IISD in collaboration with the International Development Research Centre were pleased to host a half-day panel to discuss the implications of the Paris Climate Change Conference and the SDGs for Canada and the international community.

Here is a recording of the event in English.

Click here for more information about the event.

When the idea of a Commission on Sustainable Development (CSD) was first floated in the lead-up to the Rio Earth Summit in 1992, the proposal was to create a powerful body—on a par with the UN Security Council—that would defuse threats to sustainable development the way the Security Council tries to with threats to peace. 

In the end, no consensus supported that level of ambition, and the CSD was placed solidly under the UN Economic and Social Council (ECOSOC), the central UN platform for addressing the world's economic and social issues. This was a downgrading that virtually guaranteed its lack of effectiveness. After all, if ECOSOC did its job properly, there would be no need for CSD.

CSD nevertheless tried bravely to confront the tide, inviting ministers of finance, environment and development to seek consensus around a set of issues and, in the first years, made some progress. However, it slowly lost its wider audience, becoming essentially a meeting of environmental officials, worryingly similar to the UN Environment Programme's Governing Council. In the last years, it limped along, a general embarrassment to the sustainable development community, displaying few vital signs and certainly failing to advance anything material on the environment, much less on the sustainable development agenda. In 2012, Rio+20 finally put CSD out of its misery and created, in its stead, the High-Level Political Forum (HLPF), tasked to track and facilitate the implementation of Agenda 2030 and its Sustainable Development Goals. It will meet annually at the ministerial level and every four years at the level of heads of state or government.

The HLPF sounds eerily similar to the CSD—all hope that it might serve as an independent new body responding to the initial hopes of the Earth Summit were dashed early on. It is now rare to find mention of the HLPF in any official document that does not immediately add "under the auspices of ECOSOC." Certainly, the politics around the New York missions to the UN will not allow HLPF to escape the cold clutches of ECOSOC, which begs the dual questions: Isn’t ECOSOC's job now primarily to oversee the universal agenda adopted by member states for the coming 15 years? And if we need HLPF to take the lead because ECOSOC is incapable of doing so, isn't placing the HLPF solidly under ECOSOC's auspices a kiss of death?

Hard-nosed New York veterans and the master gamesmen and women in the UN missions will wryly observe that it is politically unacceptable to undermine ECOSOC by placing HLPF outside it, much less above it. Realism dictates that we must make do with the instruments that we have and not dream idly of creating new ones, especially ones that would require a change in the UN charter. How, then can we offer HLPF a chance of playing a positive role?

The answer must be to circumscribe the scope of issues it should be debating and to prepare those debates meticulously. The risk is that the flow of reporting will combine into a mighty river that will culminate in a massive flood of undigested information surging towards New York. There is a very real risk that this flood will overwhelm HLPF and ensure that its debates are confined to generalities. 

Two related issues must be addressed in order to counter that risk. First, the member states have adopted a bottom-up system for reporting on the implementation of Agenda 2030. It will be essential that countries report in a format and on a schedule that allows for analysis and comparison. This will also help make it possible to aggregate the information at the regional level and to identify the key areas of progress, as well as the major lessons learned and the obstacles to progress that most urgently need lifting. If the national and regional reporting processes function properly, then what is sent to HLPF for discussion can be focused, practical and manageable.

Second, however, even if this happens, there are other streams of reporting, including UN entities that are meant to report on their implementation efforts, and various non-UN intergovernmental bodies, such as the Organisation for Economic Co-operation and Development, the World Bank or the World Trade Organization. Then there is the thematic reporting, which may or may not be the same as the reports backing HLPF's discussion of the themes of their choice. Nor is it clear what role is to be played by the proposed Global Sustainable Development Report. Is it a synthesis of all reporting streams? Or only of the UN part? Or will it adopt a thematic approach?

The confusion around reporting and follow-up is, to some extent, normal. The challenges presented by the complex, comprehensive and universally applicable Agenda 2030 are enormous and it is still early days. But unless it can be sorted soon and with a view to ensuring that HLPF can genuinely serve as a forum for discussing the removal of obstacles to full implementation, all the elements are present to shove HLPF down the CSD path towards irrelevance and oblivion.

HLPF can only be as good as the process that feeds it. Top priority should be given to ensuring that this is robust, effective and as untainted by New York politics as possible.

