The New Climate Economy. The Ny-Alesund Symposium May, 2014

Transcription

1 The New Climate Economy The Ny-Alesund Symposium May, 2014

2 The New Climate Economy project aims to identify the biggest opportunities to strengthen both growth and climate performance The approach is: Evidence-based Decision-maker focused Objective and Open Disruptive Near-term 2

3 The global New Climate Economy Partnership Global Commission 24 global leaders Economic Advisory Panel 14 world leading economists, chaired by Professor Lord Nicholas Stern Includes: Two Nobel prize winners: Daniel Kahneman and Michael Spence 7 Commissioning Countries Colombia Ethiopia Indonesia Norway Sweden South Korea United Kingdom 8 Partner Research Institutes Climate Policy Initiative (USA) Ethiopian Development and Research Institute Indian Centre for Research on Economic Relations Global Green Growth Institute (South Korea) London School of Economics (UK) Stockholm Environment Institute (Sweden) Tsinghua University (China) World Resource Institute (USA) 3

4 Members of the Global Commission on Economy and Climate Former Presidents and Prime Ministers Felipe Calderón (Chair) Mexico Luísa Diogo Mozambique Helen Clark New Zealand Ricardo Lagos Chile Jens Stoltenberg Norway Academy Nicholas Stern (Co-Chair) New Climate Economy Jeremy Oppenheim London School of Economics and Political Science Programme Director International financial institutions and agencies Nemat Shafik Sharan Bourrow Angel Gurría Sri Mulyani Idrawati Takehiko Nakao Maria van der Hoeven Government Trevor Manuel Annis Parker Eduardo Paes Chen Yuan International Monetary Fund International Trade Union Confederation Organisation for Economic Co-operation and Development World Bank Asian Development Bank International Energy Agency South African Planning Commission Mayor of Houston Mayor of Rio de Janiero National Commitee of Chinese People s Political Consultative Conference Private Sector/CEO s Daniel L. Doctoroff Ingrid Bonde S Gopalakrishnan Michel M. Liés Paul Polman Zhu Levin Chad Holliday Caio Koch-weser Bloomberg LP Vattenfall Confederation of Indian industry Swiss Re Group Unilever China International Capital Corporation Bank of America Deutsche Bank 4

5 Maximizing economic growth while tackling climate change: How do we do this? 5

6 Investing in No Regret Measures

7 THE LOW-HAND FRUITS No regret green measures with positive financial benefit (There are transaction costs associated with some of the no regret measures) SOURCE: Global GHGAbatement Cost Curve v2.1 7

8 ENERGY Energy efficiency has contributed significantly to limiting overall energy use growth so far IEA 11* total final energy consumption and energy services, 1974 vs 2010 (Hepta Joules) 160 Energy consumption would have been 100% higher in (-80%) (-80%) 63.however actual 2010 energy consumption was only 20% higher than in 1974 due efficiency improvements (+20%) Energy use** 2010 Energy Services*** Energy Efficiency Actual 2010 Energy Use *Australia, Denmark, Finland, France, Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom, the United States ** Energy use includes coal, electricity, gas, oil and other ***Hypothetical 2010 energy supply required absent energy efficiency improvements since 1974 SOURCE: IEA Energy efficiency market report

9 INNOVATION High-tech companies like Nest are contributing to households energy saving 2010 NEST - Intelligent thermostat start-up founded Bought by Google for by $3.2 billion $249 - Nest thermostats retail price 1.9 billion kwh saved to date $173 Average annual savings per household Source: Nest 9

10 Designing Better Cities

11 Explosion of the Global Middle Class: 60% living in cities Probably 1.5 more billion people will be living in big cities 5 Billion 2 Billion 1 Billion Source: OECD

12 Vehicle increase 3 billion? 250 million billion

13 The climate Change 3.3m deaths per year from air pollution 13

14 CITIES Well planned, compact cities are more economically efficient and have lower emissions SOURCE: (1) LSE Cities; (2) Newman and Kenworthy

