Content. Perception Vs. Reality. Global Crisis, Development and Climate Change: Catalyst for Innovation?

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1 Global Crisis, Development and Climate Change: Catalyst for Innovation? Dan Steinbock Research Director of International Business India, China and America Institute (ICA) Singapore EU Centre/ Singapore Management University Feb 4, 2010 Content New Global Threats Global Crisis, Energy Prices and Recessions Growth Priorities: G 7 Versus BRICs Development and Sustainability Rebalancing through Innovation Clean Tech as Growth Sector Copenhagen s Achievement What Next? Singapore EU Centre/SMU (2/4/2010) Copyright by Dan Steinbock 1 Singapore EU Centre/SMU (2/4/2010) Copyright by Dan Steinbock 2 Perception Vs. Reality Global Warming Global Annual Avrg Temperature and CO2 Concentration, Emerging Asia as the Source of Emissions Emerging Europe as the Source of Emissions Vietnam Pollution Threatens Health. Motorcyclists during rush hour in Ho Chi Minh City, Feb. 25, Manchester, England (" Cottonopolis"), pictured in 1840, showing the mass of factory chimneys Singapore EU Centre/SMU (2/4/2010) Copyright by Dan Steinbock 3 Source: Adapted from Karl, Melillo, and Peterson Note: Orange bars indicate temperature above the average, blue bars are below average temperatures. The green line shows the rising CO2 concentration. While there is a clear long term global warming trend, each individual year does not show a temperature increase relative to the previous year, and some years show greater changes than others. These year to year fluctuations in temperature are attributable to natural processes, such as the effects of El Niños, La Niñas, and volcanic eruptions. Singapore EU Centre/SMU (2/4/2010) Copyright by Dan Steinbock 4

2 No Place To Hide Synchronized Global Recession, Asia: From Downswing to Rebound The Impact of the Negative Demand Shock Sharper Contraction than in the US/Euro Area (2008 Q4, GDP growth, quarter on quarter, % change, SAAR) Collapse of Exports in Asia (All variables in levels, unless otherwise stated; years on x axis) Singapore EU Centre/SMU (2/4/2010) Copyright by Dan Steinbock 5 Singapore EU Centre/SMU (2/4/2010) Copyright by Dan Steinbock 6 The Great Correlation Increasing Oil Price, Global Recessions Rising BRICs / Declining G 7G The BRICs Share Is Increasing, G 7 G 7 Share is Declining, Source: Goldman Sachs, 2003 Singapore EU Centre/SMU (2/4/2010) Copyright by Dan Steinbock 7 Singapore EU Centre/SMU (2/4/2010) Copyright by Dan Steinbock 8

3 Sustainability Not Perceived Priority Energy, Environment, and Global Warming Not Top Priorities BRICs Priority: Development Energy Consumption, Per Capita, Total Consumption, Despite low energy consumption and emissions per capita, developing countries will dominate much of the future growth in total energy consumption and CO2 emissions Source: WDR team, based on data from IEA 2008c. Note: Toe = tons of oil equivalent Singapore EU Centre/SMU (2/4/2010) Copyright by Dan Steinbock 9 Singapore EU Centre/SMU (2/4/2010) Copyright by Dan Steinbock 10 Role of High Income Countries Share of Global Emissions ( ) Toward 2C Trajectory Business as Usual Is Unsustainable High income countries have historically contributed a disproportionate share of global emissions and still do Sources: DOE 2009; World Bank 2008c; WRI 2008 augmented with land use change emissions from Houghton Projected annual total global emissions (GtCO2e) Source: World Bank Singapore EU Centre/SMU (2/4/2010) Copyright by Dan Steinbock 11 Singapore GP3 (11/12/2009) EU Centre/SMU (2/4/2010) Copyright Copyright by Dan Steinbock by Dan Steinbock 12

