promoting development,saving the planet

8/7/2019 Promoting Development,Saving the Planet

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Department o Economic and Social Aairs

World Economic and Social Survey 2009

Promoting Development,

Saving the Planet

Overview

United Nations

New York, 2009


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1

Overview

Addressing climatechange is the concern of all

Te central message o the World Economic and Social Survey 2009 is thataddressing the climate challenge cannot be met through ad hoc and incrementalactions. In the rst place, it requires much stronger eorts by advanced

countries to cut their emissions. Te act that in this regard more than adecade has been lost since the adoption o the Kyoto Protocol to the UnitedNations Framework Convention on Climate Change1 only adds urgency tothose eorts. However, even i advanced countries begin to match their words

with deeds, their eorts are, by themselves, unlikely to be sucient to meetthe climate challenge. Te active participation o developing countries is nowrequired and such participation can occur only i it allows economic growthand development to proceed in a rapid and sustainable manner.

Tis Survey argues that switching to low-emissions, high-growthpathways in order to meet the development and climate challenge is bothnecessary and easible. It is necessary because combating global warming cannotbe achieved without eventual emissions reductions rom developing countries.It is easible because technological solutions that can enable a shit towards suchpathways do in act exist. It is, however, neither inevitable nor inconsequential.Such a switch would entail unprecedented and potentially very costly socio-economic adjustments in developing countriesadjustments, moreover, that

will have to be made in a world more rie with inequalities than at any time in

human history. I it is to happen, the switch will require a level o internationalsupport and solidarity rarely mustered outside a wartime setting.

Te Survey also argues that achieving such a transormationhinges on the creation o a global new deal capable o raising investment levelsand channeling resources towards lowering the carbon content o economicactivity and building resilience with respect to unavoidable climate changes.Most developing countries do not currently have the nancial resources,technological know-how and institutional capacity to deploy such strategiesat a speed commensurate with the urgency o the climate challenge. Failure

to honour long-standing commitments o international support in those threeareas remains the single biggest obstacle to meeting the challenge. Bolderaction is required on all ronts.

1 United Nations, Treaty Series, vol. 2303, No. 30822.


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Te Surveycontends that, in line with common but dierentiated

responsibilities, the switch will demand an approach to climate policy indeveloping countries dierent rom that in developed ones. It will, in particular,require a new public policy agenda one that ocuses on a broad mix o marketand non-market measures while placing a much greater emphasis than hasbeen seen in recent years on public investment and eective industrial policies,to be managed by a developmental State. Te mix in developed countries islikely to entail a larger role or carbon markets, taxes and regulations.

Finally, issues o trust and justice will need to be taken much moreseriously so as to ensure air and inclusive responses to the climate challenge.Te Survey argues that one determinant o success will be the capacity odeveloped and developing countries to create a more integrated ramework and

joint programmes with shared goals on, inter alia, climate adaptation, orestry,energy (including energy access), and poverty eradication.

Projections and principles

The climate challenge or developing countriesEven i the annual fow o emissions were to stabilize at todays level, thestock o greenhouse gas emissions in the atmosphere would be twice the pre-industrial level by 2050, entailing a high probability o dangerous temperaturerises, with potentially destabilizing economic and political consequences. Telatest ndings o the Intergovernmental Panel on Climate Change (IPCC)suggest the ollowing:

For many key parameters, the climate is already moving beyond

the patterns o natural variability within which our society andeconomy have developed and thrived. Tese parameters includeglobal mean surace temperature, sea-level rise, ocean andice-sheet dynamics, ocean acidication, and extreme climaticevents. Tere is a signicant risk that many o the trends willaccelerate, leading to an increasing risk o abrupt or irreversibleclimatic shits.2

In light o these ndings, the Survey recognizes a maximum tem-perature increase o 2o C above pre-industrial levels as the target or stabiliz-ing carbon concentrations at a level that prevents dangerous anthropogenicintererence in the climate system. Tis corresponds to a target greenhouse gas

2 Key message 1: (Climatic trends) rom the International Scientifc Congress Climate

Change: Global Risks, Challenges and Decisions, Copenhagen, 10-12 March 2009.


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Overview 3

concentration (in terms o carbon dioxide equivalents (CO2e)) o between 350

and 450 parts per million (ppm) and to global emission reductions o the ordero 50-80 per cent over 1990 levels, by 2050. In terms o actual emissions, this

would be equivalent to a reduction rom roughly 40 gigatons o carbon dioxide(GtCO

2) at present to between 8 and 20 GtCO

2by 2050.3

Tis challenge is the consequence o over two centuries ounprecedented growth and rising living standards, uelled by an ever increasingquantity and quality o energy services. raditional (biomass) energy sources

were initially replaced by coal and (beginning in the early 1900s) by oil. oday,ossil energy sources provide or some 80 per cent o total energy needs.

However, the activities that utilize these services have been veryunevenly distributed, resulting in a sharp divergence o incomes between thedeveloped and the developing world and huge economic and social disparitiesglobally (gure 1). Moreover, as a result o this uneven development, theadvanced countries have, since 1950, contributed as much as three quarters othe increase in emissions despite the act that they account or less than 15 percent o the worlds population.