At the end of 2015, the People’s Bank of China (PBoC) released its Green Financial Bond Guidelines—making China the first country in the world to publish official rules for the issuance of green bonds.

Linked to the guidelines is an Endorsed Project Catalogue providing detailed definitions of the types of projects that might be funded through green bonds in areas such as energy and resource conservation, pollution reduction, clean transportation, clean energy and ecological protection.

This move takes place in a context in which the world's second largest economy urgently needs both to stimulate green investment and curb investment in pollution-intensive industries. China's government has seen a critical need to tackle environmental pollution and shift the economy onto a pathway of green growth. The Development Research Center of China’s State Council, responsible for research on China's long-term economic and social development, estimates that China needs around RMB 2.9 trillion (USD 460 billion) per year of investment in green sectors over the next five years. Moreover, the government wants 70 per cent of that investment to come from the private sector. As such, greening the financial system is an integral part of the agenda for broader financial reform spearheaded by the PBoC, and a component of China's Five-Year-Plan (2016–2020).  

Supporting China’s Green Bond Market Development

Green bonds are one promising element of green finance. They were developed as a new investment channel in 2007, with the first few issuances by multilateral development banks, and are growing rapidly in the global market. The global green bonds market amounted to over USD 40 billion in 2015, with issuers including the World Bank, commercial banks, corporations and municipalities from all over the world. Chinese banks and companies are already issuing green bonds: Xinjiang Goldwind and Agricultural Bank of China have debuted green bond sales in London, and others have introduced domestic issuances. However, these moves remain tentative and experimental without an officially endorsed set of criteria for "green bonds."

It is clear that the PBoC’s Green Financial Bond Guidelines have filled a need in the domestic market by setting out procedures and requirements for financial bond issuers, encouraging second opinions report and bond rating schemes. The Green Bond Endorsed Project Catalogue developed by the Green Finance Committee of the China Society of Finance and Banking is an important supplement to the guidelines, setting out the boundaries of what is and is not considered "green." Potential green bond issuers and buyers say these definitions have been keenly awaited. Shortly after the new rules were announced, the Industrial Bank of China launched the first Chinese green credit asset-backed securitization on January 5, 2016, in line with PBoC Guidelines, with a value of approximately USD 401.6 million. It was oversubscribed by 2.5 times. Half a dozen Chinese banks have already submitted applications to PBoC to issue green financial bonds according to the new guidelines. While market forecasts vary, it seems likely that 2016 will see a big leap in issuance of green bonds in China, marking the country’s entry as a big player into this market.

An Evolving Set of Guidelines

Those keeping a close eye on China and green finance dynamics will also have noticed that the National Development and Reform Commission (NDRC) has simultaneously issued guidelines on green bonds, linked to fiscal support for infrastructure investment. The NDRC guidelines include a list of 12 priority areas in energy conservation and emission reductions, climate change and green industries. Regulation of China's bond market is therefore split: the PBoC and the industry's self-regulatory organization—the National Association of Financial Market Institutional Investors (NAFMII)—are in charge of bonds issued by financial institutions and corporations; NDRC directs enterprise and municipality bonds; and the China Securities Regulatory Commission (CSRC) covers bond issuance by listed companies. With guidelines developed by PBoC and NDRC, and in development by NAFMII, standards and definitions will be available to cover 90 per cent of the bond issuers.

The Chinese-Global Nexus

The development of China's diverse green bond guidelines raises a number of questions. Who has the final say on what is "green"? And how do Chinese standards compare to international standards? The evolving set of guidelines are broadly complementary and target different types of bond issuers; however, they do have some different and conflicting definitions and criteria. And while there are large areas of overlap between Chinese and international standards, there are some differences. For example the PBoC catalogue and NDRC guidelines both include "clean coal utilization," whereas the international voluntary Climate Bonds Initiative taxonomy excludes energy-efficiency measures in relation to fossil fuel use (all coal and oil power). Such differences, in part, reflect different priorities and needs of emerging and developed economies, but also point to an ongoing evolution in the needs and definition of green investment. For this reason the PBoC catalogue recognizes that standard-setting is an ongoing process and includes a principle of regular updating "according to technological advancement, policy adjustment, updated standards and changes in resource and environmental conditions." It is sensible to call for "clean coal utilization" to be questioned in the catalogue's first revision.

