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The New Climate Economy
The Ny-Alesund Symposium 2014 26-28 May, 2014
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The New Climate Economy project aims to identify the biggest opportunities to strengthen both growth and climate performance The approach is:
Evidence-based
Decision-maker focused
Objective and Open
Disruptive
Near-term
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The global New Climate Economy Partnership
Global Commission 24 global leaders
Economic Advisory Panel 14 world leading economists, chaired by Professor
Lord Nicholas Stern
Includes:
Two Nobel prize winners: Daniel Kahneman and Michael Spence
7 Commissioning Countries
Colombia Ethiopia
Indonesia Norway Sweden
South Korea United Kingdom
8 Partner Research Institutes
Climate Policy Initiative (USA) Ethiopian Development and Research Institute
Indian Centre for Research on Economic Relations Global Green Growth Institute (South Korea)
London School of Economics (UK) Stockholm Environment Institute (Sweden)
Tsinghua University (China) World Resource Institute (USA)
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Members of the Global Commission on Economy and Climate Former Presidents and Prime Ministers
Felipe Calderón (Chair) Mexico
Luísa Diogo Mozambique
Helen Clark New Zealand
Ricardo Lagos Chile
Jens Stoltenberg Norway
International financial institutions and agencies
Nemat Shafik International Monetary Fund
Sharan Bourrow International Trade Union Confederation
Angel Gurría Organisation for Economic Co-operation and Development
Sri Mulyani Idrawati World Bank
Takehiko Nakao Asian Development Bank
Maria van der Hoeven International Energy Agency
Government
Trevor Manuel South African Planning Commission
Annis Parker Mayor of Houston
Eduardo Paes Mayor of Rio de Janiero
Chen Yuan National Commitee of Chinese People’s Political Consultative Conference
Private Sector/CEO´s
Daniel L. Doctoroff Bloomberg LP
Ingrid Bonde Vattenfall
S Gopalakrishnan Confederation of Indian industry
Michel M. Liés Swiss Re Group
Paul Polman Unilever
Zhu Levin China International Capital Corporation
Chad Holliday Bank of America
Caio Koch-weser Deutsche Bank
Academy
Nicholas Stern (Co-Chair)
London School of Economics and Political Science
New Climate Economy
Jeremy Oppenheim Programme Director
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Maximizing economic growth while tackling climate change: How do we do this?
Investing in “No Regret” Measures
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THE LOW-HAND FRUITS ‘No regret’ green measures with positive financial benefit
(There are transaction costs associated with some of the ‘no regret’ measures) SOURCE: Global GHGAbatement Cost Curve v2.1
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81 81 97
79 63
1974 Energy use** 2010 EnergyServices***
Energy Efficiency Actual 2010 EnergyUse
Energy efficiency has contributed significantly to limiting overall energy use growth so far
IEA 11* total final energy consumption and energy services, 1974 vs 2010
(Hepta Joules)
ENERGY
*Australia, Denmark, Finland, France, Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom, the United States ** Energy use includes coal, electricity, gas, oil and other ***Hypothetical 2010 energy supply required absent energy efficiency improvements since 1974 SOURCE: IEA Energy efficiency market report 2013
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….however actual 2010 energy consumption was only 20% higher than in 1974 due efficiency improvements
Energy consumption would have been 100% higher in 2010
(-80%)
(+20%)
(-80%)
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High-tech companies like Nest are contributing to households energy saving
2010 – NEST - Intelligent thermostat start-up founded 2014 - Bought by Google for by $3.2 billion 1.9 billion kWh saved to date $249 - Nest thermostats retail price
$173 – Average annual savings per household
Source: Nest
INNOVATION
Designing Better Cities
11 Source: OECD 2010
1990
1 Billion
2010
2 Billion
2030
5 Billion
Explosion of the Global Middle Class: 60% living in cities Probably 1.5 more billion people will be living in big cities
250 million 1970
1 billion
2010
3 billion?