It ollows that the response to climate change in developing countries

will necessarily unold in the ace o vastly more daunting challenges than thoseconronting developed countries and in a ar more constrained environment.

3 A gigaton is equal to 1 billion metric tons.

Figure 1The income gap between G7 and selected regions, 1980-2007

Sub-Saharan Africa-36

Latin America-5

First tier Asiaa

Second tier Asiab

China

India

10 000

5 000

0

-5 000

-10 000

-15 000

-20 000

-25 000

-30 000

-35 000

-40 000

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99

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01

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02

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04

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07

G7 income line

Dierence in average income per capita

Purchasingpowerparity(PPP),current

UnitedStatesdollars

Source: DESA/DPAD/DSP calculations, based on WB-WDI online database.

a Hong Kong Special Administration Region of China; Republic of Korea, Singapore; Taiwan Province of China.

b Indonesia, Malaysia, Philippines, Thailand.


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Te major challenge remains that o economic growth. Economic growth is

important not only or achieving poverty eradication but also or bringingabout a gradual narrowing o the huge income dierentials between the twogroups o countries. Te idea o reezing the current level o global inequalityover the next hal century or more (as the world goes about trying to solve theclimate problem) is economically, politically and ethically unacceptable.

Synergies between the climateand development challenges

Is it possible to combine high economic growth in developing countries witha radical lowering o their emissions trajectory? Te literature on climate anddevelopment encompasses two dierent approaches to this issue. Proponentso the top-down approach ocus on the global challenge and what kind oemissions trajectories and targets or developing countries would be consistent

with meeting this challenge. Tis approach has also been used to calculaterepresentative costs o climate action. Proponents o the alternative, bottom-up approach ocus on the concrete actions that are being undertaken by

developing countries, in the context, or example, o energy eciency, pilotprogrammes in renewable energy, and aorestation projects. Tis approachhas also been used to develop cost estimates o specic mitigation. However,there are very ew studies that translate both these approaches into thekind o strategic programmes that would put the economy on a sustainabledevelopment trajectory.

Combining the two approaches leads to the conclusion that it isindeed possible to integrate the climate and development agendas, although

this would require a very dierent stance on climate policy in developingcountries than the one that has emerged in developed ones. While therewill be similarities between the two groups o countries in terms o a subseto national policy instruments (smarter incentives, stronger regulations),developing-country Governments would need to steer resources mobilizedor large-scale investments into new production sectors and new technologies.

While the emphasis in developed countries is on the development o thecarbon market, the preerred option or developing countries should bean emphasis on active industrial policies. Tis combination o large-scale

investments and active policy interventions requires strong and sustainedpolitical commitment embodied by a developmental State and, as critically,sizeable and eective multilateral support with respect to both nance andtechnology.


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Overview 5

Synergies between developedand developing country actions

Te search or synergies between developed and developing countries in respecto climate action has led to three rather dierent approaches. Application othe rst approach means that developing countries ollow the example odeveloped countries, either voluntarily or through some orm o coercion, byadopting emissions reduction targets. Under the second option, either settingtargets or undertaking actions is conditional on the availability o nance andtechnology rom developed countries. Under the third option, developed anddeveloping countries jointly adopt both climate and development targets.

Te Surveys conclusion is that the rst approach is bound to ail.Te second approach is a necessary one, but it runs the risk o producingonly incremental action on a project-by-project basis. Quite understandably,this approach has ocused attention on the question o nancial transersthrough ocial development assistance (ODA). I ambitions with respectto meeting the climate challenge were more modest, this approach wouldsuce; given, however, the scientic consensus on the dangers o climate

change, it is most likely inadequate. It is the third approach that is in actbest suited or reconguring the development trajectory. As it turns out, therecent multiplicity o ood, energy and nancial crises may have created justthe context in which such cooperative action could take root. While theorigins o those crises may be distinct, like the climate crisis they pose acommon threat to actions still to be completed under the agenda or achievingeconomic development and poverty eradication.

In response to the global economic and nancial crisis, steps havebeen taken to bring about recovery, to prevent a return to the nancial excesses

o casino capitalism and, through the inclusion o green investments instimulus packages, to address environmental concerns, including thosepertaining to climate change. While these initiatives do not yet add up toa long-term sustainable solution, they do point in the right direction. Still,much more needs to be done. Tere has been, in particular, a reluctance toacknowledge both the scale o the adjustments that developing countries willbe required to make to pull their economies out o the global recession andshit onto low-emissions pathways, and the resulting economic and political

costs. I developing countries are to undertake such adjustments, a muchgreater level o international cooperation will be needed.


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Overview 7

on others. Te Stern Report concluded that it was possible to ensure that

uture generations would be much better o at relatively little cost to presentgenerations.

Sterns analysis has triggered a heated debate among economistsabout the right methodology or costing climate damage and the most ecientmechanisms or correcting the underlying market ailure. Tat debate hasencouraged policymakers to think more clearly about the management oclimate risk under conditions o imperect inormation and uncertainty, andto develop a sense o both historical considerations (regarding how ar backthe polluter-pays principle should reach) and geographical ones (regarding

whether the polluter is the producer or the consumer o the goods that addto the stock o greenhouse gases).

