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We are potentially living through the hottest year in history. The United States, Europe and China have all seen record-breaking temperatures during periods of intense heat, with this summer earning the distinction of the warmest globally by a large margin—0.66 degrees Celsius above average, according to Europe’s Copernicus Climate Change Service. We’ve also seen extreme weather events such as the awful flooding in Libya and the powerful Hurricane Lee. In my own country, India, we’ve seen torrential rain and landslides—some parts experiencing a month of rainfall in a day.

Despite some encouraging developments at events such as the G20 and COP28 Summit planning meetings, the UN earlier this month warned that the world is not on target to curb global warming and that more action is needed on all fronts.

The picture is certainly a concerning one. In advance of Climate Week NYC, I spoke with global renewable energy and climate policy leaders about how this can be addressed. The consensus seems to be that there are many things to be done, but talk is also growing about whether we need a major moment of institutional reform—a "Climate Bretton Woods."

We seem to have found ourselves in a situation reminiscent of the mid-1940s, when countries were confronted with a significant collective task of rebuilding economic systems, physical infrastructure and, most importantly, trust. In response to this challenge, several nations joined forces, meeting at a historic conference in Bretton Woods, New Hampshire, and established the United Nations, the International Monetary Fund and the World Bank.

In terms of its scale and reach, climate change has emerged as a challenge that is at least on par with those faced in the late 1940s. Tackling it effectively requires a similar level of urgency and cooperation.

The current international climate regime is at its strongest when it comes to understanding the threats posed by climate change, through entities like the Intergovernmental Panel on Climate Change. However, many argue this regime is unable to catalyze action at the required pace and scale.

One part of it is financing—developed countries have defaulted on their financing commitments, and the Multilateral Development Bank reforms process has simply been too slow and controversial. Equally responsible is the way these issues are handled within the countries—with planning and execution mostly located in ministries of environment or energy. They often lack the analytical power, political heft and enforcement mandates, and hence we see lower ambitions and slower execution.

The ‘Climate Bretton Woods’: A Policy Framework To Rise To The Global Challenge

So, what are some of the solutions? Could it be that we explore a modern and climate-focused version of the institutions created in the 1940s? At its core, this could comprise a new global institution, what we could call a Global UN for Climate Change, a new climate-focused multilateral development bank and an agreement to set up within each country bodies similar to the current central banks.

The Global UN for Climate Change would have one important difference from current institutions like the UN Framework Convention on Climate Change: it should have the ability to catalyze faster decarbonization action. In the past we have experimented with different institutional frameworks—G20 being one of them—to complement the UNFCCC by enabling meaningful dialogue among the countries whose financial commitments and progress on mitigation truly matter.

The UNFCCC process itself has moved from a top-down legally binding Kyoto Protocol to a bottom-up “self-determined” voluntary Paris Agreement. Under the Global UN for Climate Change framework, we could begin to look at some of the alternate frameworks like sectoral treaties to achieve real transition in energy, transport, agriculture and industrial sectors; building in mandates for countries, large corporations and other sub-national actors like cities. A political addition to that of UNFCCC could be the ability to impose penalties/sanctions—aka the Security Council function of the current UN—if the actors default on commitments.

The second piece of the proposed system would be a new climate-focussed Multilateral Development Bank. For now, we could call this the Global Climate Bank. Unlike the current MDBs, it will be a new institution with none of the baggage. Its investments would go deep rather than broad, catalyzing investment in areas that are critical for climate outcomes rather than for poverty-eradication outcomes. This institution will be staffed with those having expertise in climate-related investments, and the processes will be less bureaucratic. It could start with an aim to mobilize $1 trillion per year for developing countries. With 10% of this amount being offered for risk-mitigation mechanisms, it will need an initial capital of $100 billion. This amount will be recycled over future years, as only a small part of the $100 billion will be invoked in any year. The initial capital could come from developed countries, whose finance ministers expect to meet the goal of jointly mobilizing $100 billion for climate financing per year.

The third pillar of the new system would be an agreement to establish within each major country institutions that are similar to the central banks. Like the central banks whose main mandate is to regulate the money supply and credit availability for macroeconomic stability, the function of the climate central banks will be to set emission reduction targets, monitor progress in meeting them and issue instructions to different players for calibrating actions based on analysis. The climate central banks could focus on managing emissions within a certain range, and if their analyses demonstrate chances of higher emissions, they should be empowered to limit credit or input flows to certain sectors or impose taxes/surcharges to provide price signals. They would need to work closely with the elected governments but be independent of them and answer to perhaps the parliaments and congresses.

Having new dedicated institutions for climate change is still a radical idea. But these are the ideas that are increasingly getting discussed in major international forums. It will certainly be interesting to see how those conversations progress at Climate Week NYC and the upcoming COP28 Summit later this year.

Sumant Sinha (CEO of ReNew, India’s leading decarbonization solutions company.)