2050
Vehicle increase
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3.3m deaths per year from air pollution
The climate Change
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Well planned, compact cities are more economically efficient and have lower emissions
SOURCE: (1) LSE Cities; (2) Newman and Kenworthy 1989
CITIES
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Urbanisation could be the answer or part of the problem
SOURCE: UNFCCC; McKinsey analysis
1 The OECD estimates that the global middle class will increase from 1.85 bn in 2009 to 4.88 bn in 2030 2 Assuming the per capita emissions from the 3 billion new middle-class population in 2030 would be same level as Sweden or US in 2010
THE NEW MIDDLE CLASS CITIES
Potential GHG emissions from the 3 billion new middle-class population in different living models in 20302
Billion tons of CO2e
44 bn tons The choice of city
infrastructure will have an enormous impact on emissions
Promoting Structural Changes in Energy
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Non-hydro renewables are growing rapidly, but still account for only ~4% of global electricity generation
Biomass+waste 2% Wind 2% Oil 4%
Nuclear 12%
Hydro
16% Natural gas
23%
Coal
41% Solar
0%
Geothermal
0%
Generation from non-hydro renewables, TWh
SOURCE: IEA Electricity database
40% 3%
27%
9%
Shares of electricity generation in 2011, TWh
CAGR, 2000-11
Note: This only refers to electricity generation and not total primary energy, hence excludes energy consumed in transport, heat, cooking etc.
ENERGY
~250
~990
~290%
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Tesla: > Electric vehicle > 400 kms. range. Reducing emissions and creating huge wealth in the process
"All the geniuses here at General Motors kept saying lithium-ion technology is 10 years away, and Toyota agreed with us – and boom, along comes Tesla. So I said, 'How come some tiny little California startup, run by guys who know nothing about the car business, can do this, and we can't?' That was the crowbar that helped break up the log jam." Robert Lutz – GM Vice Chairman
Tesla market cap: $30bn 25,000 cars sold in 2013
GM market cap: $55.8bn
9.7 million cars sold in 2013
INNOVATION
19 (WRI, 2012)
ENERGY Proposed new coal power capacity
20 (WRI, 2012)
INDIA
Proposed new coal power capacity ENERGY
21 (WRI, 2012)
INDIA
CHINA
Proposed new coal power capacity ENERGY
22 SOURCE: Wang, J., Davidsson, S., Feng, L., & Höök, M. (2013). Chinese coal supply and future production outlooks. Article accepted by
Energy journal.
Peak coal projections
2011
There is significant debate about when China’s use of coal will peak
ENERGY
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There is an opportunity to expand clean energy as its costs fall to be similar to those of conventional energy sources
SOURCE: Citi Research 2012; Bloomberg NEF (Turner 2013); IEA World Energy Outlook 2013, WEO 2012
Wind power costs over time
Note: Assuming coal price of 70 USD/tonne and gas price of 10 USD/Mmbtu. Assuming a 35% capacity factor for wind power i.e. 35% utilisation, and a 15% capacity factor for solar power
USD/MWh
ENERGY
150
100 90
160
140 130 120 110
50
70 60
80
10 0
Coal
Natural gas
Solar (photovoltaic) power costs over time USD/MWh
Coal
Natural gas
Actual Forecast Actual Forecast
2012 2012 Note: Chart represents world average. In some markets, solar is already price-competitive with other energy sources
Smart Policies for Technology
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Porter and van der Linde (1995): The innovation effect
… which can lead to increased competitiveness and profitability. (Strong Porter hypothesis)
Policy promotes innovation that reduces the cost of regulation (Weak Porter hypothesis)
Directed technical change
26 OECD 2010
Index of innovation in climate change mitigation technologies (1990 = 1)
2. Directed technical change
Making Forestry Profitable
28 Image: WRI; Source: Hansen et al.2013, WRI
Forests under Pressure
50 soccer fields lost each minute
FORESTRY
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South Korea: restoration into forest
Source: WRI
FORESTRY
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Costa Rica, 1940-1987: from 75% to 21% forest cover
Source: Ministry of Enviroment and Energy (Costa Rica)
FORESTRY
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Costa Rica 1987-2010: substantially increased its forest cover and generated jobs
2010 52.3% Forest cover
Employment generation more than
25,000 jobs/year
Source: Ministry of Enviroment and Energy (Costa Rica)
FORESTRY
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Costa Rica case: • Tourism generates 25%
of foreign exchange earnings
• Tourism contributes 7%
of GDP • 53% of tourism revenue
comes from ecotourism
The ecoturism, a green gold?
