E3G

Climate change: EU-China and economic growth

By Quentin de Molliens

The Australian drought is entirely consistent with what the climate models are telling us to expect in that region. If the irrigation ban is imposed this will probably be the first example of a major industrialised country having to shut down a core economic sector as a result of climate change. The consequences will not only be serious for Australia. We may see a further increase in the price of wheat on the world market. Wheat prices are already high because of the effects of the drought so far, a factor in the rising price of food in China.

The shared dilemma is that there seems to be a contradiction between energy security and climate security. In reality we cannot achieve energy security unless we achieve climate security at the same time. We have no choice but to resolve the apparent contradiction.

The message of Sir Nicholas Stern’s Review of the economics of climate change is that we can resolve it if we act now and act together. If we do not, the economic consequences will be far more damaging for all of us than the effort needed to succeed. We cannot afford policy failure. A rapid transition to a low carbon global economy is an imperative not a choice.

Investment

At its heart, this is a question of investment. The International Energy Agency has assessed that the world will spend some $21 trillion on energy infrastructure by 2030. I understand China expects to deploy $2 trillion between now and 2020.

The question then is: how can we make sure that this investment gives us energy security and economic development, and at the same time delivers a global transition to a low carbon energy system? In effect we need to take carbon emissions by the middle of the century out of three sectors: electricity, transport and heating. This will be a structural transformation of the global economy.

Most of the investment that will drive the transition will be by the private sector, or by quasi-private entities. The challenge for governments, and for the international system, is to design and implement legislative and policy frameworks that will provide the incentives and signals necessary for this river of capital to flow in the direction of low carbon rather than high carbon, without undermining economic growth and our capacity to create jobs.

This seems to me an example of what the Chinese government has referred to as the ‘scientific concept of development’. It is just as essential as we consider the global energy economy as it is for China and other individual nations.