Uganda, where motorbike usage has increased 150% in 10 years, introducing cost-competitive electric versions to the market can dramatically improve public health and reduce carbon emissions. And while a transition to electric cars is more complex, the success we have seen in China demonstrates that with motorbikes there are far fewer obstacles.
UNEP has committed to support this goal. We already work with the public-private Partnership for Clean Fuels and Vehicles to promote the reduction of air pollution from transport in developing and transitional countries. Since 2002, their work has catalysed the phase out of leaded fuel in over 100 countries. Our E-mobility programme is intended to support dozens of countries in developing electric mobility strategies and action plans. We want to focus on low- and middle-income countries, especially emerging markets, and focus on a wide set of possible electric mobility options ? including replacing diesel buses with electric buses, replicating the Chinese electric two-wheelers success story, and also work on introducing electric cars in emerging markets.
When we talk about decarbonization, in part we mean removing pollution from the air we breathe. But a challenge remains to remove pollution from the rest of our ecological foundations. There is opportunity here as well.
Detoxification at its core means removing our waste from the environment. From soils to water, we pollute on a massive scale. This pollution not only drives environmental degradation - and in some instances climate change - it severely impacts human health and productivity.
The more prosperous our societies become, the more rubbish we produce. Wastewater, solid waste, electronic waste, food waste: how do we manage it all?
The answer to that question at the moment is: often not well. Up to 90% of wastewater in developing countries goes untreated into rivers, lakes and coastal zones. This threatens health, food security and access to safe drinking water. The human and economic cost can be crippling. In the developing world, 60% of hospital beds are occupied by people sickened with water-related diseases.
In the absence of integrated solutions and policies on solid waste, people adopt the cheapest option: dumping in open spaces or water courses, or simply burning it. The health effects of this are drastic.
The products we use can also be damaging to our health and the environment. Up to 100,000 chemicals find their way into everyday products. While many are essential to our modern lives, they can also be dangerous, hurting human health through accumulation in our environment. According to estimates by the U.S. National Research Council, the economic toll of health costs associated with air pollution in the United States alone is US$120 billion per year.
Properly managing these chemicals is imperative to reducing these costs. Before I proceed any further, I'd like to share with you a brief video on some of the work UNEP is doing with the Strategic Approach to International Chemicals Management, which outlines our efforts in this area.
Proper chemicals management makes business sense. Over the past three decades, some US$ 40 billion has been spent on addressing the damages from industrial chemicals accidents. Above the cost savings of these clean-ups, sustainable investments and sound chemicals management policies maximize the contribution of the chemicals sector to economic development.
Since we are discussing waste, I would be remiss not to mention food waste. While a little less than one billion people go to bed hungry, globally about one third of all food produced is wasted. Not only does this represent a massive economic loss and humanitarian failure, it is devastating to the environment. Much of unused food ends up in landfills, where in concentrated quantities it decomposes in a way that greatly increases emissions of greenhouse gases. But more than that, consider that our global food system is responsible for 80% of deforestation and is the largest single cause of species and biodiversity loss.
This damaging practice of resource waste is at the core of the challenge of development today. Historically we have always tied our economic growth to exploitation of resources, with little thought for the waste generated. But we understand now that for economic growth to continue, it cannot be tied to resource use.
This means that we need to decouple economic growth from resource exploitation. Essentially, this means doing more with less.
Where profligate production and consumption were the norm in the past, today we must be more efficient.
We have the technology to do so, and the economic and environmental rationale is strong.
The International Energy Agency estimates that 70% of our carbon dioxide abatement potential by 2020 can be achieved by energy efficiency measures. As nations look to reduce greenhouse gas emissions, efficiency will be a prime area of potential.
If, for instance, more energy-efficient air conditioners were deployed in Southern Africa, it is estimated that 13% of electricity consumption could be saved. This translates not only to financial and electricity savings, but also emissions reductions equivalent to taking 8 million vehicles off the road every year.
Electricity for lighting accounts for approximately 15% of global power consumption and 5% of worldwide greenhouse gas (GHG) emissions. UNEP works with the Global Environment Facility on an initiative called en.lighten, which has shown that a switch to efficient lighting globally would save more than US$140 billion and reduce carbon dioxide emissions by 580 million tonnes every year.
These are but a few examples of how improved efficiency can offer immediate benefits in both financial and environmental terms.
Much talk of efficiency can also be applied to our ecosystems.
Ladies and gentlemen, it is a sorry fact that today nearly 25% of our planet's land surface is degraded. We lose 24 billion tonnes of fertile farmland every year, which impacts 1.5 billion people in 168 countries. The scale of the problem of land degradation is truly immense.
From deforestation to agricultural emissions from the soil to nutrient management and livestock, this land degradation represents no less than a quarter of global greenhouse gas emissions.
As land is degraded, we see a greater instance of droughts and a reduction in available freshwater.
Our economy is fundamentally reliant on our ecological infrastructure. While we can see tangible contributions from the natural world to the resource trade, it is the complex invisible web of natural relationships that underpin many aspects of the global economy. These "ecosystem services" represent the true value of our ecosystems.
This value can be enormous. In only four test cases in Chile, South Africa, Trinidad and Tobago and Viet Nam, UNEP identified almost US$1 billion worth of ecosystem benefits.
By investing in protecting our ecosystems we can not only ease economic costs but realize benefits as well.
At a national level, adopting sustainable agroforestry in Mali could generate $13 for every $1 invested. At a regional level, better land management across Africa would allow farmers to produce an additional 280 million tonnes of cereals every year. And at a global level, resolving the problems of land degradation could generate global economic gains of $1.4 billion per year.
