Briefing n.7 5/2021 – Global climate crisis, the geo-economic and diplomatic challenge

This content is also available in: Italian

The challenges of global climate change and the geopolitical repercussions between countries. What is the situation after the Paris Agreement, and how the US and China address the need for change? A look at Italy.

In May 2019, the Mauna Loa Observatory (Hawaii) recorded a quantity of CO2 in the atmosphere of 415 parts per million, the highest in the last 800 thousand years, the maximum period within which, with modern technologies, it is possible to obtain the measure. The 2010-2019 decade was the hottest in history – at least since there have been reliable records of the Earth’s average surface temperature – and, from the 1980s to the present, each subsequent decade has been warmer than any previous decade since 1850.

Science has provided a series of evidence on the anthropogenic aetiology of the current climate situation, attributing the leading causes to the increase in greenhouse gases resulting from human activities. The deterioration of environmental conditions has reduced the predictability of natural phenomena and multiplied their destructive impact. The climate crisis is one of the main threats to people’s health and the political-institutional, economic and social stability of countries and entire areas of the planet.

The NATO 2030 Report and the global climate crisis

The NATO 2030 Report, published last December, classifies the climate crisis as one of the main causes of insecurity for the Alliance countries. A sick planet is a multiplier of economic and financial risk since significant climatic changes can affect the transmission channels of monetary policy, influence the work of financial intermediaries and determine the emergence of new threats to the monetary policy of central banks.

Hence the growth of environmental, social and governance (ESG) indicators as a tool for assessing corporate performance and the increasingly frequent use of these metrics to quantify the ability of companies to create long-term value. The European Investment Bank has decided to suspend, by 2021, financing for projects made with fossil fuels, while BlackRock – the most significant asset management in the world with over US $ 7 trillion of assets – has declared that it will no longer invest in companies with a high environmental risk.

The climate challenge has sanctioned the common desire to consider the environment as an object of direct protection and as an integrated element in every political-institutional action, transforming it into a criterion for elaborating various policies at the national and international level. Such a change of perspective is producing a different interpretation of the balance of power on the international level, a global rebalancing of power, and the definition of new competitive dynamics to which States seem to adhere.

 

The importance of dialogue between countries

Therefore, the commitment to combat climate change offers the opportunity to relaunch multilateral dialogue in an attempt to overcome the crisis that threatens its functioning. States, especially in the aftermath of the pandemic, are more aware than in the past that the global reach of the climate challenge requires shared strategic choices and renewed intergovernmental cooperation. Moreover, with 197 adhesions, the 2015 Paris Agreement is among those with the highest consensus index in the history of international relations.

At the same time, however, the “race to green” undertaken by the national states prefigures a close confrontation between them, with a view to repositioning, exercising influence and reformulating international alliances. In other words, the Paris Agreement and the UN Agenda 2030 laid the foundations for a global climate alliance, but also a geopolitical interpretation of the fight against the climate crisis and its repercussions. The European Green Deal, for example, indicates to the Member States very advanced lines of environmental policy but, at the same time, contributes towards the outside to strengthen the strategic autonomy of the Union, aiming to increase its influence on the global chessboard.

This awareness has prompted the new US Administration to regain global leadership in the fight against the climate crisis to not lose ground compared to other players and develop the economic, technological and geostrategic potential underlying the main global challenge of the century. Washington’s commitment will urge other countries, primarily China and Russia, to maintain an accelerated pace in the energy transition.

Everyone will have to invest significant resources to transform policies into projects and targets into results, with the difference that it will be easier for the US than for others to finance themselves on the global capital market and, therefore, support the Country’s ecological transition and competitiveness (environmentally sustainable ) of its economic system. China has based its decarbonisation commitments to 2060 on the desire to reposition itself as a “responsible stakeholder”, thus recognising the climate challenge as a possible territory for collaboration and competition.

 

Global climate crisis, the new goals

To achieve the new objectives – to reduce emissions by 52-55% by 2030 compared to 2005 – the USA is planning a US $ 2 trillion infrastructure plan, centred on renewable energy, electric mobility and digitalisation of networks. To achieve a sustainable Europe and to reduce emissions by 55% compared to 1990 values, the Green Deal provides for an allocation of at least one trillion euros by 2030, while according to Tsinghua University, China would even need 15,000 billion US $ by 2050 to move away from coal in power generation.

