New Climate Economy

The current climate challenge is an opportunity, say the authors of the recently published New Climate Economy report, presented at the UN Climate Summit in Lima, Peru. Politicians do not need to choose between the economic growth and fighting climate change. What they have to do is just to make a bet on low-carbon development.

The New Climate Economy report is basically a message from the world’s leading economists to representatives of the countries, who are going to sign the new climate agreement in Paris next year. On top of the list of the report’s authors is Lord Nicholas Stern, the former Chief Economist of the World Bank, the head of the Government Economic Service and the economic and development advisor for the British Government.

‘We are living in the moment of great opportunity,’ write the experts. ‘The opportunity is to harness the expanding capacities of human intelligence and technological progress to improve the lives of the majority of the world’s people. Over the last quarter of a century, economic growth, new technologies, and global patterns of production and trade have transformed our economies and societies. In developing countries, nearly 500 million people have risen out of poverty just in the last decade – the fastest pace of poverty reduction for which we have data. But still 2.4 billion live on less than US$2 a day, and urbanization, rising consumption and population growth have put immense pressure on natural resources. The next 10–15 years could be an era of great progress and growth. In this period we have the technological, financial and human resources to raise living standards across the world. Good policies that support investment and innovation can further reduce poverty and hunger, make fast-growing cities economically vibrant and socially inclusive, and restore and protect the world’s natural environments.’

The Organization for Economic Co-operation and Development (OECD) has projected that if current trends continue, as the global population grows from 7 billion in 2010 to more than 9 billion in 2050, per capita consumption will more than triple, from about US$6,600 to US$19,700 per year, and global GDP will nearly quadruple, requiring 80% more energy. The experts pay special attention to energy issues in the report.

‘We are in a period of unprecedented expansion of energy demand. Global energy use has grown by more than 50% since 1990, and must keep growing to support continued development. As much as a quarter of today’s energy demand was created in just the last decade, and since 2000, all the net growth has occurred in non-OECD countries, more than half of it in China alone. Past projections often failed to anticipate these dramatic shifts, which nonetheless have affected the energy prospects of nearly all countries. The future is now even more uncertain, as projections show anything from a 20% to 35% expansion of global energy demand over the next 15 years. A major wave of investment will be required to meet this demand: around US$45 trillion will be required in 2015–2030 for key categories of energy infrastructure. How that money is spent is critically important: it can help build robust, flexible energy systems that will serve countries well for decades to come, or it can lock in an energy infrastructure that exposes countries to future market volatility, air pollution, and other environmental and social stresses. Given that energy production and use already accounts for two-thirds of global GHG emissions, and those emissions continue to rise, a great deal is at stake for the climate as well.’

Sustaining growth at that scale will only be possible with radically new business models, products and means of production. ‘Transformation through innovation’ is what the new economic development path is called. ‘Innovation… makes it possible to continue growing our economies in a world of finite resources. It is essential to transforming global energy systems, agriculture and cities.’

‘The low-carbon economy is now a global phenomenon, the report says. ‘International trade in environmental goods and services totals nearly US$1 trillion per year, or around 5% of all trade. Trade in low-carbon and energy-efficient technologies alone is expected to reach US$2.2 trillion by 2020, a tripling of current levels. Two-fifths of that market is expected to be in emerging and developing economies...’

‘There is a perception that there is a trade-off in the short- to medium term between economic growth and climate action, but this is due largely to a misconception… that economies are static, unchanging and perfectly efficient. Any reform or policy which forces an economy to deviate from this counterfactual incurs a trade-off or cost, so any climate policy is often found to impose large short- and medium-term costs. In reality, however, there are a number of reform opportunities that can reduce market failures and rigidities that lead to the inefficient allocation of resources, hold back growth and generate excess greenhouse gas emissions. Indeed, once the multiple benefits of measures to reduce GHG emissions are taken into consideration, such as the potential health gains from better local air quality, many of the perceived net costs can be reduced or eliminated.’

‘Globalization has been a major driver of both low- and high-carbon growth over the last 25 years. International trade and investment have enabled a huge expansion of global production, raising greenhouse gas emissions, but they have also helped advance the low-carbon economy. The increasingly global integration of supply chains for products such as solar and wind power components, for example, has helped dramatically reduce their costs.’

‘The political leaders must recognize the urgency of the moment and stop delaying the action… It is important to admit that the path towards low-carbon economy is appropriate and attractive for the states. It is the essence of the ‘high quality growth’, a symbol of clean investment and innovation,’ summarize the leading economists.