SOURCE: Central Bank of Costa Rica and FAO
FORESTRY
Promoting Double Green Revolution
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Can food security be achieved without further deforestation?
SOURCE: FAO World Food and Agriculture to 2030/2050; FAO Expert Meeting on How to Feed the World in 2050
+55%
2050 2005 2000 1 On a per-day basis, global food consumption is ~17 trillion Kcal in 2000, ~18 trillion Kcal in 2005, and ~28 trillion Kcal in 2050 2 From ~475 to ~892 million tons of dairy, ~1 to ~1.44 billion tons of cereals, ~227 to ~464 million tons of meat, over the period of 2000 to 2050
Global annual food consumption1
Kcal consumption, quadrillions Examples of global growth2
~1.5 X more cereals
~2 X as much meat
~2 X as much dairy
Drivers ▪ Population
growth: 9.6 billion people by 2050
▪ Urbanization: 70% of 2050 population
▪ Higher calorie consumption and diet shifts: more wealth = more protein
World demand for food will grow ~70% between 2000 and 2050
AGRICULTURE AND LAND USE
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Palm Oil a Major Crop
SOURCE: WRI
400% increase in palm oil production in 20 years
FORESTRY
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New approach: Reducing deforestation
SOURCE: WRI
FORESTRY
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The business commitment is essential
SOURCE: WRI
FORESTRY
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Sustainable Palm Oil
RSPO: Roundtable on Sustainable Palm Oil SOURCE: RSPO (www.rspo.org/)
FORESTRY
Removing Distortionary Subsidies
Placing a Price on Environmental Damage.
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Currently, we are subsidizing a high-carbon operating model
Estimated Global Energy consumption subsidies for fossil fuel and renewables, 2012
Nominal. US $ billion
Note: values of subsidies are highly sensitive to energy prices so vary year by year. Most recent estimates suggest fossil fuel subsidies of ~600 million SOURCE: IEA, World Energy Outlook 2012
~520
~90
•Reducing energy subsidies, and shifting taxes from labour and capital to energy will encourage transition into a low-carbon economy •Indonesia and Mexico have successfully managed to reduce fossil fuel subsidies
FISCAL EFFICIENCY
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Worldwide Renewables
~400
Renewables public-funded
RD&D just represented 1%
of worldwide
We need a major programme of publicly-funded research
Worldwide vs renewables public-funded RD&D*, 2010 US Billion
* Research, Development and Demonstration SOURCE: The figures in the graph are for 2010 but the aggregates for 2011 are almost the same IEA 2013b
FISCAL EFFICIENCY
~4
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Why act now?
For every $1.00
$4.30
Investment in cleanertechnology avoided
today
Investment required tocompensate for
increased emissionsafter 2020
The costs of acting on climate change will keep on increasing with time… …the optimal time to act is now
SOURCE: International Energy Agency
▪ Costs of taking action now are arguably small
▪ Economic benefits of taking action are
significant ▪ Key ‘low-carbon’ technologies are at the
cusp of disrupting existing markets ▪ No guarantee that future generations will
be wealthier ▪ Otherwise, a rise in average global
temperature of 3-4 degrees or more
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Handling Climate Risk - General Principles for Decision-makers
Integrate climate into wider economic priorities
Buy options for competitive advantage in low-carbon economy
Avoid high-carbon or climate-exposed lock-ins
Focus on those policy actions which deliver economic benefits AND cut carbon emissions OR enhance climate resilience
Shift from BAU to structural transformation models
1
2
3
4
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Recognise that climate risk is non-linear and potentially uninsurable 6
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List of contributing papers (1) Workstream List of Contributing Papers Lead Responsible Two sentences summary of paper
AFOLU 1 Supply – triple wins around the 4
packages Chris Delgado document and analyze pathways to “triple wins” from observed cases that simultaneously
boosted agricultural productivity, increased resilience of farmer livelihoods, and contributed meaningfully to abating GHG emissions under developing country conditions.
AFOLU 2 Demand – food waste TBD make the case that reducing the rate of food loss and waste is an important component of the new climate economy.