Te resulting top-down metrics have generated complicatedcountry schedules or bringing carbon emissions down to sustainable levels.So ar, however, this approach has provided surprisingly little policy guidanceon how countries might manage transormative change, with discussion inthis regard being limited to the subjects o the distribution o emission rightsand the determination o the right price or carbon.

Creating carbon markets and establishing a predictable carbonprice will be part o the policy mix, but they do not address the developmentdimension o the challenge. For instance, the cap-and-trade system has beendesigned to conorm to the policy experience, institutional capacity andeconomic conditions o rich countries. By deault, this provides signicantadvantages to them, as the essential baseline is the current emissions o thehigh-emitting countries.

or promoting development rightsOthers have argued that the economists ocus on market ailure is overlyreliant on cost-benet calculations and thereby underestimates the threat ocatastrophic climate shocks and understates the plight o the most vulnerablecommunities. Te rural poor in the developing world will likely ace thelargest adjustments to climate change and helping them meet their adaptationchallenge should be an essential eature o a air climate ramework.

However, divergent growth and rising global inequality over the

past 60 years make the development policy challenge into something muchbigger than that o eliminating extreme poverty (United Nations, 2006).Moreover, over that period, advanced countries, in their climb to the top othe development ladder, have used up a good part o the atmospheric space


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Overview 9

An investment-led approach

All economic success stories have enjoyed a sustained burst o growth, on theorder o 6-8 per cent per annum, allowing them to raise living standards andclose the income gap with the developed countries. Growth, moreover, is stronglycorrelated with a broad set o social indicators, including poverty reduction,

which together describe a more sustainable and inclusive development path. Butthis path does not emerge spontaneously. Even ater a period o rapid growth,countries can get stuck or even all back. Others struggle just to take o.

A rapid pace o capital accumulation, accompanied by shits in

the structure o economic activity towards industry, is usually a critical actorbehind a sustained acceleration o growth. A good deal o early developmentpolicy analysis was ocused on raising the share o investment to a levelthat would trigger a virtuous circle o rising productivity, increasing wages,technological upgrading and social improvements. Te successul versions othis big push concentrated on selective leading sectors whose development

would attract a urther round o investment through the expansion ostrong backward and orward linkages. As described, the development

policy challenge was less about detailed planning and more about strategicsupport and coordination, including a signicant role or public investmentin triggering growth and crowding in private investment along a newdevelopment path.

In the 1980s and 1990s, investment-led development models hadbeen abandoned in avour o market-oriented economic reorms. However,or most developing countries, reer markets and greater exposure to globalcompetition did not produce the outcomes expected by the proponents othose reorms, particularly with respect to investment perormance.

A return to an investment-led approach in developing countriesmakes sense once the climate challenge is properly integrated with thedevelopment challenge. Such an approach has already begun to take shapein richer countries with the inclusion o green investments in stimuluspackages designed to create jobs in the ace o a severe economic downturn.For developing countries where the shit to new sources o energy must takeplace in the context o their need to urbanize, strengthen ood production anddiversiy into competitive industrialization, the challenge is o an even largermagnitude.


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The mitigation challenge

Reducing greenhouse gas emissions will require large and interconnectedinvestments across several sectors, with the aim, inter alia, o haltingdeorestation and land degradation, retrotting buildings to make them moreenergy-ecient and redesigning transportation systems. But it is an energytransition that will be at the core o an alternative integrated strategy ormeeting climate change and development goals. Energy use is responsibleor 60 per cent o total greenhouse gas emissions, all stabilization scenariosindicate that a huge share o emissions reductions, perhaps as much as 80

per cent, will have to come rom the reshaping o energy systems. Figure 2depicts the historical evolution o the energy system and one possible uturedevelopment path towards decarbonization, one that would limit the increasein global average temperatures to about 2o C by the end o the century. Tegure illustrates the much-needed transormational change o the globalenergy system. Te ultimate goal o such a transition must be to improveenergy eciency and reduce reliance on ossil uels, especially oil and coal,and to increase reliance on renewable sources o energy, especially wind, solar

and advanced (non-ood) biouels.Developed countries have mature economies, in which there isadequate (and even excessive) availability o modern energy services. Tey

Figure 2Historical evolution of, and a possible future for, the global energy system, in thecontext of the relative shares of the most important energy sources, 1850-2100

Sources: Grbler, Nakicenovic and Riahi (2007), and Nakicenovic and Riahi(2007), and International Institute for

Applied Systems Analysis (2007).

1850 1900 1950 2000 2050 2100

Percentage

ofshare

Biomass (including non-commercial)

Coal

Oil

Gas

Renewables

Nuclear

100

80

60

40

20

0


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Overview 11

do not need to undertake a massive expansion o their energy inrastructure.

However, liestyle changes and sizeable investments will still be needed to turntheir energy system away rom the current dependence on ossil energy towardsa complete decarbonization by the end o the century, or earlier. Developingcountries, on the other hand, are severely handicapped in terms o modernenergy inrastructure, and will require sustained large-scale investments in thissector to meet existing demand and promote economic development.

