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Global governance

Refreshing ­optimism

by Dirk Messner

In depth

Octoberfest in Munich: in prosperous OECD cities, economic growth has been decoupled from greenhouse-gas emissions.

Octoberfest in Munich: in prosperous OECD cities, economic growth has been decoupled from greenhouse-gas emissions.

A new report by a global commission considers the climate crisis as a business opportunity. The study argues in strictly economic terms and presents a vision for global growth. A number of important issues, however, are not tackled.

Since the climate summit in Copenhagen in 2009, mitigation of climate change has mostly been discussed as an economic challenge. The question used to be: “Which countries must reduce their emissions by how much and when?” Now it is: “How can global and national economies be made climate compatible?” This issue became the subject of a number of comprehensive reports published in recent years (see box).

The most recent one was published in autumn. Entitled “The New Climate Econo­my”, it was authored by the Global Commission on the Economy and Climate, a UN-convened initiative chaired by Felipe Calderón, the former president of Mexico, and Nick Stern, the former chief economist of the World Bank. The document confirms the core findings of earlier low-carbon reports. That shows that a scientifically robust consensus is emerging concerning the following issues:

  • Climate change can still be limited to a 2° C rise in global average temperatures. For that to happen, however, the global economy must be almost completely decarbonised sometime in the second half of this century, and the course must be set accordingly in the next 10 to 15 years. The German Advisory Council on Global Change recommends zero carbon emissions by 2070 at the latest. Action must therefore be taken fast.
  • There are four key requirements for the transformation humankind needs. First of all, it is necessary to put a price on climate emissions through taxes or a trading system so eco-friendly action will bring economic benefits. Second, to drive forward innovation, investment in research and development is required. Third, international cooperation and an effective global climate agreement are essential. Fourth, the entire policy toolbox for economics, infrastructure, energy and innovation must be geared towards sustainability and climate protection.
  • Transformation is particularly urgent in three sectors: energy supply, urban development and land use. In all three, humanity needs greater efficiency, new infrastructures and innovation.

In regard to energy and land use, the Calderón-Stern report offers little that was not contained in the earlier reports, but it does present some interesting figures on urban growth. For example, about 150 cities currently account for half of global economic output and half of global energy-related emissions. Furthermore, in the next 20 years, some 290 fast-growing cities in Asia are expected to account for around a third of additional global emissions. Therefore, urban planning for these cities must be geared to decarbonisation from the outset.

The figures show that 33 megacities will emit around 10 % of additional greenhouse gases in the next 20 years. The good news, according to the Calderón-Stern Commission, is that some of those cities have already begun to decouple economic growth from emissions growth. Evidence that this is possible is furnished by mid-sized cities in OECD countries such as Munich, Stockholm and Hiroshima. The downside is that per-capita emissions are currently quite high in these centres of prosperity (an average of 12 tonnes per person per year). However, in view of strong institutions and great economic capacities, low-carbon strategies are likely to prove particularly effective in these places.


Relevant angles

Three fundamental points the Calderón-Stern report makes are important:

  • Its central chapter deals with the “economics of change”. In a more detailed, incisive and systematic fashion than earlier reports, it explains why the climate impacts of every business decision and political deliberation need to be scrutinised. Climate and resource protection is not a supplemental task for policy­-making concerning economic affairs; like employment and competitiveness, it is a core issue. The transformation to a green economy cannot succeed unless this truth is appreciated – especially by emerging markets and developing countries, where the infrastructures that are being built today will define economic life for decades. The report discusses vari­ous promising options. At the same time, the authors are certainly not critics of growth. Indeed, they call for a “framework for growth”.
  • The Calderón-Stern Commission does not confine itself to national politics; it also considers global governance. Questions raised include: What must a climate-compatible global financial architecture look like? In view of globalised world trade, how appropriate is the patchwork of different systems for emissions trading? How should the WTO settle disputes over eco-products and environmental technologies? The report does not offer comprehensive answers to these questions, but it indicates what issues need to be addressed.
  • In contrast to the earlier reports, the new document emphasises the business opportunities of transition more than the risks of the climate crisis. The transition to climate compatibility is presented as THE growth option for the flagging global economy. This perspective is optimistic and provocative. It certainly challenges the widely shared view that the global financial crisis of 2008 has curtailed government capacities and investor confidence to an extent that makes the shift towards sustainability more difficult.

The website created for the Calderón-Stern report (www.newclimateeconomy.­report) is setting a new standard. None of the earlier reports had comparable internet support. The digital platform was certainly expensive, but that investment is justified since it serves to spread knowledge, form opinions and set the international agenda.

Because the report is likely to attract much attention, it makes sense to point out its weaknesses:

  • It focuses too much on win-win options. Being aware of them and identifying them is important, but it is not enough in view of the complexity of the challenges ahead. If transformation is the goal, the means for achieving it must be spelled out. Promising reform proposals need to be identified – and so do possible obstacles, along with strategies to overcome them. Sweeping societal change always prompts resistance. Unfortunately, the Calderón-Stern Commission largely ignores this aspect.
  • The low-carbon transformation will offer many opportunities, but it will also lead to tensions. The reason is that many interventions make sense, including in economic germs, in the medium to long run, but they are expensive or institutionally very demanding in the short run. This is true of introducing systems for emission trading, strategies for boosting energy efficiency, electro-mobility or low-carbon standards for buildings. Huge up-front investments are needed, so business as usual looks attractive. What does this mean in the context of different countries? And what does it mean for development finance? What other policy goals must wait? The report offers no answers to these questions.
  • The report does an excellent job of showing how policies concerning public budgets, economic affairs and innovation must coherently lead to greater sustainability. However, it does not explain how those new policies can be grafted onto present established practice. During the transitional period, there will be hybrid policies. Germany’s domestic dispute over the Energiewende – the shift to renewable energy – is a good example. Other countries are struggling with similar issues. How can climate compatibility, social inclusion and economic dynamism be interlocked? For the transformation to succeed, this question needs to be answered.


Conclusion

The Calderón-Stern Commission report is valuable because its arguments are strictly economic and will appeal to both policymakers and business executives. One upside is that it presents a prospect of growth, in particular for emerging markets and developing countries. The document leaves the reader in no doubt that action is not only necessary, but possible in a promising way.

However, the report’s optimism rests partly on its failure to consider some important issues in detail. It ignores the time pressure we are under, and it makes no suggestions for overcoming inevitable resistance. Nor does it spell out what can make long-term thinking prevail over the short-term variety. Success, however, will depend on measures being taken in a way that harnesses synergies across a wide range of policy areas and is not thwarted by obstructive forces. Ultimately, the report sticks to conventional growth paradigm. It very much ignores the global debate on new notions of how to live well, and simply states that growth must become green. In this sense, the Calderón-Stern Commission is lagging behind the OECD’s fascinating new work on “well-being” for instance.
 

Dirk Messner is director of the German Development Institute (Deutsches Institut für Entwicklungs­politik) and co-chair of the German Advisory Council on Global Change (Wissenschaftlicher Beirat der Bundesregierung Globale Umweltveränderungen, WGBU).
[email protected]

Link:
The Global Commission on the Economy and Climate, 2014:
The new climate economy.
http://www.newclimateeconomy.report

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