China-specific guidelines may be sufficient for domestic issuance, but are also intended to enable foreign investors to confidently participate in the domestic market and for Chinese issuers to gain trust and legitimacy in overseas markets. This suggests the need for some harmonization with international standards.

China has rarely been seen as a major player in initiating global negotiations or standard setting. However, as China's economy has become more closely intertwined with the world's, its domestic policies have gained international attention, and the country has begun to take a more ambitious role in cooperating internationally. Green finance is a key example of China becoming actively involved and cooperating extensively to align the financial system with sustainable development.

Harmonization and Coordination of Standards in Green Finance: Cooperation through the G20

China maintains the presidency of the G20 in 2016, and it has established an international Green Finance Study Group (GFSG) to share learning and best practice and explore options for international cooperation. The group will focus on identifying specific barriers in the financial system that prevent private capital from responding adequately to environmental risks and meeting the needs for global green investment. China calls for international cooperation involving governments and international organizations, regulators and key market players to tackle these obstacles. Harmonization and coordination of standards in green finance could be one of the areas for G20 countries' cooperation.

There is no doubt China's green bond market will continue to grow in 2016 and beyond, but unless there is orderly development of this market, the potential for realizing its full possibilities for effectively mobilizing large-scale funds into green development may not be reached. This is also true for many countries, particularly emerging economies where massive investment in low-carbon and climate-resilient infrastructure and industry is needed. Establishing clear boundaries of "what is green" is increasingly crucial to provide confidence and integrity to the market.

In order for a full-scale market to develop, solid foundations need to be in place, including a framework of definitions and standards, institutions and capacity for assessment, and networks and platforms for trading. This is true for green bonds and for other areas of green finance. International collaboration, through China's G20 presidency and beyond will be crucial to developing common understanding and achieving success.

IISD is pleased to present a tribute to the life of Maurice Strong, a trailblazing environmentalist who organized both the 1972 Stockholm and 1992 Rio UN conferences on the environment, as well as the creation of the United Nations Environment Programme and the Canadian International Development Agency.

We begin 2016 with two historic global achievements in place to reform subsidies that harm the poor and damage the environment.

The highlight is the Paris Agreement on climate change. Alongside this agreement, in 2015, 40 countries—led by New Zealand, Denmark and Sweden—joined a call for action to put an end to fossil fuel subsidies. Significant reductions of greenhouse gas emissions have resulted from removing fossil fuel subsidies just to consumers. IISD’s Global Subsidies Initiative has estimated that removal of fossil fuel subsidies to consumers across twenty countries could reduce greenhouse gas emissions by an average of 11%. By taking 30 per cent of subsidy savings, and investing in renewable energy and energy efficiency, national emissions are reduced further to an average of 18 per cent by 2020. 

A week after the Conference of the Parties in Paris, trade ministers from 164 countries agreed to end agricultural export subsidies. The Word Trade Organization (WTO)—hamstrung for over a decade by the doomed Doha Round—met in Nairobi and adopted the Nairobi Agreement, which will see an end to some of the most harmful agriculture subsidies.

So, are we now entering the era of subsidy reform? And what lessons can be transferred from the agriculture sector to fossil fuels and vice versa?

The End of Agricultural Export Subsidies

The World Bank, among others, has estimated that over USD 100 billion is spent annually on agricultural export subsidies, mostly from rich countries to the detriment of developing counties that depend far more on the agricultural sector for jobs, GDP and community development. A more recent and disturbing tendency has included the dumping of agricultural commodities on world markets, depressing world prices and undermining the ability of poor farmers to get a fair price for their goods. Thus, the Nairobi Agreement is welcome to claw back these practices that wreak havoc on developing countries.

But the Nairobi Agreement is not enough. Trade practices that harm the poor and damage the environment extend well beyond export subsidies: an estimated USD 1 billion is spent daily around the world on different types of domestic subsidies, tariffs and non-tariff measures. Food aid, for example, is sometimes used to dump surplus agricultural commodities onto world markets, further depressing prices. All together, these elements play havoc with agricultural markets and are especially harmful to the 70 per cent of poor people who live in rural areas and depend on agriculture for their survival.