It ollows rom this that developed economies may need, and willbe able to aord, a substantial increase in the price o energy, especially ossil-based energy, in order to provide the right market signal to potential consumersand investors. In contrast, all developing countries ace the urgent challengeo expanding the energy inrastructure and making energy services widelyavailable at aordable prices. Te estimated number o people lacking suchaccess ranges between 1.6 billion and 2 billion, mainly in rural areas. At leastor the oreseeable uture, developing countries will need to subsidize energyor their middle- and lower-income groups in order to make these servicesaordable.

Connecting those people to energy services will cost an estimated

$25 billion per year over the next 20 years. Tis is a large sum or the pooresto the developing countries and is several times larger than the amount o aidspent on energy services.

A range o technological options will be relevant to the mitigationchallenge, rom the diusion o existing low-emissions technologies, throughthe scaling up o new commercial technologies, to the development anddiusion o breakthrough technologies. Some o these will be cost-savingimmediately or over a short time span. However, the production o largeramounts o clean energy in line with industrial and urban development will

require very large investment with a long gestation period.o realize scale economies and the potential benets o technological

learning, upront investments would need to be made in new and advancedcarbon-saving technologies, which would, ater scale-up and adoption, lowerthe mitigation costs and increase the mitigation potentials. Complementaryinvestments in research and development and related skills development wouldalso be needed to improve the perormance o carbon-saving technologies andreduce their costs.

Te potential size o the energy market in developing countriesalong with the possibility o making improvements to already installed capacityserves as an indication o how important investment opportunities could be.However, as the initial costs and risks are likely to deter private investors, thepublic sector would be let with a leading role, at least in the early stages o


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expansion. Te current investments in the global energy system are estimated

at some $500 billion per year. Te sustainable scenario depicted in gure O.2would require at least twice this eort during the coming decadesabout $1trillion per year or $20 trillion by 2030.

Resilience through diversity:the adaptation challenge

For many developing countries, environmental constraints and shocks are

already part o a vicious development cycle which traps them at a low levelo income, undermines their resource base and constrains their capacity tobuild resilience with respect to uture shocks. Even i policymakers can quicklyeect the transition to a low-emissions growth path, unavoidable rising globaltemperatures will bring serious environmental shocks and stresses, throughspreading drought conditions, a rising sea level, ice-sheet and snow-covermelting, and the occurrence o extreme weather events. In the coming decades,these phenomena will threaten and destroy livelihoods around the globe, inparticular the livelihoods o already vulnerable populations, including in

developed countries.Humanitarian groups have expressed concern or some time regarding

the potential linkages between low or negative economic growth rates, higherlevels o unemployment in the workorce, and stressed land and marine ecologies.

A changing climate would engender, in already ragile contexts, additional stressactors such as more intense hurricanes in the Caribbean, above-average warmingimpacting glacier-dependent river fows in Central Asia, and drought-induced

water scarcity impacting the ragile economies o Northern Arica.

Adapting to climate change will have to be a central component oany comprehensive and inclusive climate agenda. Poor health o populations,lack o inrastructure, weakly diversied economies, missing institutions andsot governance structures expose poorer countries and communities not just topotentially catastrophic large-scale disasters but also to a more permanent stateo economic stress rom higher average temperatures, reduced water sources,more requent fooding and intensied windstorms.

Tose threats are particularly common in rural communities wheremore than one third o households globally must conront the precariousness

o their livelihoods. In sub-Saharan Arica, that proportion is over 60 percent, and in some areas, heat-related plant stresses will contribute to reducedyields in key crops, by as much as 50 per cent. Strategies to avoid crop ailures

will include diversity arming, which is potentially one o the most important


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Overview 13

strategies or achieving ood security in a changing climate, and the utilization

o new crop strains that are more weather-resistant and have higher yields.More generally, economic policies to promote agricultural developmentshould ocus on extending support services, particularly or smallholders,and improving inrastructure (such as roads and storage acilities along withirrigation networks).

Forests are a source o livelihoods or close to 25 per cent othe worlds peoples, many o whom are under threat rom climate change.Important elements o orest protection encompass not only improved climateorecasting and disease surveillance systems but also strategies or preventingand combating orest res, including the construction o re lines, controlledburning and the utilization o drought- and re-resistant tree species, suchas teak, in tropical orest plantations. Measures aimed at assisting orests inadapting to climate change encompass, or instance, acilitating the adaptivecapacity o tree species mainly by maximizing silvicultural genetic variation,and also management approaches such as reduced-impact logging. Moregenerally, investments in economic diversication and employment creation,as well as improvement o land, soil and water management, will be part o a

more integrated strategy.Te impacts o a changing climate on health and sanitation will

be just as signicant. While warming has already contributed to an additional150,000 deaths annually in low-income countries, higher temperatures willurther increase the survival and replication rates o bacterial contaminants oood and water sources, exacerbating the impact on health. Further, increased

water scarcity will worsen already inadequate sanitation and hygiene standards;in Arica alone, 200 million people are already acing water stress. In manycases, water management is made all the more dicult by the variability in

water availability, a consequence o both population increases and a changingclimate, a situation that requires increased resilience in water managementsystems. Although eorts are already under way to strengthen those systems ina number o developing countries, signicant public investment will be neededto achieve sustainable results.

