This analysis is by Head of ESG and Thematic Investing EMEA Adeline Diab and ESG Analyst Maxime Boucher. It first appeared on the Bloomberg Terminal.
Even though countries representing over 70% of the world’s economy have set commitments to carbon neutrality, green stimulus funding is such a rare national privilege that it could disconnect G-7 nations from emerging-market realities. The G-7’s Build Back Better for the World plan could unlock capital to help other nations speed their energy transition, but the lack of a financing model so far puts both G-7 influence and transition at risk. The G-20 meeting is setting the stage for the U.N.’s Climate Change Conference this fall.
Methodology: We unveil Bloomberg Sovereign ‘E’ Scores by comparing G-7 countries vs. nations including India and China, scrutinizing their emissions profile, power mix, transition plans and green policies. A climate colossus with feet of clay? G-7 needs to walk the talk
The Group of Seven leaders know that the only pledge that matters for the global energy transition is to deliver $100 billion a year to encourage developing countries to cut emissions. While G-7 members have yet to agree on the details, they launched a multilateral infrastructure partnership called Build Back Better for the World at the latest summit. Any climate announcements from G-7 countries without concrete measures to support emerging markets will further to disconnect the group from the rest of the world and increase China’s influence through its global Belt and Road initiative.
Why the G-7 can afford net-zero plans: Climate policy score
The prioritization of economic prosperity at emerging market countries as they try to rebound from Covid-19 with little borrowing and stimulus power is reflected in their weaker climate targets, with legislated net-zero emission targets largely the preserve of wealthy European countries and U.S. states including California and New York. The G-7’s loosely discussed Build Back Better for the World plan could help spearhead a global carbon transition. But even if it gains traction with solid international funding and private sector mobilization, the plan will still compete with Chinese state-backed infrastructure programs globally that may be less selective from a green perspective but come with strings attached.
Emerging markets left behind on G-7’s green recovery, stimulus
G-7 countries using their borrowing power to implement stimulus packages up to 56% of GDP may worsen the perception of inequality from emerging markets that don’t have the same access to cheap debt — especially as some members consider cutting their foreign aid. The stimulus could make wealthy economies the quickest to recover from the pandemic and suffer the least damage. Unless G-7 members agree on how to mobilize capital for a global green recovery, developing nations may turn to China and its expanding Belt and Road plan — raising the nation’s influence.
G-7 countries are expected to make up just 15.7% of global emissions in 2030 (down from 25% in 2019) and the BRICs will remain somewhat constant, based on BI’s forecast. Emerging markets emissions may increase by over 30%, so bracing their green growth is paramount.
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A global carbon peak? Not yet means G-7 requires a big rethink
Reaching a global carbon emissions peak and setting the trend for other nations will require a profound rethink by the Group of Seven members to shift infrastructure spending to low-carbon projects. Yet, it will be emerging countries — whose economies are expected to grow two-to-threefold relative to G-7 nations, according to Bloomberg Economics forecasts to 2050 — that will decide when emissions will peak. That makes the Group of 20 summit in July critical.
Why emerging markets pose climate risks: Carbon transition score
The European members of the G-7 are well ahead of peers and the rest of the world on their path to reduce carbon emissions, and the green fiscal stimulus in the EU and the U.S. could widen the disconnect. Emissions per capita are still rising in all three guest countries at G-7 summit (India, South Africa and Australia) as well as Brazil, China and Russia — despite their large populations relative to G-7 countries.
On a GDP basis, the rise of carbon emissions is slowing globally despite emerging markets being more reliant on physical production over services than wealthy markets. Ultimately, emissions in countries such as India and China in particular will determine the fate of the global carbon emissions.
G-7’s actions will count more than words, even for transition
Achieving their targets for reduced emissions by 2030 will require profound revisions by the G-7’s members to shift infrastructure spending toward low-carbon projects.
The member countries need to get on trend to hit their goals and show other nations they mean to hit those targets after slow progress in 2012-19. Canada and the U.S. trail European G-7 peers with per-capita intensity reductions of 5% and 7.6%, respectively, less than smaller emitters the U.K. and Italy at 28% and 15.4%, Edgar data show.