Equally worrying, agricultural commodity prices are characterized by sharp volatility. That roller coaster is forecast to continue in 2016, as the impacts of the unprecedented multi-year droughts in the western United States, Australia and elsewhere result in the periodic sky-rocketing of fruit, vegetable and beef prices. Climate change is now having significant, and often unpredictable, impacts on global agriculture, with consequential financial impacts for producers and consumers.

Lessons from Fossil Fuel Subsidy Reform

In recent years—and especially in the lead-up to Paris—there has been growing momentum to identify fossil fuel subsidies and begin action to reduce and eliminate them. Countries across the developing and emerging worlds have reduced or removed subsidies that fix fuel prices at artificially low levels (“consumer” subsidies), and the debate is now concerned with “when and how” rather than “if.” Progress came through evidence of the scale and impact of subsidies, in an evaluation of how ineffective subsidies were at reaching their targets (notably the poor or key industries) and an understanding that the constraints were political rather than purely economic.

Less than one-tenth of the value of fuel subsidies reaches the poorest 20 per cent anywhere in the world. The impact? Those subsidies stifle innovation and drain national budgets. In fact, in several countries, more money is spent to prop up the production and use of fossil fuels than national spending on health and education. Reforms are already underway in several countries, including Egypt, India, the Philippines, Indonesia, Morocco and Vietnam.

Most of these reforms continue to tackle consumer subsidies. More attention is needed to identify and eliminate fossil fuel production subsidies. We already burn far more fossil fuels than the atmosphere can withstand.

Where Do We Go from Here?

The lessons from fossil fuel subsidy reforms in developing countries could help guide the ongoing agricultural subsidy reform at the WTO, particularly the focus on the poor. The Nairobi Agreement to cut export subsidies is an important step, but much more is needed. The challenge is to conclude an agreement that allows the right mix of policies and regulations at the national level to achieve sustainable development objectives. For agriculture, these objectives include: an end to hunger; improved access to healthy and affordable food for consumers; a decent wage for farm workers; fair and remunerative prices for farmers; a framework to encourage investment, innovation and the transfer of technology; and a more equitable distribution of wealth along the food chain.

Two news stories this week, emerging from either side of the Atlantic, encapsulate the climate change conundrum.

The message coming from hundreds of civil society organizations, scientists and policy-makers gathered at the climate change conference in Marrakech (COP 22) has been the fact that, in order to keep climate change within 2 degrees, three quarters of the known reserves of oil, gas and coal need to stay in the ground.

At the same time, U.S. Geological Survey announced what could be the largest deposit of untapped oil ever discovered in America.

Therein lies the question: will countries continue exploring and extracting new oil, gas and coal despite the existential risk of climate change, or will they leave fossil fuels in the ground? To a great extent, the answer lies with economics, including the role of subsidies to the fossil fuel production industry.

In every country that IISD has examined, governments afford subsidies to the extractive industry, as they have done for decades. But the world is changing: climate change is a reality, and fossil fuel companies are no longer the key taxpayers they once were. It is high time to rethink how fossil fuels are taxed and to stop subsidizing them—for the benefit of national budgets and the global climate alike.

Stripped of Tax Revenues

Against the backdrop of low commodity prices, fossil fuel companies have seen their earnings plummet. Over the past two years, the world’s leading coal producer, Peabody Energy, filed for bankruptcy, as have over 100 oil and gas companies in North America alone. Even assuming that global energy commodity prices rebound, other factors—such as the enhanced role of renewables and energy efficiency, the high cost of extraction, recent oil sand fires and explosions, attacks on operations, oil spills and other accidents—will continue to eat into the margins of oil, gas and coal producers.

Extractive companies do not own oil, gas and coal reserves. These reserves are owned by governments that license companies to extract oil, gas and coal in return for royalty and other tax payments. If these payments fade out, the fiscal rationale for the industry’s existence comes under question. Of course, there are other reasons, too, that governments may want to prop up the sector—energy demand, energy security, jobs, trade balance, for example. But for each of these needs, fossil fuels are not the only answer.  

