Guo Chen
Word Count -1926 /PIN- 10422
A Fourth Wave in Green Recovery
Guo Chen
Introduction Feb. 24, Capitol Hill, Washington. A tall, handsome middle-aged man was addressing hundreds of congressmen and senators. Still so passionate, expressive as well as decent. He spoke not that fast, but aloud enough, with his trademark – magnetic voice. His speech lasted no more than one hour, but was interfered by the torrential applause almost every other minute, along with the frequent rise and salute by the Members of Congress who were fairly acrimonious and captious in normal fashion. Yes, he is Barak Obama, the new president of U.S. From the beginning of 2009, he has become the best new interpreter of American dream and the byword for “Hope” and “Progress”. At that time, he was reporting to the congress the summary of the 2010 government budget. “You don’t need any statistics to know that our economy is in crisis, because you live it everyday. It’s the worry you wake up with and source of sleepless nights. It’s the job you thought you retired from but now have lost.” Once again, he showed his eloquence and perfect logic. In his reinvestment plan, money will be spent mainly on energy, healthcare and education to stimulate the economic development. “United States of America will emerge stronger than before.”
U.S. has shown their determination to fight against the multiple crises in the context of current financial turmoil, how about the rest of the world?
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Guo Chen
Two crucial crises We face two crises: a serious global financial crisis, caused by inadequate management of risk in the financial sector; and an even more serious climate crisis, the effects of which may seem unclear and more distant but will be determined by the actions we take now.
Stupid, it’s tsunami, not crisis
Over the past year we have witnessed a severe global financial crisis. As the effects of the financial crisis continue to unfold, the world faces serious challenges to both capital markets and the global economy. There is significant risk of a severe global recession that will affect many sectors, asset classes and regions in tandem. I do not need to rehearse the economic recession data here, but if you still regard as a normal financial crisis, it’s your fault. However, it is crucial that the environmental challenges are not left aside when focusing on stabilizing the global financial system and reviving global economic growth. Waiting for economic recovery, rather than taking decisive action now, will make the future climate challenge far greater since:
An Inconvenient Truth1
Climate change is an epic threat. GHG (greenhouse gases) Concentrations in the atmosphere are higher than at any time in human history and still rising sharply. Predicted consequences include sea-level rise, more severe storms, more intense droughts and floods, forest loss and the spread of tropical disease. Each of these phenomena is already occurring. Every year of delay in reducing greenhouse gas emissions puts the planet at greater risk. The build-up of greenhouse gases in the atmosphere is fundamentally altering the Earth’s climate. According to the world’s leading scientific authority on global warming, the Intergovernmental Panel on Climate Change (IPCC)2, warming of the climate system in recent years is “unequivocal.” More specifically, the IPCC found that (IPCC, 2007):
11 of the warmest 12 years on record have occurred since 1995; Glaciers are receding all over the world; and Average Northern Hemisphere temperatures from 1950-2000 were likely higher than at any time in last 1300 years.
The IPCC also found that human activities are “very likely” the cause of this warming (IPCC, 1
Inspired by the well-known film of Al Gore. IPCC scientists, in their recent report, assigned a 95% certainty to the conclusion that human activities are the cause of global warming in recent decades but due to objections from several governments, this was reduced in the IPCC’s final report. See: http://blogs.usatoday.com/ondeadline/2007/04/did_diplomats_f.html and http://www.climatesciencewatch.org/index.php/csw/details/ipcc_wg2_spm_scientists_draft/. 2
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Global Initiatives Symposium in Taiwan 2009
2007). Carbon dioxide emissions from combustion of coal, oil and natural gas are the most important cause. When these “fossil fuels” are burned, carbon that has been stored beneath the Earth’s surface for millions of years is converted into carbon dioxide, a greenhouse gas. His carbon dioxide remains in the atmosphere, trapping heat, for roughly 100 years. Clearing forests has similar impacts. For more than 600,000 years before the modern era, carbon dioxide concentrations in the atmosphere remained below 300 parts per million. During the last century, concentrations climbed above that level and have increased steadily ever since. Today, carbon dioxide concentrations are roughly 385 parts per million and growing by at least 2 parts per million per year. The IPCC predicts with “high confidence” that, if concentrations continue to increase at current rates:
Droughts and heavy rainfall will increase; Hurricanes and typhoons will become more intense; Rainfall patterns will shit, in some cases dramatically; and the health of millions of people will suffer.
All of these effects are already in evidence.
