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.

A call for zero net emissions

OECD climate and carbon report
OECD climate and carbon report

Today’s post is from OECD Secretary-General Angel Gurría and is co-published by the World Economic Forum, meeting in Davos.

Our leaders must get to grips with the huge risk that carbon dioxide emissions pose to the economy and the environment. As we know, carbon dioxide is a long-lived gas. It hangs around. Of every tonne of CO2 emitted this year, some will still be around thousands of years from now. Even small ongoing emissions will continue to add to the atmospheric concentration.

This is already having a serious environmental impact.

The Intergovernmental Panel on Climate Change’s 2013 report finds it extremely likely that human influence has been the dominant cause of global warming since the mid-20th century. Many countries are taking these findings seriously. However, mounting evidence suggests that a stronger approach is needed.

At the 16th session of the Conference of the Parties (COP 16) to the United Nations Framework Convention on Climate Change in Cancun, Mexico, countries agreed to limit the increase in global average temperature to below 2°C above pre-industrial levels. However, UNEP estimates that country pledges to reduce emissions by 2020 get us only between a quarter and half way to our goal of maintaining a two degree ceiling on the global average temperature increase.

This is why I am making a strong call for governments to put us on a pathway to achieve zero net emissions from the combustion of fossil fuels in the second half of this century. Unlike the financial crisis, we do not have a “climate bailout” option up our sleeve. Nothing short of a transformation of the energy economy will suffice. But we face significant obstacles towards meeting this goal.

Ending our reliance on fossil fuels was never going to be easy. Two-thirds of electricity generation and nearly 95% of the energy consumed by the world’s transport systems relies on fossil fuels.

Several factors compound the challenge of weaning ourselves off this energy source. First, we have recently moved from a world of threatened scarcity to one of potential abundance, due to the exploitation of unconventional fossil fuel deposits such as shale gas in the United States. Second, investments in carbon intensive technologies remain more profitable and attractive than those in low-carbon technologies, in many cases. Third, oil and gas rents account for a considerable share of total government revenue in many countries. Given this “carbon entanglement”, it is not surprising that cash-strapped governments worldwide are hoping to find and exploit new reserves of oil and gas.

There is currently a credibility gap between what governments are saying about climate change and the policies they have in place. Most businesses do not take governments seriously when it comes to climate, primarily because many governments have inconsistent and incoherent policies and then often keep changing them, sometimes retroactively. This makes businesses reluctant to invest in greener technologies.

I propose the following action agenda to reverse this trend.

Action 1: Put a price on carbon. This can be done through a carbon tax or an emissions trading system (ETS). Here, governments have made important progress, with more than 40 countries having implemented some form of carbon tax or emission trading scheme. The “flexibility” of ETS’s makes them politically attractive, although their design and implementation can be improved. However, not all governments have shied away from explicit carbon taxes. There are some strong success stories of introducing carbon taxes smoothly and incrementally over time.

Action 2: Reform fossil fuel subsidies. We have to reconsider our approach to subsidies. The OECD recently inventoried support to fossil fuel consumption and production in our Member Countries. The support we uncovered is in the range of US$ 55-90 billion per year. This is in addition to the US$ 544 billion provided as subsidies to fossil fuel consumers in developing and emerging economies estimated by the IEA. Urgent reform is needed in all countries to phase out fossil fuel subsidies that encourage carbon emissions. While the subsidies are often used to fight poverty, their poor targeting makes them an inefficient way of achieving this goal. Fossil fuel already has a huge advantage as the energy resource of choice. It doesn’t need more help.

Action 3: Address incoherent and inconsistent policies. Governments need to stand back and consider the entire range of signals they are sending to consumers, producers and investors. A key question is whether non-fossil energy investments can currently compete with fossil fuels in terms of their risk-return profile with the policy settings in place domestically and internationally. To help get a consistent picture and to compare country’ performances, carbon pricing and climate policies will soon be a key element of our OECD Economic Surveys. Thus, by mid-2015 we will have a good idea of the progress and remaining challenges in both OECD countries and key emerging economy partners.

The actions outlined above will help to create a clear, long-term signal that the price of emissions will only go one way – up – and put us on a trajectory towards zero emissions. The transition to a zero emissions economy will not be costless, and governments must be frank about the cost of the transformation. But building a post-carbon world will offer some incredibly exciting economic opportunities.

At the same time, inaction also entails huge consequences. For instance, Hurricane Sandy cost the US about 0.5% of the country’s GDP. Recent analysis suggests that the annual costs to deal with flood exposure in coastal cities may increase to over US$ 50 billion by 2050. Typhoon Haiyan, which hit the Philippines, was a stark reminder that developing countries are most vulnerable to the impacts of climate change.

We are on a collision course with nature. Now is the time for us to take bold decisions. Cherry-picking a few easy measures will not do the trick. There has to be progress on every front, particularly with respect to carbon pricing. I feel confident that leaders will rise to this challenge with a stronger commitment to tackle climate change and seize the economic opportunities that a post-carbon world has to offer.

Useful links

The climate challenge: Achieving zero emissions Full text of the OECD Secretary-General’s speech at an event in London in October 2013, co-organised with the London School of Economics and the Climate Markets & Investors Association (CMIA),

OECD work on climate change

Subsidising Pollution?

How can we reduce fossil fuel use and make the switch to clean energy?  Debates on fossil fuel dependence and its consequences for the environment have reached a crescendo as COP15 nears its deadline.  But did you know that governments still subsidize the use of fossil fuels?  Helen Mountford of the OECD Environment Directorate, Peter Wooders of the IISD and Dr. Fatih Birol of the IEA explain the importance of dealing with these contradictory policies.

Useful links:

OECD and COP15
The IISD Blog
COP15

Energy … You’d think we’d be savin’ it up.

To change the world’s energy model is the most significant challenge facing humanity.
– Spanish Prime Minister Jose Luis Rodriguez Zapatero

What does our energy use look like for now? How much energy does a Kenyan use compared to an Australian?   How much does it take to produce goods and services in China compared to India?  How much pollution is all this causing?