4 Innovation Potential Untapped Public/Private Spending on R&D RD&D Fraction of What s s Needed From 40,000 to 21 million E BikesE E bikes now among the cheapest/cleanest travel mode options in China Global subsidies to petroleum products amount to some $150bn annually. Public spending on energy research, development, and deployment (RD&D) has been $10bn for decades, apart from a brief spike following the oil crisis (4% of overall public RD&D). Private spending on energy RD&D, at $40bn to $60bn a year, amounts to 0.5% of private revenues A fraction of what innovative industries such as telecom (8%) or pharmaceuticals (15%) invest in RD&D Nokia aeon concept phone Nokia s R&D were 11.8% of net sales in Pfizer s R&D were 16.5% of net sales in A ban on gasoline propelled motorbikes in several urban areas of China in 2004 which coincided with technological improvements in electric motor and battery technologies, faster urbanization, higher gasoline prices, and increases in purchasing power boosted the electric bicycle market from a mere 40,000 in 1998 to 21 million in 2008 Sources: Cherry 2007; Weinert, Ma, and Cherry 2007; photographs from author. Note: E bike emissions refer to full life cycle, which in this case includes production, energy production, and use. For the regular bicycle only emissions from production are included Singapore EU Centre/SMU (2/4/2010) Copyright by Dan Steinbock 13 Singapore EU Centre/SMU (2/4/2010) Copyright by Dan Steinbock 14 Growth Sectors Global Trends in Venture Capital (2009) Global Survey In terms of total capital invested, anticipated level of investment ent change in select sectors, over the next three years Ensuring Technology Transfer Intellectual Property Protection, Technology Transfer Scientific Innovation and Invention ( ) In order to enhance action on development and transfer of technology we decide to establish a Technology Mechanism to accelerate technology development and transfer in support of action on adaptation and mitigation that will be guided by a country driven approach and be based on national circumstances and priorities. 11 th article, The Copenhagen Accord Source: Deloitte (2009) Global trends in venture capital 2009 global report Source: World Bank calculations based on individual country data provided by Walter Park, American University. Note: A higher score on the index indicates stronger intellectual property rights. Singapore EU Centre/SMU (2/4/2010) Copyright by Dan Steinbock 15 Singapore EU Centre/SMU (2/4/2010) Copyright by Dan Steinbock 16

5 Rising Investments Worldwide Global Annual Investment in Clean Energy 2004 to 2009, US$ billions BRICs Rising Economic Power BRICs Have a Larger $GDP than the G7 By 2040 (GS, 2005) Note: S/RP = small/residential projects. New investment volume adjusts for re invested equity. Total values include estimates for undisclosed deals. Source: New Energy Finance Singapore EU Centre/SMU (2/4/2010) Copyright by Dan Steinbock 17 Singapore EU Centre/SMU (2/4/2010) Copyright by Dan Steinbock 18 Phases of Talks From Rio to Copenhagen 1. UN Earth Summit in Rio de Janeiro (1992) produced the UN Framework Convention on Climate Change. 2. Kyoto Protocol (1997) a detailed 20 page legal document did not really include the rapidly growing developing countries; i.e., emerging economies, such as China, India, Brazil, South Africa, Mexico, and Korea. Lack of serious attention to the long term path of emissions 3. Copenhagen Accord (2009) a general 3 page political statement aframework for addressing both deficiencies (BICs, LT path of emissions) Expands the coalition and extends the time frame of action All 17 countries of Major Economies Forum ( 90% of global emissions) participate. Each nation registers to abide by its domestic climate commitments Sources: For mitigation: UNFCCC 2008; IIASA 2009; IEA 2008c; McKinsey Global Institute 2009a; additional data communication from McKinsey for 2030, using a dollar to Euro exchange rate of $1.50 to 1.00; Edmonds and others 2008; and additional data provided by Jae Edmonds. For adaptation: Agrawala and Fankhauser 2008; World Bank 2009c; and Project Catalyst Note: Shaded bars represent range of estimates of adaptation and mitigation needs in 2030, as well as the median. Deep Gap Required Annual Climate Funding Estimated annual climate funding required for a 2 C trajectory compared with current resources Singapore EU Centre/SMU (2/4/2010) Copyright by Dan Steinbock 19 Singapore EU Centre/SMU (2/4/2010) Copyright by Dan Steinbock 20

6 Global GDP Growth (Percent; quarter over over quarter, annualized) The True Green Shots Global Green Stimulus Spending Is Rising Source: IMF staff estimates Source: Robins, Clover, and Singh 2009 Singapore EU Centre/SMU (2/4/2010) Copyright by Dan Steinbock 21 Singapore EU Centre/SMU (2/4/2010) Copyright by Dan Steinbock 22 Conclusions In the coming years, climate change will pose increasing global threats There is a correlation between rising energy prices and recessions. Due to different levels of development, G 7 and BRIC economies have different interests. Economic development is vital to lift the remaining billions out of poverty; addressing issues of global warming and energy is critical to sustain growth. Innovation can facilitate the reconciliation of development and sustainability. Clean technology is emerging as a growth sector, but it requires the interplay of government policies and firm strategies. The Copenhagen conference provides a potential platform for change. It highlights the need for cooperation among both G 7 nations and the BRICs. Today, the business as usual trajectory is unsustainable. It is increasingly costly, inefficient and destructive. The 2C trajectory is vital, but it can only be realized through cooperation. THE END Singapore EU Centre/SMU (2/4/2010) Copyright by Dan Steinbock 23 Singapore EU Centre/SMU (2/4/2010) Copyright by Dan Steinbock 24