Now Is the Best Chance for a Climate Deal
The economic case for action on climate change is becoming ever more powerful. Essentially, recent research shows that if nations act together to reduce carbon emissions, costs of action fall and new opportunities for jobs and growth rise. There will be upfront investment but this should not be all about government money. There is also a vast potential for private sector investment if we set the right framework of incentives.
The real benefits—with as many as 10 million new jobs created and additional output equal to the green stimulus packages created this year—come when all countries act together.
This week marks the countdown in earnest to the UN Climate Summit in December. Already in the last few days the Major Economies Forum has met in Washington and Environment and Climate Change Ministers have come together in New York. Heads of government have picked up the baton at the U.N. and later this week at the G-20 summit in Pittsburgh. Although climate change is ostensibly an environmental issue, what makes it seemingly so intractable is that the questions that divide countries—and which should bring them together—are economic and go to the heart of government policy. Nobody doubts the need to take action. Indeed heads of government have recognized this for several years. However, the questions of short-term versus long term costs and benefits, what additional investments are necessary, who should make them and the volume and respective roles of public and private financing still divide nations. It is crucial that these issues are resolved urgently by world leaders if we are to reach agreement on a global deal on climate change in the coming months.
• Big Fat Story: The Climate WarsThe Stern Review made it abundantly clear that there is no choice between action and inaction: the costs of doing nothing—economic as well as social and political—would make the current economic slowdown pale into insignificance. And, if anything, the scientific evidence that has emerged since the Review was published in 2006 suggest that the argument for early action to cut emissions is even stronger. Moreover, strong action on climate change will lay the foundations for a more sustainable, and energy secure future. The transition to this form of growth will probably be the most dynamic and innovative in our economic history.
However, the fact that it makes long-term economic sense to act now does not deal with the issues that most concern governments: short-term economic impacts and how they affect jobs and growth and how the emissions reductions are to be financed, especially in the context of shrinking public budgets. New research published by the Breaking the Climate Deadlock Initiative deals with the first set of issues.
Looking at a range of scenarios for participation in efforts to cut emissions by 2020 shows that in all cases there is a small but positive boost to both GDP growth and job creation, even when a few countries go it alone. However, the real benefits—with as many as 10 million new jobs created and additional output equal to the green stimulus packages created this year—come when all countries act together. And these benefits don't just accrue to one or two countries; in fact every country sees new jobs and increased output. Even ignoring the very real impacts of climate change itself, collaborative investment in cutting emissions is good for the economy.
Looking beyond 2020, global co-operation on climate change could yield still stronger economic gains, driving new waves of technological innovation and discovery and new sources of growth and employment. This leads us to the second issue. While the returns on climate change mitigation are positive, the initial investment still needs to be made. Estimates of this additional investment—in energy efficiency, clean energy, reduced deforestation and adaptation measures now and developing the technologies we will need in the future—vary widely.
There is also much debate on whether developed or developing countries and the public or private sectors should pick up the tab. These are false choices. It should be obvious that all countries—developed and developing—should undertake the actions that are in their own economic interest, even if they require new capital investment to do so. It is where net positive costs are incurred in developing countries or where there are additional barriers to investment that finance from the developed world becomes even more critical.
This is not simply a question of ethics; although securing an equitable deal must be a key part of the story, without significant support for mitigation in developing countries, we simply cannot make the global emissions reductions necessary to avoid dangerous climate change. This is not an argument about transfer of resources but a sensible way to manage global risk and an investment in our economic health. Similarly, both the public and private sectors will need to combine at scale to finance mitigation and adaptation in developing countries.
The role of government here is to put in place regulation to create a robust carbon market and enable private capital to flow whilst ensuring public money does not crowd out private activity. Public money should be concentrated in those areas where the risks to the private sector are too high to incentivise private investment. There are a number of ways that this can be achieved, for example through concessional loans, debt guarantees, equity financing and challenge funds. Such instruments can be put in place now but must be underpinned and reinforced by a global agreement on climate change. And new sources of green public finance can be created.
We have a small window of opportunity to achieve a global deal on climate change and the next few weeks will be crucial. The world cannot afford to stall on a global agreement and risk further delay in taking crucial steps to tackle climate change. This is both irresponsible for the security of the planet and risks missing out on significant economic gains.
Tony Blair is founder of the Breaking the Climate Deadlock Initiative and was Prime Minister of the United Kingdom between 1997 and 2007. Visit tonyblairoffice.org.
Sir Nicholas Stern is author of the Stern Review on the Economics of Climate Change.