More than hal o the worlds population now live in urban areas.City dwellers are expected to make up three quarters o the worlds population by2050, with almost all the growth in the developing world. Urban environmentsace their own adaptation problems, linked, in particular, to the quality osocial inrastructure and building. In rapidly expanding coastal cities, orexample, protection against sea-level rises and increased wind strength is anurgent priority. A combination o poverty, population density and poor socialservices makes or particularly vulnerable communities or which sudden


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climatic shocks can prove devastating. As things currently stand, most o the

risk to urban areas is associated with the incapacity o local governments to,inter alia, ensure the development and protection o inrastructure and theadequacy o disaster risk reduction and disaster preparedness.

Combined large-scale investments, inormation management andcollective action have already been undertaken by countries and communities

with advanced economies that are vulnerable to the threat o climatic shocks.For many developing countries, however, the core o adaptation is still closelytied to the need to diversiy their economies away rom reliance on a smallnumber o activities, particularly those in the primary sector that are sensitiveto climatic shocks and changes. Te Government o Mozambique, or example,has drawn up ambitious plans or the sustainable development o the coastalregion, including inrastructure (transportation, drainage and water supply),land-use changes, and sot options to manage beach erosion. Such plans, whichpresent unique opportunities or an inusion o massive development projects,need to deal with climate risks in an integrated manner, across seasonal, inter-annual and multi-decadal time scales. A combination o public investment,cheap credit and access to appropriate technology will be essential to meeting

the adaptation challenge.

Towards an integrated agenda

Tough the number o calls or a mainstreaming o climate policy is growing, theresponse cannot be one o simply grating adaptation and mitigation goals ontothe objectives o development policy that are currently being discussed. Rather,the two big challenges o development and climate change have to be connected

through the long-term management o economic and natural resources in a moreinclusive and sustainable manner. Tis should be viewed not as a quickandcertainly not as a costlessx but rather as a multidimensional task in whichlarge and long-term investments will play a pivotal role in enabling economies,at all levels o development, to switch to low-emissions, high-growth pathways.Policymakers will need to conront historical legacies, contemplate alternativeeconomic strategies and embrace a more collaborative political discourse.Moreover, they will have to do so as the world tries to recover rom the biggesteconomic shock since the Great Depression.

Te current shocks and the resulting crisis have provided anopportunity or resh thinking about the public policy agenda, and have servedas a reminder that Governments are the only agents capable o mobilizing themassive nancial and political resources required to conront large systemic


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Overview 15

threats. Large-scale resource mobilization will certainly be needed at both

the national and the global levels in order to achieve combined climateand development goals. Te big policy challenge lies in ensuring that theseinvestments trigger more virtuous growth circles, through which to crowd inprivate investment and initiate cumulative technological changes in dynamicgrowth sectors, thereby supporting economic diversication and creatingemployment opportunities.

Public policy challenges

Te big push towards cleaner, more diversied and more resilient economieswill be supported or hindered through Government policies. Because many othe required investments will be large and complementary, price signals andregulatory measures (including building codes, uel eciency standards andmandates or renewable energy use), will need to be predictable. In the aceo the initial cost disadvantages, the adoption o new cleaner technologiesthrough Government subsidies, eed-in taris and other support measures, canbe acilitative.

Some developing countries have begun to develop alternativepolicy rameworks through, or example, national adaptation plans. Tesehave ocused on climate-proong inrastructure projects, such as transport andirrigation systems, improved disaster monitoring and management and betterland-use planning; but diculties in scaling up projects, because o undingand institutional shortcomings, as well as the ailure to adopt a more broadlydevelopmental approach, still need to be overcome. More lasting success willdepend on adopting smarter development policies which link adaptation moretightly to ongoing eorts to remove existing vulnerabilities and constraintson growth and development. Such approaches will need to use large-scaleadaptation projects in both the rural and urban sectors to create jobs, achieveeconomic diversication and trigger aster growth.

A missing element in the current discussionone central toachieving a more integrated approachis industrial policy, consideration o

which has been out o ashion in recent years on the grounds that picking winners has a long history o ailure, particularly in developing countries.However, at a time when developing countries must industrialize to meet their

development goals even as they strive to achieve climate goals, it is dicultto imagine an integrated approach which does not take industrial policyseriously. Stronger intellectual property rights and eorts to attract oreigndirect investment (FDI) are no substitute or sound industrial policies indeveloping countries.


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Te development o new low-emissions technologies will respond

to supply-push (such as targeted cheap credit) and demand-pull (such as apolicy-induced price o carbon) actors. Te sooner these are adopted, theaster cost savings will be linked to learning and wider diusion. Te longerthe wait, the higher the required emissions reduction will be and the slowerthe cost buy-downs. Leaprogging, through the import o such technologies,holds out the possibility o more vigorous improvements in energy eciency,rom supply to end use, expanded shares o renewables, more natural gas andless coal, and early deployment o carbon capture and storage.

Such transormational changes in the energy system need supportrom research, development and deployment (RD&D), removal o tradebarriers, and eective capacity-building. Centres or low-emissions technologyinnovation could have an important role to play. At least in the initial stages,the centres are likely to be publicly unded, though the precise details o themix o donor, public and private unding would vary across countries andover time. What combination o basic research, eld trials, business incubatorservices, venture capital unding, technical advice and support, and policyand market analysis is adopted will also be very much contingent on local

conditions and challenges. In some cases, regional centres might represent thebest way to benet rom economies o scale and scope.