15 THE CITIES NEW MIDDLE CLASS Urbanisation could be the answer or part of the problem Potential GHG emissions from the 3 billion new middle-class population in different living models in Billion tons of CO 2 e 44 bn tons The choice of city infrastructure will have an enormous impact on emissions 1 The OECD estimates that the global middle class will increase from 1.85 bn in 2009 to 4.88 bn in Assuming the per capita emissions from the 3 billion new middle-class population in 2030 would be same level as Sweden or US in 2010 SOURCE: UNFCCC; McKinsey analysis 15

16 Promoting Structural Changes in Energy

17 ENERGY Non-hydro renewables are growing rapidly, but still account for only ~4% of global electricity generation Generation from non-hydro renewables, TWh Shares of electricity generation in 2011, TWh ~290 % ~990 CAGR, % 3% 9% Sola Geotherma r l Biomass+waste 2% 0% Wind 0% 2% Oil 4% Coal 41% 23% ~250 27% Nuclear 12% Hydro 16% Natural gas Note: This only refers to electricity generation and not total primary energy, hence excludes energy consumed in transport, heat, cooking etc. SOURCE: IEA Electricity database 17

18 INNOVATION Tesla: > Electric vehicle > 400 kms. range. Reducing emissions and creating huge wealth in the process Tesla market cap: $30bn 25,000 cars sold in 2013 GM market cap: $55.8bn 9.7 million cars sold in 2013 "All the geniuses here at General Motors kept saying lithium-ion technology is 10 years away, and Toyota agreed with us and boom, along comes Tesla. So I said, 'How come some tiny little California startup, run by guys who know nothing about the car business, can do this, and we can't?' That was the crowbar that helped break up the log jam." Robert Lutz GM Vice Chairman 18

19 ENERGY Proposed new coal power capacity (WRI, 2012) 19

20 ENERGY Proposed new coal power capacity INDIA (WRI, 2012) 20

21 ENERGY Proposed new coal power capacity CHINA INDIA (WRI, 2012) 21

22 ENERGY There is significant debate about when China s use of coal will peak Peak coal projections 2011 SOURCE: Wang, J., Davidsson, S., Feng, L., & Höök, M. (2013). Chinese coal supply and future production outlooks. Article accepted by Energy journal. 22

23 ENERGY There is an opportunity to expand clean energy as its costs fall to be similar to those of conventional energy sources Wind power costs over time USD/MWh Natural gas Coal Solar (photovoltaic) power costs over time USD/MWh Actual Forecast Actual Forecast Natural gas Coal Note: Chart represents world average. In some markets, solar is already price-competitive with other energy sources Note: Assuming coal price of 70 USD/tonne and gas price of 10 USD/Mmbtu. Assuming a 35% capacity factor for wind power i.e. 35% utilisation, and a 15% capacity factor for solar power SOURCE: Citi Research 2012; Bloomberg NEF (Turner 2013); IEA World Energy Outlook 2013, WEO

24 Smart Policies for Technology

25 Directed technical change Porter and van der Linde (1995): The innovation effect Policy promotes innovation that reduces the cost of regulation (Weak Porter hypothesis) which can lead to increased competitiveness and profitability. (Strong Porter hypothesis) 25

26 2. Directed technical change Index of innovation in climate change mitigation technologies (1990 = 1) OECD

27 Making Forestry Profitable

28 FORESTRY Forests under Pressure 50 soccer fields lost each minute Image: WRI; Source: Hansen et al.2013, WRI 28

29 FORESTRY South Korea: restoration into forest Source: WRI 29

30 FORESTRY Costa Rica, : from 75% to 21% forest cover Source: Ministry of Enviroment and Energy (Costa Rica) 30

31 FORESTRY Costa Rica : substantially increased its forest cover and generated jobs % Forest cover Employment generation more than 25,000 jobs/year Source: Ministry of Enviroment and Energy (Costa Rica) 31

32 FORESTRY The ecoturism, a green gold? Costa Rica case: Tourism generates 25% of foreign exchange earnings Tourism contributes 7% of GDP 53% of tourism revenue comes from ecotourism SOURCE: Central Bank of Costa Rica and FAO 32

