There’s no bailout option for the climate

better growth better climate reportToday’s post is from OECD Secretary-General Angel Gurría

Saving the Earth’s climate is sometimes compared to saving the world’s financial system following the crisis in 2007. But it’s not. The taxpayer saved the financial system by bailing it out a cost of trillions of dollars over a very short period, but there is no bailout option for the climate. If we let things go on as they are until disaster threatens, we’ll have no way of preventing disaster, however much we spend.

The consequences of inaction are stark. Our recent projections show that impacts of unabated climate change could dampen global GDP in 2060 by some 1.5% on average, and by almost 6% in South and Southeast Asia. ..

We have to act now. The newly-published report on the “The New Climate Economy” from the Global Commission on the Economy and Climate , argues that the next 15 years will be crucial for the world’s climate system. Beyond this, the cost of inaction on climate change will become very high and may be too great for economies to absorb .

We have to transform the global energy economy radically. Reducing emissions here and there won’t do. We have to achieve zero net emissions from the combustion of fossil fuels in the second half of this century. That’s not going to be easy. Two-thirds of electricity is generated by fossil fuels and the world’s transport system runs almost entirely on fossil fuels. Moreover fossil fuels are still relatively abundant and the exploitation of shale gas and other unconventional sources is reducing the sense of urgency that scarcity or a lack of energy security bring.

Governments and the private sector alike also see financial advantages to continued reliance on oil and gas. Investments in carbon-intensive technologies remain more profitable and attractive than those in low-carbon technologies, in many cases. Income from oil and gas taxes accounts for a considerable share of total government revenue in many countries.

To put it bluntly, there is often quite a gap between what governments are saying about climate change and what they are actually doing to combat it. If governments have inconsistent and incoherent policies, you cannot expect business to invest in the greener technologies needed to bring about lasting change.

Consumers, producers and investors react to the signals governments send them. Domestic and international policy settings influence the choice between non-fossil energy investments and fossil fuels in terms of whether the expected return justifies the risk. One policy that would send a clear, strong signal would be to put a price on carbon through a carbon tax or an emissions trading system (ETS), as more than 40 countries have already done.

We could also stop paying to make things worse. By that I mean we need to reform fossil fuel subsidies. The OECD calculated that support to fossil fuel consumption and production in our Member Countries is around $55-90 billion per year. The IEA estimates subsidies to fossil fuel consumers in developing and emerging economies at $544 billion. (The argument that these subsidies help fight poverty is unconvincing since their poor targeting makes them an inefficient way of achieving this.)

These actions will help send a clear, long-term signal that the price of emissions will rise, and governments must be frank about the distributional impacts of the transition to a zero emissions economy. But that cost can also be seen as an investment. As I said to ministers here in Paris in May for the session of the OECD Ministerial Council Meeting on promoting environmentally sustainable “greener” growth: “with the right policy mix and bold decisions, we can turn environmental sustainability into a source of growth, employment and economic resilience. Green can go hand in hand with growth.”

The Global Commission on the Economy and Climate agrees with this way of looking at things: “We have a unique opportunity now to achieve better growth and a better climate together […] the right policies, stimulating better investment in cities, land-use and energy systems could drive the transition to a more productive, more innovative low-carbon economy.”

So if we agree on what needs to be done, why it needs to be done, and how it can be done, let’s do it.

Useful links

On Oct 16, 2013, the OECD Secretary-General addressed a high-level delegation in London on achieving zero emissions. The lecture, co-organised with the London School of Economics and the Climate Markets & Investors Association (CMIA), centred on the ambitious policies needed to meet the long-term objective of achieving zero net emissions from fossil fuels in the second half of this century. Mr Gurría specifically discussed how consistent carbon price signals can help reduce fossil fuel dependence, encourage renewables and energy efficiency, foster the deployment of carbon capture and storage technologies and influence the flow of future investments in the energy sector. (Read the full speech)

OECD work on climate change
OECD Green Growth and Sustainable Development Forum To be held on 13-14 November 2014, this 3rd Forum will focus on addressing the social implications of green growth. It will examine its impact on employment, skills and income and will inform policymakers on how best to respond to changing demands, with a focus on the equity considerations of energy sector reforms.

March for the climate! UN Secretary-general Ban Ki Moon is one of thousands of people worldwide who’ll be marching on Sunday 21 September in New York to show their support for action to save the climate. You can find local events in your country by clicking on the NY link, or on this one.

Guest author

Leave a Reply