A New Deal?

Tose organizing a more integrated policy approach to the development andclimate challenges could certainly learn rom the experience connected withintroducing the New Deal policies in the United States o America in responseto the Depression o the 1930s. In particular, the interconnected investmentsin energy, transportation, agriculture and health laid the oundations not onlyor a return to ull employment but also or a strong industrial take-o in someo the most underdeveloped parts o the United States, crowding substantialprivate investment into new sources o job creation.

Since 1945, successul developing countries have also used amixture o market incentives and strong State interventions to generaterapid growth and structural changes. Such support was oten guided by anencompassing development vision that judged policy interventions in terms o

their contribution to diversiying economic activity, creating jobs and reducingpoverty.By contrast, many developing countries have suered rom a

rollback o the role o the State during the lost decade o the 1980s. As a result,the ability o the public sector to provide eective and innovative leadership


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Overview 17

in such a complex area as climate change is severely strained. Tose countries

will need support in rebuilding the State inrastructure in order to be ableto discharge the additional responsibilities attendant upon achieving theobjectives o the climate agenda.

Adjusting through investment

An integrated approach entails not only nding solutions in situationsinvolving traditional market ailures but also dealing with systemic threats

and managing large-scale adjustments in economic activity. Te only sensibleresponse is to mix market solutions with other mechanisms, including publicinvestment.

It is important to see investments in both adaptation and mitigationas part o a larger shit to a new investment path involving a broad number osectors and regions, and aimed at weakening the climate constraint on globalgrowth. I history is any guide, industrial-scale production and distributiono cleaner energy should exhibit scale economies and trigger a range ocomplementary investment opportunities in dierent sectors o the economy

and in new technologies. Figure 3 presents some o the major technologiesinvolved and how soon they might be ready or large-scale deployment.Related investments, in many developing countries, will be needed to raise

Figure 3

Technology development and CO2

mitigation for power generation

Source: International Energy Agency (2008a).

Abbreviations: CCS, carbon capture and sequestration; IGCC, integrated gasifcation combined cycle; BIGCC,

biomass integrated gasifcation combined cycle; EGS, enhanced geothermal systems.

Coal CCS power

BIGCC and biomass co-combustion

Ultra supercritical coal and IGCC

Gas CCS power

Nuclear IV Onshore wind

Photovoltaics

Concentrated solar powerOshore wind

Geothermal: EGS Geothermal: conventionalOcean

Biomass CCS power

Fuel cells

Fuel switching to gas

Nuclear III

3

2

1

0

CO

2mitigation(gigatons)

Basic science Applied R&D Demonstration Deployment Commercialization


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agricultural productivity, improve orest management, and ensure, along with

a more reliable water supply and a more ecient transport system, the steadyexpansion o green jobs.

In the short and medium run, however, mitigating and adaptingto climate change increase the cost o development. Perhaps as much as $40billion might be needed to make existing investments climate-proo, and thegure or ensuring resilience in the ace o uture developments will be muchlarger. Te United Nations Development Programme (UNDP) has estimatedthat this would require $86 billion annually (by 2016) and ailure to act quicklyon mitigation will only add to that gure. Investment in mitigation will be o amuch higher order. Estimates by McKinsey & Company, a global managementconsulting rm, suggest that additional investments o up to $800 billionannually by 2030 would be needed to meet stabilization targets. Te Surveyargues, however, that many o these investments will have to be ront-loaded.Te gure is likely to be in excess o one trillion dollars.

Financing these investments will be among the big constraintson the shit to low-emissions economies in most developing countries,particularly where domestic markets or low-emissions technologies are small.

Macroeconomic policies will need to be consistently pro-investment; andinstitutional reorms, including the revival, recapitalization and reocusing odevelopment banks, will need to be adopted. However, such constraints serveas an important reminder that this time around, any green new deal willneed to have a global dimension.

A Global Sustainable New Deal

Te search or sustainable alternatives that counter the threat o dangerousclimate change must at the same time deal with a legacy o highly uneveneconomic development and a growing level o insecurity linked to interrelatedcrises in the supply o ood, energy, water and nance.

A Global Sustainable New Deal should seek to establish a newpublic policy agenda aimed at placing countries on a dierent developmentalpathwayone that protects the natural resource base in an equitable manner

without compromising job creation and catch-up growth. Such a goal can beachieved only i Governments o rich and poor countries alike come together

in collaborative initiatives.Such initiatives should ollow basic principles in order to maximize

their contributions to development goals. Tey could be pursued, in part, byusing the resources mobilized by the stimulus packages o developed countries,


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Overview 19

but reorm o the multilateral nancial and trading systems will be needed,

over the medium term, to support a more stable global economy and promoteinvestment-led growth in a low-emissions economy. Over the longer term, thatgrowth will be sustainable only i developing countries are able to mobilizesucient domestic resources.