China 3 Consolidated China Paper Teng Fei
Cities 4 Cities and Low Carbon Growth Graham Floater & Philipp Rode
The paper assesses the relationship between economic development and carbon emissions in cities drawing on new data of 750 cities from Oxford Economics, including new top down
estimates of BAU emissions out to 2030
Cities 5 Urban enablers: Planning, Finance and
Governance Graham Floater &
Philipp Rode The paper assesses the importance of strategic planning, municipal financing models, and
different models of governance for supporting low carbon urban development
Cities 6 Urban Form and Transport Philipp Rode & Graham Floater
The paper assesses the interface between urban form and mass transit for catalysing low carbon urban transitions, including the role of innovation in the transport sector
Cities 7 GHG implications of city growth
strategies Pete Erickson and
Carrie Lee The paper assesses the most important economic development strategies in cities and their
impacts on carbon emissions
Cities 8 City-level assessments of low-carbon
opportunities Andrew Gouldson,
Johan Kuylenstierna
The paper summarises the results of mini-Stern reviews which estimate the economic costs and benefits of low carbon options for a range of UK cities, Lima, Johor Baru, Palembang, and
Kolkata
Cities 9 Other city papers - Third Party
Contributions Nick Godfrey Range of short supporting papers from third party contributions to be provided that are not co-branded but will inform Cities workstream e.g. Allianz, Atkins, AEA, Siemens, NASA/Goddard,
ICLEI, DFID, WBCSD
Country Transitions 10 Historical Patterns of Growth vs
Emissions Milan Brahmbett
Country Transitions 11 Co-Benefits Kirk Hamilton Examine the broader co-benefits associated with actions that reduce GHG emissions and will consider what impact they have on economic growth and welfare.
Country Transitions 12 US Case Study (is this a paper?) Nicholas Bianco Economic Pathways 13 Modelling Limitations Dimitri Zhengelis The paper summarizes shortcomings of modelling efforts
Economic Pathways 14 Structural Change Ben Combes and John Lewellyn
The paper will demonstrate how sustaining economic growth while also reducing climate risk will involve continual structural adjustment.
Economic Pathways 15 Theory Review on Tipping Points Cameron Hepburn and Dimitri Zhengelis
Meta-analysis on path dependencies and multiple pathways theoretical literature
Economic Pathways 16 Literature Review on Path Dependency Philip Aghion and Dimitiri Zhengelis
Paper that will summarize the principles of endogenous growth applied to climate policy, industrial strategy and directed technical innovation.
Economic Pathways 17 IMF Papers Ian Parry The paper will summarize ancillary benefits of carbon pricing
Economic Pathways 18 Infrastructure Investment Ben Combes and John Lewellyn
The paper will analyse the role of infrastructure investment in sustaining economic growth and reducing climate risks
Economic Pathways 19 Global Cooperation Models Ben Combes and John Lewellyn The paper will summarize modes of global cooperation to coordinate climate efforts
Economic Pathways 20 Distributional Impacts Kevin Watkins (ODI)
The working paper will focus on strategies for increasing agricultural productivity by reducing levels of uninsured risk, the potential role of social protection in strengthening growth and productivity will also be considered. Financing options – including transfers from energy
subsidies will be reviewed.
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List of contributing papers (2)
Economic Pathways 21 Short-Run Modelling
IMF modelling team to run our assumptions through their long-term structural change model. OE modelling team to run our assumptions through their econometric model showing the short- to
medium-term impacts of climate action (5-10 years). Economic Pathways 22
Production vs Consumption of Emissions Elena Watkins, SEI Paper on the difference between production and consumption emissions across 126 countries,
including implications of this for climate change analysis/policy and growth/development models. Economic Pathways 23 Competitiveness (Grantham) The paper will discuss the impact of carbon pricing on competitiveness.
Economic Pathways 24 Carbon Pricing Frank Jotzo
The paper summarises what has been learned from carbon pricing models and approaches to date (e.g: Australia, China, EU and California) and how this can inform policy design going
forward.
Economic Pathways 25 Meta-Analysis PIK
The aim of the meta-analysis is to provide a non-technical summary of existing modelling efforts using model inter-comparison exercises, e.g. RoSE, LIMITS,
ADAM, RECIPE, AMPERE, etc..