Fossil Fuel Subsidies—A Vicious Circle

Every year, the oil, gas and coal extracting industries receive at least USD 100 billion in government subsidies globally (of which USD 70 billion are national subsidies in G20 countries). Low commodity prices have led to more subsidy demands over the past two years. In the U.K., the cabinet responded in 2015 with a package of tax breaks for North Sea production. In Indonesia, the government found itself under pressure from coal-mining companies lobbying for an increase in domestic coal price to cushion their losses from reduced demand in China and India.

Beyond the jobs and energy security arguments, one of the reasons why governments may favourably view demands for more support to the extractive industry are hopes to recoup these subsidies as tax revenues in the future. Experts and decision-makers in the area of natural resource taxation conventionally think in terms of rents and repeat that tax and royalty breaks are “incentives” and not subsidies.

Because fossil fuel companies operate globally, governments often grant subsidies to extractive industries under the banner of tax competitiveness. And, as a result, there emerges a vicious circle, a “race-to-the-bottom” where, to attract international investment, some countries seek to grant more subsidies than others. The result is that subsidies increase and revenue back to government decreases—a losing proposition.  

New Fiscal Policy—A Virtuous Circle

The need to deeply decarbonize our economies is incompatible with fossil fuel subsidies. Three quarters of fossil fuel reserves listed by the extractive industry are already “unburnable” and have to stay in the ground if we want to keep climate change within the 2 degrees scenario. Policies that encourage production and consumption of fossil fuels are inconsistent with this climate goal.

Global as well as national-level studies for Canada, Norway and Turkey demonstrate that, in most cases, the phase-out of subsidies to fossil fuel producers not only generates greenhouse gas emissions savings, but is neutral or slightly positive in macroeconomic terms.

While the phase-out of upstream subsidies can be difficult politically, there are several reasons why it stands a good chance of success. First, heads of state have repeatedly committed to fossil fuel subsidy reform within G7, G20, APEC and other forums. Second, within national legislation, these subsidies are framed as deviations from the normative taxation, which eases the political case for their reform. Third, there are encouraging examples of governments phasing out domestic support to fossil fuel producers in Germany, China and Canada as well as restricting overseas support to fossil fuels.

Finally, fossil fuel producer subsidy reform can build on lessons learned from consumer subsidy reform.  For a long time, consumer subsidies appeared irreversibly entrenched. Yet, from 2014 to 2016, dozens of countries, including such “lead subsidizers” as India, Indonesia and Saudi Arabia, have reformed their consumer subsidies. The resources that are freed up by both consumer and producer subsidy reform, in their turn, create fiscal space for governments to fund “green” development and reduce their dependence on fossil fuels. This virtuous circle is the future of fiscal policy.

Cross-posted from the Global Subsidies Initiative's Subsidy Watch Blog.

One of the biggest challenges when it comes to attaining the recently minted Sustainable Development Goals (SDGs) is determining where we are on the journey towards accomplishing them.

To measure progress, we require a starting point, an initial state, as well as some means of measuring how far we have come and how much longer it will take to reach the goal.

We need indicators throughout the entire SDG policy cycle. Indicators will prove key in sustainable development reports and assessments of progress if we are to have accountability at local, national and global levels for the commitments the SDGs require.[1] Indicators at these different levels, moreover, must be commonly understood and reported if we are to align the results in useful and informative ways.

Put simply, we have to count the same things, in the same ways, to accurately measure our progress.

In December 2015, the Inter-agency and Expert Group on Sustainable Development Goal Indicators (IAEG-SDGs) submitted its report to the UN Statistical Commission (UNSC). Of the 231 proposed SDG indicators, 151 are well-established and many statistical agencies already report on them. The other 80 indicators require more in-depth research and discussions. 

Looking at this large set of diverse indicators it raises a crucial question: What shared principles and criteria would provide us with a consensus on what we need to measure and how?[2]

First, indicators need to be manageable, able to be regularly monitored and reported on. Even in wealthier countries with significant institutional capacity, collecting data and reporting on many indicators can be both technically challenging and too costly. 150 indicators are far too many. We must start with a core set of "must-have" indicators.

Second, indicators must be relevant for the sustainable development priorities in their particular context. Relevance must be agreed upon by governments, statisticians and all relevant stakeholders involved in the implementation of a specific SDG and its targets. Good progress has been made at the UN level, but it will be difficult to replicate down the statistical ladder to local authorities in each country. 