We’ll Recover From the Financial Crisis, What About the Climate Crisis? Although there is great amount of uncertainties and disputes in the research and study of climate change3 on the results and development trends of climate change, for example, how sharply should countries reduce CO2 and other GHG emissions? What should be the time profile of emissions reductions? How should the reductions be distributed across industries and countries? Should there be a system of emissions limits imposed on firms, industries, and nations?4 Even on a single issue, namely, the social cost of carbon, or SCC, experts are having fierce debate5. However, so far one thing is clear that if we do not take action, we will be the direct victims of climate change and will feel worse consequences soon. The scale of risk as well as impact from climate change is altogether of a far greater magnitude, as are the consequences of ignoring it. The world economy has a window of opportunity to act on the financial crisis and, at the same time, lay the foundations for a new wave of growth based on the technologies for a low-carbon economy. What’s more, we will eventually emerge from the financial crisis, although mistakes in management can affect its depth and duration. However, mistakes in managing the risks of the 3
The projections and estimates of IPCC and some independent researchers differ greatly on the result and impact of climate change as a result of their mathematical model. See the results of the report of IPCC, Nordhaus’s work on DICE model, Richard Tol’s theory on economics of climate change and IEA annual report. 4 Further discussion is available in Nordhaus’s A Question of Balance, Chapter 1: Summary for the Concerned Citizen 5 See the debate between Stern and Nordhaus on social cost of carbon, Science 317, 201 (2007).
Find the Next Wave to Ride On - New Business Strategies in the Changing World
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Guo Chen
climate crisis may be irreversible6. As asserted in Making Globalization Work (Stiglitz, 2006), we might continue with the reckless experiments if we had thousands of planets, and if the possible disasters occurred we could move on to another. Unfortunately we do not have that luxury: we have only one planet7.
A Unique and Unprecedented Opportunity for Green Recovery The financial crisis, not only makes it a must that we join hands to deal with8, but also provides us an unprecedented opportunity to change—that is to say, to shift the focus from traditional profit model to a totally new low-carbon model. In Chinese, the word for crisis is made up of the characters for threat and opportunity. The current situation is just like that. The recent UNEP report9 said investments of one percent of global gross domestic product, or about $750 billion, could bankroll a “Global Green New Deal” to initiate and promote the world economy recovery inspired by the “New Deal” of U.S. President Franklin D. Roosevelt that helped end the depression of the 1930s. According to Gary Hufbauer (Hufbauer, 2009), an senior fellow of the Peterson Institute, spending $10bn (€7.9bn, £7.1bn) to weatherize US homes or retrofit federal buildings would create and sustain up to 100,000 jobs between 2009 and 2011, while saving the economy from $1.4bn to $3.1bn a year between 2012 and 2020. There are varying views regarding the exact amount of necessary investment volumes involved in a shift to a low-carbon energy system. The Stern Review (Stern, 2006) talks of a cost of 1% of global GDP to limit greenhouse gases to a concentration of 550ppm CO2 by 2050, equivalent to around US$ 500 billion a year currently (global GDP 2007 was US$ 54 trillion), although the longer the delay in taking action, the higher the cost of adaption and mitigation.
Figure 110: Estimated Clean Energy Annual Investment to 2030, US$ billions
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Solomon and his colleagues did a detailed research on this issue, the paper of which is available at http://www.iac.ethz.ch/people/knuttir/papers/solomon09pnas.pdf 7 Note that similar expression was first put forward in the famous report Only One Earth: The Care and Maintenance of a Small Planet, which was written for the 1972 UN Stockholm conference on the Human Environment 8 See Nordhaus’s A Question of Balance, Chapter X: The Economics of Participation for detailed description and argument. 9 "Global Green New Deal" - Environmentally-Focused Investment Historic Opportunity for 21st Century Prosperity and Job Generation. 2009. UNEP. http://www.unep.org/Documents.Multilingual/Default.asp?DocumentID=548&ArticleID=5957&l=en 10 Source: IEA WEO 2008, McKinsey, New Energy Finance
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The investment volumes required to avoid the catastrophic impact of climate change are substantial and success will largely depend on the successful mobilization of both the public and private sectors.
Action Begun, Trend Formed − Missing the Train Leaves One Less Competitive The good news is that the process of transition and the associated surge in investment have already begun. Investment in clean energy – defined here as investment in renewable energy and energy efficiency technology, but excluding nuclear power and large hydro – increased from US$ 33 billion to US$ 148 billion between 2004 and 2007 (see Figure 2), and now accounts for around 10% of global energy infrastructure spend. In electricity generation, the rapid expansion of sustainable energy has been even more striking, with 42GW of power generation capacity added in 2007, just under a quarter of the total 190GW of power generation capacity added worldwide.