Building resilience in our ecosystems is also about letting nature capture and store carbon we emit. Unfortunately, countries are still burning our forest cover, which decreases our capacity to store carbon. A similar phenomenon is unfolding at sea where, through acidification, the capacity of the world's oceans to absorb and store carbon is also diminishing.
Yet by reclaiming 2 billion hectares of forests, wetlands and grasslands we have degraded and lost, we can provide vital carbon sinks that help with climate change adaptation and improve resilience in our communities.
Ladies and Gentlemen,
The challenge we face is to find the finance to tackle these challenges and take full advantage of the opportunities in order to deliver on the Global Goals for Sustainable Development. This is where development banks such as the IDB come into play.
The billions of dollars required for climate change adaptation are just the tip of the iceberg. Globally, investment required in water, agriculture, telecommunication, power, transport, buildings, industry and forestry sectors is estimated to be roughly US$ 5-7 trillion annually to realize our aims of sustainable development.
The McKinsey consulting group has conducted a bottom-up analysis of how much a low-carbon revolution would cost, country by country and industry sector by industry sector. Overall, the shift to a low-carbon economy would require incremental capital expenditures averaging 455 billion euro per annum between 2010 and 2030. This sounds like a lot, but it is only about 2-4% of expected capital expenditure during the period.
Consider also that the fossil fuel industry was subsidized to the tune of over $5 trillion in 2015. Much of this subsidy will need to be directed elsewhere if countries are to fulfil their Paris commitments. But that is yet another opportunity: as fossil fuels become less subsidized, a sizable amount of capital will be freed for sustainable and low-carbon investments.
This scale of capital mobilization is therefore certainly possible. Since 2004 around US$ 2 trillion of financing has gone into the renewable energy sector globally. This is an investment, as I have mentioned, that is both necessary and economically wise.
Additionally, as the money would largely go to investments in long-life assets, most of it would be financed by borrowing over time. The total costs to finance such a transition between 2010 and 2030 would be an additional 0.7 to 2.3% of total financing for global capital expenditures.
In many cases, this doesn't mean that we need to invest more. We simply need to invest more wisely and reset expectations on short term gains.
It is here where I think Islamic finance can play an important role. The Islamic Development Bank in particular can be majorly relevant in contributing to the global agenda of sustainable growth and development.
Islamic finance is growing on the global financial landscape. Its global assets have incremented considerably and now exceed US$ 2 trillion. Islamic financial services therefore have great potential to support the financing of climate and sustainable development goals.
I am aware, for example, that the IDB will be increasing its financial support to Sustainable Development Goals realization to more than US$ 150 billion over the coming years. This is encouraging.
The IDB's Energy Policy of transition for the period 1434-38 (2013-2017 in the Gregorian calendar), entitled "Energy for Prosperity", is another step toward ensuring that the energy sector effectively contributes to the achievement of the IDB Vision 1440. The IDB is already a major player in the clean energy sector, with investments of around US$ 1 billion between 2010 and 2012. It is clear that IDB investments can yield economic, environmental and social benefits.
But to better promote the transition to a low-carbon economy, the financial sector has to get a clearer idea of the climate impacts of their lending.
Development Banks such as the IDB could adopt portfolio-wide targets to reduce emissions in their lending. We have already seen progress in this area, with private companies looking to move their investment portfolios away from brown investments. 25 institutional investors have joined the Portfolio Decarbonization Coalition, a group committed to fighting climate change through green investment, run by the UNEP Finance Initiative. Two of the world's biggest institutional investors?Allianz and ABP?joined in December 2015. Altogether, Coalition members have pledged to decarbonise US$ 600 billion worth of assets.
The IDB can also assess or address climate change risks associated with lending, technical assistance, and financial intermediaries.
The UNEP Inquiry into the Design of a Sustainable Financial System has been working on this very issue for over a year. By working with senior officials and executives in major banks such as the People's Bank of China and the Bank of England, we have discovered a wide range of examples and best practices in green finance around the world, and shown that there is a trend - "a quiet revolution" - toward green finance in the financial sector.
Ladies and Gentlemen,
What is evident is that we need to change the way we do business. States, international organizations and the public sector are expected to show the will to help countries affected by climate change, disasters and environmental degradation. Their policies and agendas set the tone for efforts to preserve our environment and increase sustainable growth.
But the task at hand is too complex, too urgent and too large to be handled by governments alone, or, for that matter, different actors working in isolation. It is by working together that we will achieve our sustainable development and climate action goals. Cooperation among like-minded institutions will enhance our collective impact.
We know that there are a growing number of international and regional institutions championing the green growth and green economy agenda. The Asian Development Bank, the African Development Bank and others have adopted the green growth agenda as part of their core strategy in recent years. The newly-created BRICS Bank and Asian Infrastructure Investment Bank follow the same path. Countries are taking the initiative to make their economies more sustainable, more resilient and more inclusive, shaping their growth trajectories around a sustainability framework.
Now is the opportune moment for the public and private sectors to create meaningful partnerships in order to advance sustainable development.
And there are ample opportunities for joining forces in delivering technical, policy and capacity support to the countries of the region, building on multi-stakeholder partnerships and alliances.
UNEP is facilitating cooperation and partnerships among interested institutions, including those at the national level, and welcomes the chance to engage further with the Islamic Development Bank.
Ladies and Gentlemen,
The principles of Islamic Finance are key to understanding what is at stake: we all share risks and we all share the benefits of investing in a greener future. Let us all be shareholders of change.
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