Third, indicators must monitor actual changes over time. They must be "state" indicators, measuring the state of resources. While almost half of the SDG indicators so far are state indicators, generating consistent data for them at all levels will prove challenging.

Fourth, when SDG state indicators are not available, we should be able to use proxies to measure management activities, such as the use of sustainable practices; policies to regulate resource management; allocation of financial resources; and strategies for risk reduction. These types of indicators may also help encourage specific actions by directly pointing to what still needs to be done.

Fifth, and finally, indicators must cover all key dimensions of a broad sustainable development framework. The SDGs recognize the importance of governance and culture, not simply socioeconomic and environmental conditions. For example, currently there are no state indicators for SDG 10 (“Reduce inequality within and among countries”), SDG 12 (“Ensure sustainable consumption and production patterns”) and SDG 13 (“Take urgent action to combat climate change and its impacts”). Measuring progress in these areas will require developing a consensus around qualitative indicators that are applicable across different cultural contexts.

Given the small window of time we have to achieve the SDGs, it is imperative that a concerted effort be made to agree on all the necessary indicators to measure our progress at local, national and global levels.

When the answer to that persistent question “are we there yet?” is “no,” we must be able to give a further answer that lets our audience know how much longer it will take, at the rate and direction we are currently travelling.

To learn more about the suggested indicators for the SDGs, listen to our recent webinar, SDGs National and sub-national Implementation and Indicators.

[1] Overall indicator sets were proposed, among others, by the Sustainable Development Solutions Network (SDSN) and the Asia-Europe Foundation (ASEF), while others put forward indicators on specific priorities, including a report by the United Nations Environment Programme and IISD on indicators for sustainable consumption and production (View Report). 

[2] These principles can build on earlier principles developed for sustainability measurement and assessment, such as the BellagioSTAMP, developed by the the Organisation for Economic Co-operation and Development and IISD.

Each year companies lodge dozens of legal cases against governments under a little-known mechanism called investor-state dispute settlement (ISDS).

Few make headlines. But occasionally these cases do break through to the public’s attention, given the money at stake and the public interest involved.

The latest case to fit that bill is by TransCanada Corporation—the Calgary-based energy firm—against the United States. The company seeks US$ 15 billion in damages over President Barack Obama’s decision to deny a permit for the Keystone XL pipeline.

Readers in Canada may also recall the case by the U.S. company Bilcon against the Canadian government for rejecting a mining and marine terminal project in Canada. And in Germany you may have heard about Vattenfall, the Swedish energy company, suing the German government for damages over environmental measures imposed on a coal-fired power plant to avoid overheating the Elbe River (this is in addition to another case by Vattenfall suing Germany for phasing out of nuclear power). 


There are threads that tie these cases together. First, they all involve government decisions in the public interest related to project approvals. The U.S. was motivated by the Keystone XL pipeline’s impact on climate change and security. Canadian authorities refused to move ahead with Bilcon’s project for environmental and social reasons. Germany was acting to meet EU directives on water quality. Second, they all negatively impact a company’s bottom line. And thirdly, they all have resulted in various legal challenges as the affected companies seek to reverse the government’s decision, or obtain monetary damages. Including through the use of ISDS. 

We don’t deny that businesses should be protected against unfair or discriminatory behaviour by governments, with the necessary legal tools to assert their interests. But the ISDS system plays a troublesome role within the broader legal regime that relates to foreign investment. Particularly its relationship with domestic courts and processes.

U.S. courts and other adjudicative bodies are far from perfect. But they are formed over centuries, with multiple checks and balances built into the system. In contrast, ISDS involves three democratically unaccountable arbitrators who are untethered to legal precedence. Strikingly, the decisions of these arbitrators can supersede the decisions made by a country’s highest court of law—the U.S. Supreme Court in this case. 

If Obama’s decision to deny construction of Keystone XL exceeded his power under the U.S. Constitution—as TransCanada alleges—then U.S. courts offer a much sounder and legitimate forum in which to weigh that complaint, and this forum should not be overshadowed by a parallel international claim. 

ISDS is enshrined in trade and investment treaties among states. TransCanada draws on the North American Free Trade Agreement to assert its claim. As treaties that are designed and agreed by governments, it is in the hands of governments to reform them. Unfortunately, many governments—including Canada and the United States­­—are moving full steam ahead to place ISDS in more and more treaties. These include Canada and the EU’s Comprehensive Economic Trade Agreement; the EU and U.S. Transatlantic Trade and Investment Partnership; and the Trans-Pacific Partnership (involving 12 countries, including Canada and the U.S.).