33 Promoting Double Green Revolution

34 AGRICULTURE AND LAND USE Can food security be achieved without further deforestation? World demand for food will grow ~70% between 2000 and 2050 Drivers Population growth: 9.6 billion people by 2050 Urbanization: 70% of 2050 population Higher calorie consumption and diet shifts: more wealth = more protein Global annual food consumption 1 Kcal consumption, quadrillions Examples of global growth % 2050 ~2 X as much dairy ~1.5 X more cereals ~2 X as much meat 1 On a per-day basis, global food consumption is ~17 trillion Kcal in 2000, ~18 trillion Kcal in 2005, and ~28 trillion Kcal in From ~475 to ~892 million tons of dairy, ~1 to ~1.44 billion tons of cereals, ~227 to ~464 million tons of meat, over the period of 2000 to 2050 SOURCE: FAO World Food and Agriculture to 2030/2050; FAO Expert Meeting on How to Feed the World in

35 FORESTRY Palm Oil a Major Crop 400% increase in palm oil production in 20 years SOURCE: WRI 35

36 FORESTRY New approach: Reducing deforestation SOURCE: WRI 36

37 FORESTRY The business commitment is essential SOURCE: WRI 37

38 FORESTRY Sustainable Palm Oil RSPO: Roundtable on Sustainable Palm Oil SOURCE: RSPO ( 38

39 Removing Distortionary Subsidies Placing a Price on Environmental Damage.

40 FISCAL EFFICIENCY Currently, we are subsidizing a high-carbon operating model Estimated Global Energy consumption subsidies for fossil fuel and renewables, 2012 Nominal. US $ billion ~520 ~90 Reducing energy subsidies, and shifting taxes from labour and capital to energy will encourage transition into a low-carbon economy Indonesia and Mexico have successfully managed to reduce fossil fuel subsidies Note: values of subsidies are highly sensitive to energy prices so vary year by year. Most recent estimates suggest fossil fuel subsidies of ~600 million SOURCE: IEA, World Energy Outlook

41 FISCAL EFFICIENCY We need a major programme of publicly-funded research Worldwide vs renewables public-funded RD&D*, 2010 US Billion ~400 Renewables public-funded RD&D just represented 1% of worldwide Worldwide ~4 4 Renewables * Research, Development and Demonstration SOURCE: The figures in the graph are for 2010 but the aggregates for 2011 are almost the same IEA 2013b 41

42 Why act now? The costs of acting on climate change will keep on increasing with time For every $1.00 $4.30 the optimal time to act is now Costs of taking action now are arguably small Economic benefits of taking action are significant Key low-carbon technologies are at the cusp of disrupting existing markets Investment in cleaner technology avoided today Investment required to compensate for increased emissions after 2020 No guarantee that future generations will be wealthier Otherwise, a rise in average global temperature of 3-4 degrees or more SOURCE: International Energy Agency 42

43 Handling Climate Risk - General Principles for Decision-makers 1 Integrate climate into wider economic priorities 2 Focus on those policy actions which deliver economic benefits AND cut carbon emissions OR enhance climate resilience 3 Avoid high-carbon or climate-exposed lock-ins 4 Buy options for competitive advantage in low-carbon economy 5 Shift from BAU to structural transformation models 6 Recognise that climate risk is non-linear and potentially uninsurable 43