Managing the Global Sustainable New Deal

In order or the combined challenges o development and climate change to be

met, nothing less than a undamental transormation as regards nancial andtechnological support to developing countries is needed. Such a transormation would involve moving beyond the long-standing promises o such supportrom developed countries, to a ull-blown strategy o how they will supportthe investments developing countries would have to undertake to shit quicklyto a low-emissions, high-growth path.

What also needs to change is the intergovernmental process onclimate change, whose evolution has been governed largely by principles oenvironmental protection. Tis has meant that the consideration o development

has been let to other orums and institutions. A new ocus on developmentneeds to be engendered and the regime and governance mechanisms need tobuild appropriate linkages and processes around sustainable development atthe international level, which would encompass:

An investment-based approach . A low-emissions growth trajectory will not be created through prudent macroeconomicpolicies and rapid market liberalization. Instead, massive invest-ments (rom the public and private sectors) in new inrastruc-

ture, new capacities and new institutions will be needed to meetmitigation and adaptation challenges

A collaborative agenda . Inherent trust among developed anddeveloping countries is a central need in tackling a global chal-lenge: Weak perormance on mitigation obligations by high-emitters in the North, combined with minimal operational sup-port or technology and nance, has resulted in a large trustdecit. Tis must change, as solving the climate problem with-out participation o the South is no longer possible. Tis col-laboration requires a consistent ocus on a airer world order anda system o global governance that is open transparent, partici-patory and responsible


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A commitment to phasing out high-emissions growth . Dirty

subsidies have been estimated at $250 billion or (0.5 per cento world gross product) in 2005. Redirecting these to clean en-ergy sourcesbut not at the expense o access to energy ser-vices in developing countrieswould boost the transition tolow-emissions high growth. Moreover, the rights o countriesthat depend on the extraction o ossil uels, which have beenrecognized in the United Nations Framework Convention onClimate Change, should be an important determinant o thepolicies chosen.

New fnancing mechanisms

Te diculty o access to appropriate and predictable levels o nance, at anacceptable cost, has been a consistently binding constraint on investment andgrowth in poor countries. While the estimates or meeting the mitigationand adaptation challenge cover a wide range, the gures suggested earlier

will pose a major obstacle to climate progress in many developing countries.

Currently, the nancing needed to meet the climate challenge that is availableto developing countries rom bilateral and multilateral sources is estimated atabout $21 billion. Tat amount will have to rise maniold, and sooner ratherthan later. Tis is a daunting challenge.

I private investment is to ull its role, predictable long-term signalswill need to be established based on the price o carbon, using a combinationo taxation, emissions trading and regulation. However, the limited evolutiono carbon markets and the current nancial crisis will discourage private

investment in the short and medium term at a most critical time, since newinrastructure projects will be producing emissions or decades. Resourcemobilization or public investment, rom both national and internationalsources, needs to be pursued more vigorously, and on a much larger scale.

Funding o the large public investments required to meet thechallenge, particularly with respect to mitigation, where the ront-loadingo investments is essential, is unlikely to come through ODA even i donorcountries live up to their commitments. Utilization o new unding sources,such as government green bonds and special drawing rights (SDRs) rom the

International Monetary Fund, needs to be considered. Global levies or taxeson bunker uel or air and ship transport, air travel or nancial transactions

will also have a role. However, administrative obstacles and concerns abouttheir possibly regressive nature have still to be addressed.


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Overview 21

It is widely understood that there is need or an enhanced nancial

mechanism to deal with the massiveness o the scale o the transers required ormitigation and adaptation in developing countries. Tere remains considerabledisagreement however, regarding whether new institutional arrangements,including unds, are needed, or existing arrangements and unds, suitablyreormed and scaled up, would suce. Concerning the governance o sucha mechanism, the crucial question is who will decide whatwith respect to themanagement and allocation o nancial resources.

Funding the incremental costs o adaptation will, in most cases,be linked to development-related unding, or example, or inrastructureinvestment and diversication eorts in developing countries. Te closenesso the link may partly explain why institutions like the World Bank haveset up their own climate unds. Te scale o such unding remains woeullyinadequate and scaling up is an urgent challenge.

Te scale o the nancing needed to make the big push to a low-emissions development pathway is several orders o magnitude greater than thatavailable through current nancing arrangements. Financing the mitigationchallenge might thereore warrant making more radical changes in the existing

international architecture. Some possible measures include:A global clean energy und . In light o the urgency o this chal-lenge, a new global und to address climate change mitigationin developing countries, established outside the existing multi-lateral nancing institutions and with a governance structureacceptable to all parties to the United Nations FrameworkConvention on Climate Change, needs to be considered. Intime, existing mitigation unds could become part o this largermechanism

A global eed-in tari regime .A global eed-in tari programmecould provide guaranteed purchase prices to producers o renew-able energy in developing countries over the next two decades.Tis mechanism would lead to an automatic drawdown o sub-sidies over time as production and incomes increase. Deliverymechanisms would have to be careully designed so as to ensurea level playing eld or all competing technologies and on-gridand o-grid operators and benet targeted low-income con-

sumers. Te programme should be accompanied by provisiono support to local renewable components industries to ensurethat national production capacities are spurred and countriesare able to satisy a growing share o the increased demand or