US$15 billion is not small change. We hope it’s enough to open up the eyes of U.S. and Canadian governments that the risks of ISDS far outweigh the perceived benefits.

As the dust begins to settle following the euphoric sense of achievement and relief of UNFCCC delegates during the closing plenary of COP 21 earlier this month, the time has come for a reality check.

The outcome of COP 21 certainly gives us reason to celebrate. After a decade of negotiations, research and advocacy, the Paris Agreement represents a turning point in our collective effort to tackle climate change. In many ways, it embodies a fresh start and provides a new foundation for climate policy. 

Ambition, with many dimensions 

The Paris Agreement is legally binding, making its provisions mandatory for Parties under international law. It is virtuous in estabilshing an aspirational goal that sets a clear direction and a facilitative framework to guide countries.

The Agreement is ambitious in that it sets a global goal to keep the increase in global temperature well below 2˚C by 2100 and to pursue efforts to limit it to 1.5˚C. This really is a breakthrough, as it is the most ambitious target ever formalized, and was, for the first time, supported by many developed countries. Parties made the goal more specific by adding a target to achieve global peaking of greenhouse gas emissions as soon as possible, and to reach greenhouse gas emissions neutrality in the second half of this century.  

To achieve these goals, countries committed to submit, maintain and frequently review Nationally Determined Contributions (NDCs), which reflect countries’ highest possible ambitions. They have also adopted a resilience goal and agreed to a mechanism to address losses and damages from climate change impacts, giving much more prominence to the need of developing countries to deal with the impacts of climate change than ever before.

Developed countries have also reiterated their commitment to provide support to developing countries. The collective goal of mobilizing USD 100 billion a year in support by 2020 was extended through 2025, with a new, higher goal to be set for the period after 2025. Parties adopted a long-term vision for technology transfer, as well as a new Technology Framework and a Paris Committee for Capacity Building.

All of these achievements demonstrate the fact that Paris represents an ambitious and comprehensive framework for decades to come.

Built to last

The high ambition of the collective global goal, combined with the long-lasting, durable nature of the agreement, sends a strong signal to economic actors that the rules of the game will change. And that chances those changes will be irreversible.

In 1997 in Kyoto, countries also agreed to a legally-binding agreement, but they had agreed to come back to the table eight years later to start negotiating a second round of commitments. By then, the world had changed, as many developed countries have claimed over the past decade and the geopolitics were not right to secure a new set of meaningful and impactful commitments by the Parties. 

The Paris Agreement is different; it has been built to last. For instance, it formalizes the role of all countries in reducing emissions and in mobilizing climate finance—in a way that the UN Framework Convention on Climate Change (UNFCCC) did not capture—while also recognizing that developed countries must continue to take the lead. In this sense, the clear division between developed and developing countries that had prevailed is now something of the past.

The Agreement has a number of mechanisms built into it that will ensure it will remain relevant and effective, as realities and circumstances of countries change.

First, countries commit to review NDCs every five years with a commitment that there be a progression in each party’s successive NDC. 

Second, mechanisms for all countries to regularly report, review and update emissions information and progress made in implementing their NDCs will allow countries to both keep each other in check and ensure that pathways are consistent with our collective climate goals.

Third, the Agreement also mandates that countries report on and take stock of adaptation efforts as well as of financial support provided every five years. This is a significant recognition that support is needed for developing countries to mitigate emissions and that their needs for support in adaptation are linked to the global level of ambition. In short, the lower the ambition in mitigation is, the higher the needs for adaptation will be. 

These three mechanisms will enable us to collectively get our bearings and to ensure not only that countries’ mitigation actions are enhanced over time for emissions to stay on a pathway to emissions neutrality, but also that developing countries receive adequate support to contribute to mitigation and to adapt to climate change.

In a nutshell, Paris sets a clear bearing. It is built to last, but its real impact will depend on political will and governments’ abilities to stay on course.

The global infrastructure gap is forecast to reach USD 50 trillion by 2030.

