Climate ambition is an opportunity for economic growth, says OECD-UNDP study

A new report, fully launched in May, indicates that more robust Nationally Determined Contributions (NDCs) might drive economic growth and tackle poverty.

Although global GDP will grow by 22% in 2015 - 2022, while emissions will increase by only 7%, and records show that more than 40 countries are reducing greenhouse gas emissions while improving economic indices, the efforts are still insufficient and not proportionate to the increased climate crisis threat.

Therefore, it is important to encourage the countries that signed the Paris Agreement to update their climate targets. By the original deadline of February 10 this year, only 19 countries had submitted their updated NDCs. The preliminary release of the data, which shows opportunities for economic growth based on greater climate commitments, aims to encourage countries to submit more ambitious, actionable, and bankable targets in response to the challenges climate change presents to the world.

"This work to encourage countries to submit their NDCs as soon as possible, but with quality, is something that President Lula, with the UN Secretary General António Guterres, is constantly doing. It has already been announced, and there will be a meeting later this month, where different countries will be invited to talk about the importance of presenting the NDCs," said Ana Toni, CEO of COP30.

"This next round of NDCs is an opportunity to change course. And the report comes at a moment when there is robust evidence that climate ambition does not damage economic growth but enhances it. The argument is even stronger when you consider the massive costs of inaction," said Jo Tyndall, Environment Director at the Organization for Economic Cooperation and Development (OECD).

Climate commitment is profitable

– A low-carbon economy is a highly efficient economy. Currently, the world emits 0.34 kg of CO₂ equivalent per dollar of economic output. In an enhanced NDC scenario, emissions intensity would fall by more than half to 0.14 kilograms by 2040.

– Investments in clean energy and energy efficiency increase productivity and innovation, offsetting the economic impact of policy restrictions on prices and consumption. Carbon revenue reinvestment can further increase GDP, while ensuring a fair transition and securing public support for climate action.

– Policy uncertainty discourages investment and reduces growth. Policy uncertainty can delay private investment and reduce GDP by 0.75% as early as 2030. NDCs provide political certainty, providing markets with the confidence to leverage resources for sustainable growth

Beyond the economy: social progress 

Going beyond the financial arguments, the information launched shows that new robust NDCs can also have an impact in other areas, from the perspective of economic development combined with social development. Opportunities for progress in health, energy security, access to energy, and poverty alleviation are included in the presentation made in Berlin at the end of March.

Regarding the tackling of extreme poverty and projections for 2050, the report points out that integrating climate and development policies into NDCs could help one in five people to overcome poverty by the target year. If investments in energy transformation are complemented by specific measures to ensure food security, access to basic services, and governance reforms, nine out of ten low-development countries can significantly improve their outcomes in 25 years, lifting 175 million more people out of extreme poverty.

On health, investments in clean energy, low-emission transport, and better urban planning would reduce pollution at its source and significantly improve air quality, with a direct impact on sustaining life. In 2019, burning fossil fuels will contribute to 4.2 million premature deaths from outdoor air pollution, with 89% of these deaths occurring in low- and middle-income countries.

Key pillars

Finally, as a guide for countries, the preliminary summary of the report identifies three key pillars for mobilizing resources to finance NDCs, which have a greater capacity to deliver results when they overlap. These are: 

1. Optimizing public finance (referring to entities such as ministries of environment and finance, central banks, national development banks, and financial regulators); 

2. Redirecting private finance (referring to entities such as ministries of environment and finance, central banks, supervisory and regulatory authorities, and stock exchanges); and

3. Enhancing international support (targeting International Donors, Multilateral Development Banks, and Climate Funds)

The Report

Launched by the Organization for Economic Cooperation and Development (OECD) jointly with the United Nations Development Programme (UNDP), with the support of the German Federal Foreign Office, the report will be launched in May, with the aim of guiding countries in drafting and implementing the new NDCs.

English version: Trad. Bárbara Menezes
Proofreading: Enrique Villamil