Fighting climate change and transitioning to a more sustainable world requires clear strategic choices and substantial investments. For this reason, the environmental challenge takes on the characteristics of an authentic geoeconomic competition between the respective national ecosystems. At stake is the “conquest” of leadership in a strategic sector, in which economic resources and highly advanced technologies converge, capable of defining new competitive margins between commercially developed nations, as well as new geopolitical balances.

 

In this perspective, the mobilisation of businesses and the definition of new forms of public-private collaboration become essential to achieve precise climate targets and ensure adequate competitiveness levels for companies. Moreover, any form of contrast to environmental degradation requires the public’s vision and the contribution of the private’s ideas, resources, and skills.

 

Like that of business leaders, the attention of policymakers has rapidly shifted from a project-led conception of environmental sustainability, attributable to the corporate social responsibility scheme, to a strategy-led concept centred on sustainability as a backbone of the business model and an indispensable competitive factor. In this new dimension, it becomes impossible to promote a country system without precise references to economic, social and environmental sustainability. Thus, ecological diplomacy becomes a concrete and tangible expression of economic diplomacy, a tool for ensuring high competitiveness indexes for the country-system and solid positioning in the global geo-economy.

 

The energy and digital transition

A series of circumstances then made the energy and digital transition inseparable. Winning the climate challenge is not possible without resorting to massive doses of technological innovation. The path traced by the national PNRR and the Next Generation Eu confirm this. And, thanks to technological innovation, the cost of generating energy from some renewable sources, such as solar photovoltaics, has decreased by more than 80% in the last 10 years, making these energies more competitive than traditional ones, and accelerating them. Such is development.

 

In the latest report, the IEA (International Energy Agency) estimates that by 2050 electricity will cover 50% of global energy consumption, with an increase of more than two and a half times the current generation and coverage of renewables of 90% of the generated energy. By 2030, total annual investments in energy will range from around 2.5% of global GDP in recent years to 4.5%, most of which will go to electricity from clean sources, electricity grids and services to decarbonise the entire value chain. It means injecting enormous quantities of innovation, artificial intelligence and new technologies into the energy system, transforming it into a context of geoeconomic competition and digital comparison. We are already in a phase in which energy security will no longer only concern access to resources and the transport of raw materials, but the adaptation of the system, cybersecurity, and electricity networks’ protection.

 

What does this mean for the Italian national interest?

Italy, notoriously poor in hydrocarbons and traditional resources, has always suffered from strong energy dependence on other countries. Therefore, the sustainable transformation of the global energy model, accelerated by the need to combat the climate crisis, can generate significant positive effects for our Country, both from a political-institutional and economic-industrial perspective.

From the first point of view, Italy’s firm anchoring to Europe allows it to play a role in defining global objectives and policies. This position of importance and influence, also recognised by Washington (J. Kerry in Rome), allows us to play a key role in the definition of a transatlantic space of “clean technological innovation”, rethought in terms of accentuated political and economic cooperation between Europe and the United States, as well as the consolidation of traditional relations of friendship and collaboration. In this regard, our presidency of the G20 and the co-presidency of COP 26 constitute a testbed for drawing innovative lines of development in the fight against the climate crisis.

From an economic point of view, the evolution towards more sustainable models can generate substantial advantages for Italy. The growth of renewables, for example, reduces our Country’s exposure to supply interruptions and price volatility, with savings in terms of the trade balance. Furthermore, the climate challenge can determine unprecedented business opportunities, creating comparative advantages for a country very exposed to global competition.

Already today, Italy is at the forefront in the clean energy sector, with over 39% of electricity generated from renewables; we are a world superpower and a top European performer in the circular economy; we can boast the most digitised electricity distribution system in the world, the first European utility (Enel, which at the same time is also the first private operator in the world for installed renewable capacity and digital electricity networks), as well as very dynamic and competitive SME supply chains.

However, despite Italy occupying a leadership position, we must continue to maintain and increase it. A recent survey by Unioncamere and the Study Center of the Guglielmo Tagliacarne Chambers of Commerce carried out on a sample of 3 thousand Italian manufacturing companies revealed worrying data, indicating that only 6% of the companies interviewed are successfully facing the double (and contemporary) green and digital transition. In contrast, 62%, the vast majority, have neither invested nor intend to invest in environmental sustainability and innovation. Other countries have begun to move, and Italy must intensify its efforts to acquire new margins of advantage. In this sense, the Recovery Fund represents a unique opportunity.

 

* Marco Alberti, Enel Senior International Institutional Affairs Officer.

 

 

 

 

 

This content is also available in: Italian

Social Network