Figure 211: Total Global New Investment in Clean Energy, 2004-2008, US$ billions
The four-year surge in investment activity in clean energy has spanned all sectors, all geographies and all asset classes. What has begun to emerge as a result is the overall shape of the new lower-carbon energy infrastructure as the cost of clean energy technologies decreases and policy support is put in place No one can describe with certainty what the world’s energy system will look like in 2050. A substantial proportion of our energy will undoubtedly still be supplied by fossil fuels, but we can now be fairly certain that a future low-carbon energy system will include a meaningful contribution, especially from the following renewable energy sources: Onshore Wind and Offshore Wind, Solar Photovoltaic (PV), Sugar-based Ethanol, Municipal Solid Waste-to-Energy (MSW), Geothermal Power, etc. The shift to a low-carbon energy system, however, cannot be achieved simply through the addition of new sources of renewable energy. It will also be necessary to make wholesale 11
See the presentation given by New Energy Finance at 2009 World Economic Forum, derived from the WEO 2008 Report, which is assessable at http://www.newenergymatters.com/UserFiles/File/NEF_2009_28_01_Davos_Fact_pact.pdf
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Guo Chen
changes in the way energy is distributed, stored and consumed. Again, the outlines of these changes, and the investment opportunities implied, can already be seen in the areas such as Energy Efficiency, Smart Grid, Energy Storage, Carbon Capture and Sequestration. Private investments are driven by market signals. These signals are distorted as a result of the fact that we have been pricing one of the world’s scarcest resources – a “good” atmosphere, or the societal costs of emissions, which lead to a “bad” atmosphere – at zero. Not surprisingly, this has led to inefficient outcomes, with emissions levels too high and too little effort devoted to new energy development and research as well as energy conservation. However, as the world moves to a low-carbon economy, there will be a competitive advantage for those who embrace these technologies. With the trend formed and more and more clear and the action already begun, those who are not able to catch the train towards the low-carbon society will be less competitive and left behind by its rivals.
Conclusion The need to shift to a low-carbon economy is stronger than ever. Clean energy technologies are becoming increasingly cost-competitive with fossil-based energy. A carbon price will eventually level the playing field, both public sector and private sector should identify, adapt to and ride on the trend and opportunity. It is very likely that the fourth great wave is just coming. 2009 is a critical starting year to bring these players together and start the transition toward a clean world energy infrastructure. The official UN negotiations will work on developing the overall framework for a follow on to the Kyoto Protocol by December of 2009. As creative entrepreneurs turn their minds to the challenges posed by a low-carbon economy, the excitement and drive of innovation is evident. This can be the stimulus to real growth which has been missing for so long.
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Global Initiatives Symposium in Taiwan 2009
Reference: Fisher, Brendan. 2007. CO2 Emissions: Getting Bang for the Buck. Science 318: 1865–68. Houser, Trevor. 2009. Structuring a Green Recovery: Evaluating Policy Options for an Economic Stimulus Package. Testimony before the Select Committee on Energy Independence and Global Warming, US House of Representatives. Hufbauer, Gary et al. 2009. Global Warming and the World Trading System. Washington, DC: Peterson Institute for International Economics. IPCC. 2007. IPCC Fourth Assessment Report. Cambridge: Cambridge University Press. Stiglitz, Joseph. 2006. Making Globalization Work. New York City: W.W. Norton & Co. Stern, Nicholas. 2006. The Economics of Climate Change: The Stern Review. Cambridge: Cambridge University Press. Nordhaus, William. 2007. Critical Assumptions in the Stern Review on Climate Change. Science 317: 201 202. Nordhaus, William. 2007. A Question of Balance. New Haven: Yale University Press. Soloman, Susan et al. 2009. Irreversible Climate Change due to Carbon Dioxide Emissions. Proceedings of the National Academy of Sciences 106: 1704-09 Stern, Nicholas and Tylor, Chris. 2007. Climate Change: Risk, Ethics, and the Stern Review. Science 317: 203 – 204. Tol, Richard. S. J. 2005. The marginal damage costs of carbon dioxide emissions: An assessment of the uncertainties. Energy Policy 33, 2064-2074 Tol, Richard. S. J. 2008. The Social Cost of Carbon: Trends, Outliers and Catastrophes. The Open-Access, Open-Assessment E-Journal, Vol. 2, 2008-25. http://www.economics-ejournal.org/economics/journalarticles/2008-25 UNEP. 2009. "Global Green New Deal" - Environmentally-Focused Investment Historic Opportunity for 21st Century Prosperity and Job Generation. Ward, Barbara and Dubos, Rene. 1972. Only One Earth: The Care and Maintenance of a Small Plane. London: Andre Deutsch Ltd.
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Find the Next Wave to Ride On - New Business Strategies in the Changing World
Guo Chen
Global Initiatives Symposium in Taiwan 2009