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Delivering a Sustainable Low Carbon Recovery, Nick Mabey
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The following article has been recommended to you. You can find the original article together with any associated downloads at http://www.e3g.org/programmes/climate-articles/delivering-a-sustainable-low-carbon-recovery/ ********************************************************************************* The world is facing an unprecedented economic crisis. Bold action is needed to stimulate the economy, generate jobs and lay the foundations of a sustainable recovery. The urgency of the economic crisis is matched by the imperative to tackle climate change. Stimulus packages could help kick-start low carbon industries and markets to drive the structural transformation needed to put the world on the path to a near zero carbon economy by 2050. The economic pattern of the next decade will be set in the coming months. Major economies have already committed to spend $3.1 trillion on fiscal stimulus and financial guarantees over the coming years. So far, however, at most 23% has been allocated to low carbon investment, broadly defined, with Europe trailing well behind the global average. In his report entitled “Delivering a Sustainable Low Carbon Recovery”, Nick Mabey lays out proposals for the G20 London Summit on delivering a sustainable low carbon recovery. Below is the executive summary; the full report can be downloaded above. The executive summary is also available in German to download above. Executive Summary Low carbon stimulus is the most effective way to drive economic recovery As the world faces its worst economic crisis in two generations, policymakers’ attention is focused on delivering short term economic stimulus and future financial stability. However, a sustainable economic recovery must manage the immediate crisis of weak demand as well as lay the foundations for stable growth. Rapid recovery will be threatened by a lack of consumer and business confidence in developed countries, and resurgent oil prices. A return to 2008 levels of $140/bbl would pull $800bn per year out of the US, EU and Japan - half of their current total stimulus packages. A focus on driving growth in low carbon markets can help tackle both these risks. Concerted G20 investment in energy efficiency and new energy sources will reduce oil price rises and save money in every country. Spending on low carbon infrastructure leads to a stronger short term impact on demand than tax cuts, generates high levels of jobs, and will kick-start markets with strong growth potential. Low carbon markets are driven in the medium term by government regulation and incentives. They are partially insulated from general falls in market confidence. Governments can use their power as “public consumers” to give confidence to businesses through immediate fiscal measures and by committing to future incentives based on carbon pricing and consumer charges. A successful Copenhagen climate change agreement in December 2009 can also help build confidence in a growing demand for low carbon goods and services. Aggressive growth in low carbon markets could account for 2-3 percentage points of sustained global growth from 2011-2015. Failing to kick-start low carbon investment will lock in dangerous climate change The urgency of the economic crisis is matched by the imperative to tackle climate change. The global energy economy is at a crossroads. In order to prevent catastrophic climate change, global carbon emissions need to peak by 2015 and then reduce by 5% per year. This is a radical change from business-as-usual which foresees emissions rising at 2-3% per year. Put simply, the world needs to move to a virtually zero carbon energy system by 2050, and in developed countries well before this. Stimulus packages could provide the necessary jump start to low carbon industries to quickly achieve this structural transformation. Investing in business-as-usual projects will merely delay necessary expenditures to a time when public spending will be very tight, risking locking economies into high carbon infrastructure. This transformation is also affordable. Estimates put the cost at only 1-2% of global GDP, and reduced dependence on oil and gas use means that this cost falls to zero if oil prices remain above $120/bbl. Low carbon stimulus plans are too small and dwarfed by high carbon spending Delivering growth in low carbon sectors requires policy packages which combine immediate fiscal measures with sustainable medium term policies. Countries are already implementing packages covering energy efficiency, renewable energy, carbon capture and storage, grid infrastructure, public transport, efficient vehicles, water systems and RD&D. However, current spending is too small to achieve the level of change required. Current stimulus packages will amount to 3.25% of global GDP over 2008-2010, with two thirds in direct government spending. The IMF expects this total to increase as more countries finalise their policies for 2010-2011. On a generous assessment around $436bn, or 23% of the total stimulus, has been allocated to low carbon investment. However, if investment with uncertain carbon reduction gains (e.g. infrastructure) is excluded, direct spending on improved efficiency, low carbon energy, transport and R&D is only $140bn or 8% of the total. This is almost half of the $272bn allocated to road-building in the same stimulus packages. These averages also mask strong differences between countries. South Korea has dedicated 80% of its stimulus spending on low carbon investments. China also ranks highly (37%), dedicating around $200bn to low carbon investments – although a substantial amount of this is committed to rail and grid infrastructure with uncertain climate benefits. Amongst developed countries only the US, France and Germany have allocated over 10% of their stimulus to low carbon investment. All countries have scope to increase the range and size of low carbon stimulus spending, especially on energy efficiency and low carbon energy. Europe and Japan are lagging behind the average, despite their strong climate change policies and leadership in low carbon industries. A large scale expansion of investment is possible in these dynamic sectors. For example, global renewable energy investment grew by 60% annually from 2004-2007. Given current financing problems, sustaining scale-up of production in these sectors in the coming years may require short term industrial support (e.g. loans, tax holidays) perhaps clustered in Low Carbon Innovation Zones. Additional finance can be generated using innovative mechanisms such as green bonds backed by public or private funds, and can be distributed through low carbon infrastructure facilities which leverage private finance. 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.
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