44 List of contributing papers (1) Workstream List of Contributing Papers Lead Responsible Two sentences summary of paper AFOLU 1 Supply triple wins around the 4 packages Chris Delgado AFOLU 2 Demand food waste TBD China 3 Consolidated China Paper Teng Fei Cities 4 Cities and Low Carbon Growth Cities 5 Urban enablers: Planning, Finance and Governance Cities 6 Urban Form and Transport Cities 7 Cities 8 Cities 9 Country Transitions 10 GHG implications of city growth strategies City-level assessments of low-carbon opportunities Other city papers - Third Party Contributions Historical Patterns of Growth vs Emissions Graham Floater & Philipp Rode Graham Floater & Philipp Rode Philipp Rode & Graham Floater Pete Erickson and Carrie Lee Andrew Gouldson, Johan Kuylenstierna Nick Godfrey Milan Brahmbett document and analyze pathways to triple wins from observed cases that simultaneously boosted agricultural productivity, increased resilience of farmer livelihoods, and contributed meaningfully to abating GHG emissions under developing country conditions. make the case that reducing the rate of food loss and waste is an important component of the new climate economy. The paper assesses the relationship between economic development and carbon emissions in cities drawing on new data of 750 cities from Oxford Economics, including new top down estimates of BAU emissions out to 2030 The paper assesses the importance of strategic planning, municipal financing models, and different models of governance for supporting low carbon urban development The paper assesses the interface between urban form and mass transit for catalysing low carbon urban transitions, including the role of innovation in the transport sector The paper assesses the most important economic development strategies in cities and their impacts on carbon emissions The paper summarises the results of mini-stern reviews which estimate the economic costs and benefits of low carbon options for a range of UK cities, Lima, Johor Baru, Palembang, and Kolkata Range of short supporting papers from third party contributions to be provided that are not cobranded but will inform Cities workstream e.g. Allianz, Atkins, AEA, Siemens, NASA/Goddard, ICLEI, DFID, WBCSD Country Transitions 11 Co-Benefits Kirk Hamilton Examine the broader co-benefits associated with actions that reduce GHG emissions and will consider what impact they have on economic growth and welfare. Country Transitions 12 US Case Study (is this a paper?) Nicholas Bianco Economic Pathways 13 Modelling Limitations Dimitri Zhengelis The paper summarizes shortcomings of modelling efforts Economic Pathways 14 Economic Pathways 15 Structural Change Theory Review on Tipping Points Ben Combes and John Lewellyn Cameron Hepburn and Dimitri Zhengelis The paper will demonstrate how sustaining economic growth while also reducing climate risk will involve continual structural adjustment. Meta-analysis on path dependencies and multiple pathways theoretical literature Economic Pathways 16 Literature Review on Path Dependency Philip Aghion and Dimitiri Zhengelis Paper that will summarize the principles of endogenous growth applied to climate policy, industrial strategy and directed technical innovation. Economic Pathways 17 IMF Papers Ian Parry The paper will summarize ancillary benefits of carbon pricing Economic Pathways 18 Ben Combes and The paper will analyse the role of infrastructure investment in sustaining economic growth and Infrastructure Investment John Lewellyn reducing climate risks Economic Pathways 19 Global Cooperation Models Ben Combes and John Lewellyn The paper will summarize modes of global cooperation to coordinate climate efforts The working paper will focus on strategies for increasing agricultural productivity by reducing Economic Pathways 20 Distributional Impacts Kevin Watkins (ODI) levels of uninsured risk, the potential role of social protection in strengthening growth and productivity will also be considered. Financing options including transfers from energy subsidies will be reviewed. 44

