Guest essay by Eric Worrall
This remarkable business opportunity will only be realised if it is funded by taxpayers and supported by carbon taxes.
The world economy could grow $26 trillion in a decade if governments and businesses focus on climate change
SEP 5, 2018, 6:56 PM
Bold action on climate change could add more than $US2 trillion a year to the global economy over the next decade, according to a major new report, which seeks to dispel the belief that tackling environmental issues will stifle economic growth.
The report from theGlobal Commission on the Economy and Climate (GCEC) on Wednesday argues that the world’s politicians and decision-makers are “significantly underestimating the benefits of cleaner, climate-smart growth.” It said the global economy could increase in size by $US26 trillion by 2030, if more ambitious steps are taken.
Former heads of government, business leaders, and economists are all part of the GCEC’s team, and have argued that the globe is at a crossroads, whereby it needs to fully commit to sustainable future growth, or see the earth suffer even more.
“There’s still a perception that moving toward a low-carbon path would be costly,” Helen Mountford, the lead author of the report said in an interview with Reuters. “What we are trying to do with this report is once and for all put the nails in the coffin on that idea.”
From the energy chapter of the main report;
Energy will account for just under a third of total core and primary energy sustainable infrastructure investment to 2030, or around US$1.7 trillion per year. Meeting a 2C scenario requires slightly more investment and large increases in spending on energy efficiency, at double current levels if not more, but this is offset by lower investment requirements for primary energy such as coal and oil. The investment challenge includes providing access to 2.7 billion people for clean cooking and to 1 billion for electricity. Making sure energy infrastructure is sustainable will not cost much more, but it requires shifting the way we invest. This shift requires supportive policies that reveal the value proposition of renewables and energy-efficiency investments and that level the playing field. Policymakers also need to spend better, with the right objectives and with the use of relevant metrics for success in dealing with sustainability. Essential policies include the reforming of fossil fuel subsidies, alignment of taxation and other policies offering financial incentives, raising and allocating public funds to sustainable infrastructure, and the smart use of limited public funds to attract private investment.
Previous analysis conducted for the Global Commission estimates that only half of the infrastructure investment required is currently flowing and about 70% of the spending gap is in emerging and developing economies. Both public and private investment will be needed. Overall, public infrastructure investment appears to be on the rise though it remains well below levels required to meet demand for infrastructure services. In developing countries, roughly 60% of infrastructure investment is from the public sector, while in developing countries it is only about 40%. On the private investment side, although the level of investment required is manageable on a macroeconomic basis, with enough global savings to cover the need, it has historically been a struggle to channel private finance to green energy infrastructure and energy-efficiency investment, especially in developing economies. The levels of returns and investment risks (real or perceived) have been key barriers to increased private investment. To address these common barriers and facilitate commercial investment, the G20 is advancing a ‘Roadmap for Infrastructure as an Asset Class’ which in turn should foster the development of infrastructure as a heterogeneous asset class.
Public investment also needs to shift. In 2014, the public sector accounted for more than half of ongoing investment in coal-fired power, showing the need for more climate-consistent strategies in the power sector. Even with notable progress in phasing out fossil fuel subsidies in some countries, these were estimated to be an estimated US$373 billion in 2015 according to the OECD and International Energy Agency (IEA), well above renewable energy subsidies in 2015. This effectively creates a negative carbon price and disincentivises investment in clean energy alternatives. At the same time, the number of carbon pricing systems is growing, now covering over 70 jurisdictions and about 20% of global GHG emissions (see Section 1.A, Figure 4). Yet over 75% of emissions covered are priced at an effective rate of less than US$10 per tonne,49 far from US$40–80 per tonne by 2020 recommended as a floor price by the 2017 High-Level Commission on Carbon Prices. Absent consistent and sufficiently high carbon pricing, the risk-return proposition for investment in clean energy remains weak, and continued subsidies for fossil fuels raise the risks of stranded assets in the future.
If this is such a remarkable business opportunity, why do governments have to get involved? Why does the “risk-return proposition for investment in clean energy remain weak”? Given the alleged falls in the price of solar panels and wind turbines, why are carbon taxes still seen as so essential?
Surely climate enthusiast Silicon Valley entrepreneurs and green Ivy League endowment funds can raise enough cash between them to get the ball rolling.
A string of trillion dollar climate business success stories would sweep aside all skepticism about the benefits of green investment.