In Canada, the Canadian Centre for Policy Alternatives reports that CAD 145 billion worth of infrastructure is required in order to return infrastructure funding to historic levels—amounting to an additional CAD 20 to 30 billion a year for 10 years on top of current spending.

You might ask: why have governments not capitalized on historically long periods of quantitative easing and low interest rates to invest in infrastructure? In 2012 project finance for infrastructure fell to an all-time low of USD 186 billion, although it rose to approximately USD 260 billion in 2013. Forecasts for 2014 do not look that much brighter.

Why does this matter? Public assets such as roads, railways and ports are essential to bring goods and skills to markets, while hospitals, schools and sports facilities are fundamental in ensuring that products and skills are sufficiently sophisticated to be marketable in the first place. There can be no widespread economic prosperity without good public infrastructure, and we cannot address income inequality or climate change in its absence.

One reason why governments have refrained in investing in infrastructure is that they simply cannot afford it. The demand and sophistication of infrastructure development is such that governments no longer have the expertise or the capital to design, build and manage large projects in a manner that brings value-for-money, not just at the point of commissioning, but across the asset life cycle.

Some suggest that institutional investors can be persuaded to investment in infrastructure and that public–private partnerships (often referred to as PPPs or P3s) will usher in a new era of private financing for public assets. The reality is, of course, that both these expectations remain somewhat of a fallacy. At the Financial Times European Infrastructure Summit in November 2015, we observed firsthand the absolute bewilderment of British pension funds on expectations related to their investment in public assets. Many policy-makers are still waking up to the reality that not all public projects can be feasibly executed as PPP arrangements. PPP markets today are in the doldrums, financing through PPP has continued to fall since 2011 and at the close of 2013, and capital deployed through PPP globally was a paltry USD 43 million.

The reality is that institutional investors will continue to be shy of partnering with governments to invest in infrastructure for many reasons.

There are but few public projects that are investment-grade. Institutional investors can typically be expected to invest in infrastructure after the construction phase is over and the legal, institutional, environmental, design, technology and construction risks are over—which is not to say that pension funds and insurance companies in Canada, the United States and Australia have no investments in project bonds in the pre-construction phases. But only a few projects ever get to this stage—indeed, bankable infrastructure projects are few and far between. Most governments have yet to develop annual infrastructure plans that sync with national budget: as a result, they have no project pipelines for investors to consider.

Returns from infrastructure investments are also not exciting. At the 2015 Annual Business Summit of the European Investment Bank, banks (including Credit Suisse, ING and Santander) reported that the internal rates of return on infrastructure investments in the EU and in emerging countries were only marginally over the cost of capital. This, coupled with the higher transaction and due diligence costs typically associated with infrastructure investment decisions, render these assets rather unattractive.

We also observe that many pension funds and investment trusts do not make investment decisions on their own. They are rather custodians of capital and are massively dependent on the asset managers, investment banks and similar intermediaries that make investment decisions for them. While they do accept both the rationale and the fiduciary responsibility to invest in public goods, they perceive infrastructure to be a high-risk asset, and their financial advisers have little incentive to change this perspective.

The most fundamental reason for the global infrastructure deficit is, however, the fact that governments badly lack the skills and incentives to structure and tender projects. They also lack the expertise to address political and regulatory risks, forecast future demand and related revenues, and design projects that share these risks with investors and project promoters in an optimal manner. For that is how governments can realize value-for-money in the longer term. If governments do not mitigate political and legal risks and work with the private sector to share risks related to demand and revenue, taxpayers will certainly be shortchanged.

Here at the International Institute for Sustainable Development, we will continue to address the many market failures that hold back investment in infrastructure, particularly green infrastructure—assets that are resilient to extreme weather conditions, incorporate low-carbon technologies that require fewer materials, water and energy to build, operate and maintain, and generate less waste and toxicity across their life cycle. Admittedly, this brings additional challenges, in that project preparation costs, design budgets and construction capital outlays will be higher. New technologies also require additional thinking on the allocation of technology and revenue risks, which further complicates deal-structuring arrangements.

In times like today, when capital is abundant, we call on public and development banks not to offer additional capital and complain about poor project pipelines, but instead, to offer credit enhancement instruments that are directly targeted at reducing the capital costs of green infrastructure.

Because we all know that the costs of not spending on green infrastructure are far too high.