45 List of contributing papers (2) Economic Pathways Economic Pathways Economic Pathways Economic Pathways Economic Pathways 21 Short-Run Modelling 22 Production vs Consumption of Emissions Elena Watkins, SEI IMF modelling team to run our assumptions through their long-term structural change model. OE modelling team to run our assumptions through their econometric model showing the short- to medium-term impacts of climate action (5-10 years). Paper on the difference between production and consumption emissions across 126 countries, including implications of this for climate change analysis/policy and growth/development models. 23 Competitiveness (Grantham) The paper will discuss the impact of carbon pricing on competitiveness. 24 Carbon Pricing Frank Jotzo 25 Meta-Analysis PIK Energy 26 Coal and lock-in Energy 27 Energy 28 Energy 29 Energy 30 Natural gas as a "climate bridge" in Asia Prospects and actions for wind and solar in the power sector Energy Efficiency and Productivity Efficiency performance standards, sustainable cities, green marshall plan Energy 31 Coal Envelope in China Energy 32 Outlook for global coal and nonconventional hydrocarbons Per Klevnas and Jan Ivar Korsbakken Michael Lazarus, Per Klevnas Per Klevnas and Jan Ivar Korsbakken Per Klevnas, Claudia Strambo Jiang Lin (EF) Wang Jianliang (CUP), Karl Hallding (SEI) Wang Jianliang (CUP), Karl Hallding (SEI) The paper summarises what has been learned from carbon pricing models and approaches to date (e.g: Australia, China, EU and California) and how this can inform policy design going forward. The aim of the meta-analysis is to provide a non-technical summary of existing modelling efforts using model inter-comparison exercises, e.g. RoSE, LIMITS, ADAM, RECIPE, AMPERE, etc.. Ongoing lock-in of future emissions and capital through high-emissions infrastructure, in the power sector and beyond; The scale and growth of coal, the importance of tackling coal in any meaningful abatement scenario, and the challenges of reducing emissions lock-in from new coalfired power plants; Important but limited opportunities for lower emissions through increased coal plant efficiency; Possible roles for CCS and obstacles to overcome; Importance of exploring multiple options to avoid lock-in. What would it take for natural gas to prevent significant amounts of emissions lock-in from new coal-fired power plants; Geographical focus area for new coal (Asia) and what it would take to increase gas supply there; Possible sources for new gas and costs of supplying it to Asia; Ultimate net climate benefits and avoided lock-in from a big push for natural gas (possibly small to none), and how to get off the "climate bridge" in time. The role and current scale of renewables in the power sector; Recent growth and a revolution in "business as usual" expectations for wind and solar; The economic, strategic, and environmental benefits of wind and solar; What actions, decisions and changes of mindset will it take to sustain and accelerate growth and cost reductions for renewables; Challenges and recommendations for integrating variable renewables into the electricity grid. Role of energy efficiency in expanding energy services, energy efficiency potential, demand and lock-in implications of different efficiency pathways; Challenge of capturing the efficiency potential, climate implications of rebound effects, risks of policy intervention, and lessons from existing policy experience. Near term energy supply and demand scenarios for China and energy security implications of adverse scenarios; pressures from poor air quality; policy initiatives to reduce or cap coal use; regional scenario for how a transition away from coal could be implemented. 45

46 List of contributing papers (3) Air quality control plans in the Chen Bin (BNU), Karl Hallding, Energy 33 JingJinJi region of China Claudia Strambo Energy 34 Energy Access TBD Energy 35 Air Quality Johan Kuylenstierna, Mike Holland, others Ethiopia 36 Ethiopia Green Growth Development consolidated paper Firew Woldeyes and Russell Bishop Ethiopia 37 Ethiopia Urbanisation Firew Woldeyes and Russell Bishop Capital Needs and Gaps with the Policy Finance 38 Effectiveness Investment Barbara Buchner Finance 39 Stranded Assets Divestment Barbara Buchner and David Nelson India 40 Consolidated India Paper Rajat Kathuri Innovation 41 Consolidated Innovation Paper Kim Henderson to coordinate Innovation 42 Carbon Capture Usage and Storage Kim Henderson Innovation 43 Circular Economy paper TBD Magnitude and categories of adverse air pollution impacts; resulting true cost of key energy supply options (transport, power); extent of climate co-benefit from efforts to improve air quality; methodologies for assessing the economic and social impacts of air pollution; decision maker heuristics for incorporating air quality effects in key infrastructure and energy supply policy decisions. analysis of the Ethiopian development experience and provide expert input on the issues faced by a developing country in future low-carbon transitions. Provides an overview and discussion of existing estimates for low-carbon investment needs. Identifies the most effective policy instruments for delivering finance to lowcarbon energy assets by geography, technology, and financing source. Investigate which resources will be stranded under different scenarios, ownership structures, geographical location, ownership, strategic options for asset-holders. analysis of technology cost curves for various climate-relevant technologies; generate historical case studies on the impact of government innovation policy in specific applications in different sectors and different countries/regions. The case studies will shed light on the importance of applying policy tools with the particular market opportunities, sources of differentiation and strength to build on, and constraints in mind. 46

47 The New Climate Economy The Ny-Alesund Symposium May, 2014