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renewable energy locally, thereby beneting rom additional job

creation

A reormed Clean Development Mechanism . Te United Na-tions Framework Convention on Climate Change Secretariat es-timates that, by 2020, osetting could yield up to $40.8 billionper year, although this is still only a raction o estimated incre-mental costs in developing countries. Te present deciencies othe Clean Development Mechanism or acilitating large-scaleresource transers are widely acknowledged. Much attention has

ocused on reorming the Mechanism in such a way as to replaceits project ocus with a programmatic and/or policy ocus, in theexpectation o larger impacts, shorter unding cycles and lowertransaction costs

Forest-related fnancing mechanisms . Forestry accounts orabout 17 per cent o global greenhouse gas emissions. Several newnancing initiatives have been launched to help reduce emissionsrom deorestation and orest degradation, including the World

Bank Forest Carbon Partnership Facility and the UnitedNations Collaborative Programme on Reducing Emissions romDeorestation and Forest Degradation in Developing Countries(UN-REDD Programme). Sustainable orest management isthe right approach to dealing with mitigation in the orest sectoras well as other orest sector challenges; nancing should enablenot only climate change mitigation but also adaptation.

Technology transerExisting best-practice technologies or a low-emissions economy are already inplace in advanced economies and urther breakthroughs are likely. echnologytranser is thereore a critical international public policy issue. At the same time,developing countries will need support in building their own technologicalcapacity so as to ensure that they both undergo a smooth transition to a low-emissions economy and maintain competitiveness in an open global economy.Te supporting architecture or dealing with these dimensions o the challenge

is still poorly developed and in need o urgent attention ocused on:A climate technology programme . An operational programme,supported by a Secretariat and various panels o experts, needsto be established, possibly under the auspices o the Conerence


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Overview 23

o the Parties to the United Nations Framework Convention

on Climate Change to examine the various dimensions o thetechnology challenge in developing countries and, where ap-propriate, to provide technical assistance with respect to, interalia, energy eciency in buildings; greening industrial supplychains; deployment and maintenance o renewable energy inra-structure; integrated waste management; water and sanitation;and extension services to promote sustainable agriculture

A global research, development and deployment und . Current

trends have not been avourable or technology developmentand demonstration. Public expenditures in countries memberso the Organization or Economic Cooperation and Develop-ment (OECD) on energy-related research, development and de-ployment have declined to some $8 billion rom about $12 bil-lion two decades ago, while private expenditures have declinedto $4.5 billion compared with almost $8 billion a decade ago.Tis means that in the world today we are investing barely $2per person per year in energy-related research, development and

deployment activities. Tis needs to increase by a actor o 2 to3 in order to enable the transition towards new and advancedtechnologies in energy systems. Given the interrelated threats oclimate change and ood security, special attention may need tobe given to the challenges acing agriculture in the developing

world in the context o the green revolution

A balanced intellectual property regime or technology transer .Te parties to the United Nations Framework Convention on

Climate Change need to agree on the role o intellectual prop-erty in the transer o technology. Tere are several fexibilitiesavailable within the ramework o the Agreement on rade-re-lated Aspects o Intellectual Property Rights5 such as compul-sory licences, exceptions to patents rights, regulating voluntarylicences, and strict application o patentability criteria. Tesemeasures may enable access to technologies to a certain degreebut their use is limited to specic circumstances and they areusually more dicult to operationalize in developing countries.Options such as allowing developing countries to exclude criti-

5 See Legal Instruments Embodying the Results of the Uruguay Round of Multilateral

Trade Negotiations, done at Marrakesh on 15 April 1994 (GATT Secretariat publication,

Sales No. GATT/1994-7).


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cal sectors rom patenting, as well as a global technology pool

or climate change, merit serious consideration, as these options would provide certainty and predictability in accessing tech-nologies and urther enable much-needed research and develop-ment or local adaptation and diusion, which would urtherreduce the cost o the technologies. In addition, modalities oraccess to publicly unded technologies by developing-countryrms need to be explored.

Trade

Serious discussion o the links between trade and climate change has beenstymied by the impasse in the Doha Round o negotiations. As Governmentsare becoming serious about addressing climate change, the old trade andenvironment debates on how to distinguish between legitimate environmentaland health protection measures as allowed under the rules o the World radeOrganization and disguised trade protectionism measures need to be revived.

rade is important because environmental technologies and

know-how are generated primarily in developed countries and transerredto developing countries mainly through embodied technologies in importedgoods and services, FDI or licensing. I Governments o Annex I countriesshould choose to pursue border measures (or example, border tax adjustments)to protect their energy-intensive industries based on the carbon directly andindirectly emitted in the production o a product, it would become necessaryto address the unresolved issue o how to treat processes and productionmethods. Because subsidies are and will continue to be used to support the

development o alternative energies, the issue o determining how to handlethose subsidies and which ones are non-actionable under the rules o theWorld rade Organization will also have to be dealt with.

Last but not least, these issues need to be resolved taking intoaccount the principle o common and dierentiated responsibilities asembodied in the United Nations Framework Convention on Climate Changeand its equivalent within the ramework o the World rade Organization,namely, special and dierentiated treatment or developing countries. Ithese issues are not resolved adequately, they may result in protracted trade

disputes.

promoting development,saving the planet

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