Providing a stimulus to the economy and protecting the climate are not opposing aims, say the authors of the report. In fact, well-designed investment programmes and stimulus packages that give priority to spending on ‘green’ measures, designed to avoid carbon emissions, could help to stabilise demand in the short run and stimulate private investments, thus contributing to a rapid recovery of the global economy. Simultaneously, they could yield positive economic returns in the medium and long run by developing the world economy’s potential for low-carbon growth. Focusing on correcting profound market failures in energy use and increasing research and development would be essential, the report stresses.
”Ensuring that national recovery programmes are ‘green’ makes sense not only because climate change poses a far more serious threat to the global economy in the long term than do temporary economic downturns.,” says Ottmar Edenhofer, chief economist of PIK and a lead author of the report. “It also makes sense because otherwise, once the world economy recovers, sharply increasing energy prices are likely at some stage to trigger subsequent slowdowns. Without the transition towards a low-carbon global energy system, the next economic crisis is pre-programmed.“
Preliminary results of energy-economic modelling exercises suggest that delaying action to reach given greenhouse gas reduction targets would considerably increase the cost of subsequent action. For example, if there were massive investments in new coal-fired power plants, economies would be locked into this high-carbon infrastructure for decades to come, making it necessary to bring about sharper and more expensive emissions reductions later.
Thus, measures that are profitable in the long run – against the background of increasing energy prices - and which at the same time address the climate crisis, lend themselves to a macroeconomic recovery policy, says the report. However, all measures should be timely, well-targeted, and taken within a clear long-term framework – if they are to help lay the foundations of sustainable growth in the medium and long term without threatening fiscal sustainability when recovery comes.
“It is essential for the G20 countries to lead the fight against both the global recession and climate change,“ says Lord Nicholas Stern, Chair of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science, and a co-author of the policy paper. “The G20 are responsible for three-quarters of the world’s wealth, energy consumption and greenhouse gas emissions. They have the means both to tackle the economic crisis and lay the foundations of sustainable low-carbon growth in the future. A global green recovery, led by the G20, can deliver immediate and long-term economic benefits, cut the risk of dangerous climate change, reduce energy insecurity and competition for natural resources, and prepare the ground for a successful post-Kyoto agreement in Copenhagen in December 2009.”
The policy paper recommends that G20 members focus their recovery programmes on the following seven strategic areas in order to tackle the economic crisis and re-orient development towards sustainable, low-carbon growth.
The first phase would include three measures aimed at directly boosting demand and employment in the short term.
1) Improving energy efficiency: G20 members should initiate and extend programmes that provide loans to home-owners and small and medium-sized enterprises. They should strengthen information campaigns about energy efficiency and enforce stringent standards of energy efficiency to appliances. In the transport sector, introducing fuel efficiency standards, restructuring vehicle taxation, encouraging a shift from road to rail, shortening trips through improved urban planning, and supporting the move toward electrification of transport would ensure that energy is used more efficiently.
2) Upgrading physical infrastructure: G20 members should invest in electricity grid upgrades, public transportation, integrated freight transport systems, and CO2 pipelines for carbon capture and storage projects. Existing international forums and treaties can be used to encourage additional co-financing and technology transfer for trans-boundary pipelines and electricity grids. G20 members should ensure that new infrastructure investments are ‘climate proof’, to counter those impacts of climate change to which the world is now committed. G20 members should avoid the additional risks that would be incurred by investing in infrastructure that locks economies into high-carbon paths.
3) Supporting clean technology markets: Given the temporarily precarious situation of potential private investors, G20 members should facilitate the financing of clean-technology projects. Furthermore, they should aim to dismantle trade barriers affecting clean energy technologies and services.
The second phase should focus on measures effective on the medium term. Providing incentives for the private sector to develop the high-growth markets of the future would boost investment and demand. This would strengthen economic confidence now and provide the basis for future productivity growth.
4) Initiating flagship projects: G20 members should initiate large-scale demonstration projects for carbon capture and storage, solar thermal power plants, second generation biofuels, power storage and integrated hydrogen based energy systems. Research communities should be established to support such projects jointly, sharing the associated costs and benefits.
5) Enhancing international research and development: G20 members should at least triple their total spending on research and development related to energy efficiency, renewables, and Carbon Capture & Storage (CCS). They should establish publicly financed venture capital funds that target innovative clean-energy technologies and develop a G20 Strategic Energy Technology Plan.
6) Incentivising investment: G20 members should aim for a global emissions trading system to cap greenhouse gas emissions and thus make investments in low carbon technologies profitable. A global carbon market with one single carbon price across all sectors and regions ensures that emitters have the flexibility to reduce emissions wherever this is cheapest.
7) Co-ordinating G20 efforts: G20 members should reaffirm their commitment to an open trading system and refrain from discriminatory provisions in national stimulus packages. Specialised ‘Energy & Climate Sherpas’ should be appointed to co-ordinate follow-up meetings and fill gaps in our existing knowledge about the relationship between potential fiscal measures and their impact on greenhouse gas emissions.
Download the report here: http://www.pik-potsdam.de/globalgreenrecovery
About the lead authors:
Ottmar Edenhofer is deputy director and chief economist of the Potsdam Institute for Climate Impact Research (PIK) and Professor of the Economics of Climate Change at the Berlin Institute of Technology. He chairs the Working Group “Mitigation of Climate Change” of the Intergovernmental Panel on Climate Change IPCC.
Lord Nicholas Stern is chair of the Grantham Research Institute on Climate Change and the Environment at London School of Economics and Political Science (LSE GRI) . The former chief economist of the World Bank is author of the Stern Review on the Economics of Climate Change (2006).
About the Institutes:
The PIK conducts research into global climate change and issues of sustainable development. Set up in 1992, the Institute is regarded as a pioneer in interdisciplinary research and as one of the world's leading establishments in this field. Scientists, economists and social scientists work together, investigating how the earth is changing as a system, studying the ecological, economic and social consequences of climate change, and assessing which strategies are appropriate for sustainable development. This mainly involves analysing systems and scenarios using computer simulations and analysing and compiling data from different economic sectors and aspects of life. The models are solution-oriented, their projections forming a solid basis for decisions in politics, economics and civil society.
The Grantham Research Institute on Climate Change and the Environment was established at the London School of Economics and Political Science in 2008. The Institute brings together international expertise on economics, as well as finance, geography, the environment, international development and political economy, to create a world-leading centre for policy-relevant research, teaching and training in climate change and the environment. It is funded by The Grantham Foundation for the Protection of the Environment.
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