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The New Economy: can we align climate change action and economic growth?

Presentatie | 29-05-2017

Economic growth, the Paris climate agreement, sustainable development. These are current and potentially conflicting global challenges, but how can they be aligned? Will economic growth occur at the cost of the environment? Is climate change mitigation a huge burden or a great opportunity? What is the role for financial institutions?

In this PBL academy lecture, Manish Bapna (Managing Director of the World Resources Institute (WRI)) argues that pitting economic growth against a low-carbon economy and sustainable development is a false dilemma, as they can be achieved together and there is economic self-interest in looking for the 'win-win' of pro-environment growth. Governments could play a larger role in stimulating widespread growth and the implementation of measures by transforming the financial system, creating new business models and increasing investments in infrastructure and innovation.

These conclusions built on the work of the Global Commission on the Economy and Climate and their flagship project the New Climate Economy. This work is commissioned by multiple governments across the world in order to help the international community make better-informed decisions on achieving economic prosperity and development while dealing with the risks posed by climate change.

Achieving pro-environment growth requires a focus on cities, land use and energy systems

Three economic systems need to be the focus of transformation in order to realise the synergies between economic growth, the transition to a low-carbon economy and sustainable development. These are cities, land use and energy, which can be addressed via the drivers of resource productivity, infrastructure investment and innovation.

Cities are growing rapidly. They are currently home to more than half of the world’s population, 80% of economic growth and 75% of greenhouse gas emissions. Challenges include air pollution, traffic congestion and lack of access to basic services. These can be addressed through infrastructure investments and innovative solutions such as smart public transit, including car and bike sharing schemes, and car-free zones. Cities are showing growing global leadership in these areas, though financing these schemes can be an issue.

Land use is a growing challenge. In order to feed more than 9 billion people by 2050, 70% more calories need to be provided. How can this be done without trashing the planet? Deforestation is still ongoing, with more than 2.3 million km2 forest being lost every year. Boosting agricultural yields, limiting cropland expansion and shifting diets will reduce the pressure on existing forests and biodiversity. Restoration and regeneration of degraded lands can increase agricultural productivity and improve livelihoods, while reduced CO2 emissions contribute towards climate mitigation. However, while these ideas are gaining momentum, better incentives are needed for on the ground implementation.

The energy system is responsible for the vast share of global greenhouse gas emissions. In order to combat climate change effectively, we must accelerate the pace at which we decarbonize the energy system. Fossil fuel reserves exceed the carbon budget consistent with the 2 oC climate target, while at the same time 1.2 billion people in Africa do not have access to electricity. Increasing energy efficiency and storage, decarbonisation, and electrification of the power sector will help to address this challenge, but it does require accelerating investments in renewables.

Investing in sustainable infrastructure is key to tackling three global challenges

The solution to aligning the challenges of economic growth, a low-carbon economy and sustainable development lies in investments in sustainable infrastructure for cities, land use and energy. Almost 80% of these future investments are projected to be made in developing and emerging economies. However, the general view is that investments in low carbon and natural infrastructure are expensive. In reality, low-carbon infrastructure would not need to cost much more than business-as-usual and though upfront costs may be higher, costs will be less in the long run.

Public and private funding is critical in order to level the playing field

In order to push towards investments in sustainable infrastructure, both public and private funding will be critical. Four key areas need to addressed: tackle fundamental price distortions, strengthen investment policy frameworks and capacity, transform financial systems to deliver the scale and quality of investments needed, and boost investments in clean technology R&D and deployment. Action is starting to happen – 40 countries have carbon pricing schemes and China will shortly have a national emissions trading scheme (ETS), partnerships are popping up to help build pipelines of bankable investments, the financial sector is greening and gaining a better understanding of climate related financial risks, and the green bond market is rapidly growing. However, public commitment to new energy technology is low and fossil fuel subsidies still outweigh renewables. Public and development finance can do more to catalyse private investment, particularly institutional investors looking for long-term returns.

Reflections from the government, finance and business sector

Four people reflected on the lecture

Harry Lehman (German Environment Agency, UBA) spoke of the transition to a low-carbon economy as a great opportunity, given the strong growth in jobs in the renewable energy sector and increasing role that cities take in retrofitting industries and providing for public transport. However, he did highlight that continuity of policy and a level-playing field is essential, adding that perhaps the focus is too much on the winners of a low-carbon economy, and that something needs to be done for the losers - those that lose their jobs in the old economy.

Dorine Putman-Devilee (ASN Bank) addressed the greening of the banking sector. This included efforts to increase transparency for investors by communicating CO2 emissions for infrastructure, renovation and renewable energy projects, as well as setting up test cases for financial investment. However, such efforts require government support in the form of grants, subsidies and funds, and there is demand for an environmental act to support this in law. Public funds can be used to leverage faster acting private and long term funds such as pension funds.

Marnix Koopmans (VNO-NCW) reiterated the need for a long-term continuity of policy, particularly for the financial sector, and the issue of declining investments in R&D despite rapid growth of green jobs. In order to make the shift to a low-carbon economy as an opportunity, we need to rethink the role of governments. This entails ensuring political democracy, international cooperation, multiple scales of interaction, improved local governance and participation in debate between different industries.

Caroline van Leenders (RVO) highlighted how such a greening of the finance sector might work. In cities, it is about identifying who has the most investments in the city, rather than working via public sector siloes. The same goes for landscapes – 60% of agricultural land in the Netherlands is owned by pension funds. In the land and energy sector, financial investors are feeling the pressure from shareholders, showing more interest in deforestation-free and responsible investments. There is power in the financial institutions – a silent revolution - but they require enabling conditions for investment.

Key takeaways from the discussion included:

Global momentum is building towards a low carbon economy. Action is happening! Cities are taking the lead in retrofitting, mobility and renewable energy, though are often hindered by available finance. Renewable energy is getting cheaper and businesses, countries and investors are committing to low carbon growth. The financial sector is showing increasing interest in green and responsible investments.

Don’t leave the losers behind. While the winners of the low carbon transition are renewable energy, it is important to acknowledge that there will be many who will lose their jobs in, for example, the coal industry and that many political issues at present relate to the struggle between the winners and losers of a low carbon economy. As the cost of inaction is too high, it is important not to leave those losers behind, who might otherwise stand against pro-environment growth.

Involvement of the public sector for the long term is key. Support from the government in terms of policies, grants and subsidies is required for those with investments in cities, land-use and energy to implement the transition to a low carbon economy. Public finance can be used to leverage private finance and invest in R&D. Continuity of policy and a long-term perspective over the coming decades is required, alongside international cooperation, particularly to level the playing field and address price distortions.

 

Bibliografie
Auteur(s)Annelies Sewell; Paul Lucas
Publicatiedatum29-05-2017
TaalEnglish
BijeenkomstPBL academy lecture by Manish Bapna (WRI)
LocatieThe Hague