Energy 26 Coal and lock-in Per Klevnas and Jan Ivar Korsbakken
Ongoing lock-in of future emissions and capital through high-emissions infrastructure, in the power sector and beyond; The scale and growth of coal, the importance of tackling coal in any
meaningful abatement scenario, and the challenges of reducing emissions lock-in from new coal-fired power plants; Important but limited opportunities for lower emissions through increased coal
plant efficiency; Possible roles for CCS and obstacles to overcome; Importance of exploring multiple options to avoid lock-in.
Energy 27 Natural gas as a "climate
bridge" in Asia Michael Lazarus, Per Klevnas
What would it take for natural gas to prevent significant amounts of emissions lock-in from new coal-fired power plants; Geographical focus area for new coal (Asia) and what it would take to
increase gas supply there; Possible sources for new gas and costs of supplying it to Asia; Ultimate net climate benefits and avoided lock-in from a big push for natural gas (possibly small
to none), and how to get off the "climate bridge" in time.
Energy 28 Prospects and actions for
wind and solar in the power sector
Per Klevnas and Jan Ivar Korsbakken
The role and current scale of renewables in the power sector; Recent growth and a revolution in "business as usual" expectations for wind and solar; The economic, strategic, and environmental benefits of wind and solar; What actions, decisions and changes of mindset will it take to sustain and accelerate growth and cost reductions for renewables; Challenges and recommendations for
integrating variable renewables into the electricity grid.
Energy 29 Energy Efficiency and
Productivity Per Klevnas, Claudia Strambo
Role of energy efficiency in expanding energy services, energy efficiency potential, demand and lock-in implications of different efficiency pathways; Challenge of capturing the efficiency
potential, climate implications of rebound effects, risks of policy intervention, and lessons from existing policy experience.
Energy 30 Efficiency performance standards, sustainable
cities, green marshall plan Jiang Lin (EF)
Energy 31 Coal Envelope in China Wang Jianliang (CUP), Karl Hallding (SEI)
Near term energy supply and demand scenarios for China and energy security implications of adverse scenarios; pressures from poor air quality; policy initiatives to reduce or cap coal use;
regional scenario for how a transition away from coal could be implemented.
Energy 32 Outlook for global coal and
nonconventional hydrocarbons
Wang Jianliang (CUP), Karl Hallding (SEI)
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List of contributing papers (3)
Energy 33 Air quality control plans in the
JingJinJi region of China Chen Bin (BNU), Karl Hallding,
Claudia Strambo
Energy 34 Energy Access TBD
Energy 35 Air Quality Johan Kuylenstierna, Mike Holland, others
Magnitude and categories of adverse air pollution impacts; resulting ‘true cost’ of key energy supply options (transport, power); extent of climate co-benefit from efforts to
improve air quality; methodologies for assessing the economic and social impacts of air pollution; decision maker heuristics for incorporating air quality effects in key
infrastructure and energy supply policy decisions.
Ethiopia 36 Ethiopia Green Growth Development
consolidated paper Firew Woldeyes and Russell Bishop analysis of the Ethiopian development experience and provide expert input on the issues faced by a developing country in future low-carbon transitions.
Ethiopia 37 Ethiopia Urbanisation Firew Woldeyes and Russell Bishop
Finance 38 Capital Needs and Gaps with the Policy
Effectiveness – Investment Barbara Buchner Provides an overview and discussion of existing estimates for low-carbon investment needs. Identifies the most effective policy instruments for delivering finance to low-
carbon energy assets by geography, technology, and financing source.
Finance 39 Stranded Assets – Divestment Barbara Buchner and David Nelson Investigate which resources will be stranded under different scenarios, ownership structures, geographical location, ownership, strategic options for asset-holders.
India 40 Consolidated India Paper Rajat Kathuri
Innovation 41 Consolidated Innovation Paper Kim Henderson to coordinate
analysis of technology cost curves for various climate-relevant technologies; generate historical case studies on the impact of government innovation policy in specific
applications in different sectors and different countries/regions. The case studies will shed light on the importance of applying policy tools with the particular market
opportunities, sources of differentiation and strength to build on, and constraints in mind.
Innovation 42 Carbon Capture Usage and Storage Kim Henderson Innovation 43 Circular Economy paper TBD
The New Climate Economy
The Ny-Alesund Symposium 2014 26-28 May, 2014