E3G

Delivering a Sustainable Low Carbon Recovery

By Nick Mabey

At least 50% of stimulus packages should be focused on low carbon investment

Moving to a low carbon economy requires higher levels of investment, as fossil fuel use is replaced with new clean technologies. The IEA estimates that $1.7 trillion of investment each year to 2030 is needed to put the world on a path to avoid the worst impacts of climate change. Much of this investment will come from the private sector, but given current private sector weakness it is critical that public sector spending puts the world onto the right investment trajectory over the next two years.

Using IEA estimates of the investment needed to avoid the worst impacts of climate change, there is a need for $1,680bn of low carbon investment over the next two years. This could be delivered through direct government spending, but it will often be possible to leverage a substantial quantity of private sector investment through the provision of partial government loans and/or risk guarantees.

If countries devoted 50% of their stimulus packages to low carbon areas this would deliver $911 - $1,215bn of low carbon investment under different stimulus scenarios. Given other commitments, this is probably the highest realistic level of commitment and is consistent with the investment levels needed to shift to a low carbon trajectory. Most countries still have flexibility to shape the structure of their stimulus packages, and even on current projections it is likely that further stimulus measures will be announced for spending in 2010-2011. Therefore there is still an opportunity to increase the focus of this spending on low carbon recovery, and through coordination improve its impact on delivering a sustainable economic recovery.

The G20 Summit can play a vital role in delivering a low carbon recovery

Prioritising Low Carbon Spending: agreeing to prioritise low carbon action in their stimulus packages, with an aim of increasing the global proportion of low carbon actions to 50%.

Committing to Grow Global Low Carbon Markets: increasing business confidence in the strong future growth of low carbon markets by recommitting to deliver existing national policies in key sectors such as renewables, energy grids, low carbon vehicles and public transport. The IEA could be tasked with assembling these commitments, and estimating the impact of early policy delivery on oil price levels.

Avoiding Wasteful Subsidy Competition: maximising the impact of stimulus spending and avoiding wasteful competition by making support to high carbon industries conditional on improving energy efficiency and low carbon innovation. To ensure “low carbon recovery” is not used as a mask for distorting subsidies, G20 countries should report on the delivery of environmental conditions for fiscal restructuring support to key trading industries (e.g. car manufacturers, steel). The OECD and UNEP could act as the analytical clearing house for this data.

Develop Proposals for International Low Carbon Financing Mechanisms: a robust Copenhagen climate change agreement in 2009 will help guarantee the sustainable growth of global low carbon markets. The Copenhagen agreement will need to design effective international financing mechanisms for driving low carbon investment in developing countries, giving efficient and effective incentives to countries and companies to scale up investment. The G20 should establish a Task Force involving finance and other relevant ministries to develop practical proposals on the required quantity, sources, mechanisms and governance for such low carbon finance. The Task Force should develop its recommendations to feed into the UNFCCC negotiations by October 2009.