Tapping the sun for a brighter, more efficient future (Image: Ramesh Amruth/Plainpicture)

Is it too good to be true? Top economists this week lay out an audacious argument for transforming the world’s economy into a low-carbon one. Even if you forget climate change, they say, it is worth doing on its own. That’s because a low-carbon economy is an efficient economy that will deliver faster economic growth, better lives and a greener environment. Forget the costs, feel the benefits.

The report is published today, a week before world leaders gather at the United Nations in New York City for the UN Climate Summit 2014, which will discuss how to share out the cost of fighting climate change. But its optimistic message is that there is no cost to share. Nations should be cutting their carbon emissions out of self-interest.

The study – authored by the World Resources Institute, a think tank in Washington DC, the Stockholm Environment Institute and others – is published by the Global Commission on the Economy and Climate, an independent body chaired by Felipe Calderón, former president of Mexico, and Nicholas Stern of the London School of Economics. (The Stern Report in 2006 first opened up a global debate about the economics of tackling climate change). A copy of the latest report, Better Growth, Better Climate: The New Climate Economy Report, is available here.


“We can combine economic growth and climate responsibility,” Stern said at a pre-publication press briefing. “The key is fostering the right investment, making it profitable to the private sector.”

2030 vision

The next 15 years are critical to preventing global warming above 2 degrees, said Calderón, because after 2030 it may be too late. During that time the world’s economy will double in size, and governments and the private sector will probably invest $90 trillion or so in infrastructure such as expanded cities, energy systems and agriculture. These are the three areas the report examines in a wide-ranging review of existing research on the links between climate action and economic activity.

Bad investment would be disastrous, it concludes. But if the world spends wisely on reducing carbon emissions, the climate problem could be largely cracked and economic growth would actually be higher than in a high-carbon world. But delay is dangerous. Every tonne more carbon dioxide in the atmosphere, and every new coal-fired power station built, will make it “more expensive and more difficult to shift to a low-carbon economy”, said Calderón.

On cities, the report says that with a billion more urban residents expected by 2030, massive spending on sprawling urban conglomerations would be bad all round: creating inefficient and lousy places to live and work, gridlock, smog and high carbon emissions. But more compact cities, served by mass public transport systems and cleaner power generation, would be economically more dynamic, healthier and cost-effective, with commuter travelling costs cut by 50 per cent. Building cities that way would also be cheaper, said Jeremy Oppenheim, lead author of the report and a London-based economist at business consultants McKinsey & Company.

Smart agriculture

Feeding another billion people without cutting down the remaining tropical forests needs smart agriculture that maximising yields, says the report. It also means bringing back into use massive areas of former farmland ruined by overgrazing, soil erosion and salt pollution from the ocean. “Restoring just 12 per cent of the degraded land could feed 200 million people,” said Oppenheim. That’s good economics and by protecting trees we would also keep forest carbon out of the atmosphere.

Energy supply is already transforming. The price of solar power has fallen 90 per cent in less than a decade, the report claims. That, along with a surge in hydroelectric dams, is why, globally, half of newly installed electricity generating capacity is now renewables. “It’s mainstream. It can out-compete coal,” said Oppenheim. With the public-health costs of air pollution from fossil fuels typically cutting national GDP by about 4 per cent – and by more than 10 per cent in China – banishing coal in particular is a no-brainer, say the authors.

Some people will scoff at this. Stern has been accused in the past of exaggerating the economic cost of climate change. But his claim this time – that a shift to a low-carbon economy makes sense even without the need to fight climate change – opens a new front.

Huge scope for action

Critics may pick up on the report’s admission that the switch to a low-carbon future will increase investment costs for infrastructure by about 5 per cent over 15 years, and that “some jobs will be lost”. But the authors say such costs will be swamped by the gains such as economic efficiency and better health. “There is now huge scope for action which can both enhance growth and reduce climate risk,” the report concludes.

Some other analysts agree. A report last week from UK-based consultants Cambridge Econometrics forecast that a cut of 60 per cent in UK carbon emissions would deliver, by 2030, GDP 1.1 per cent higher than would be expected if sticking with high-carbon status quo.

If markets worked with perfect foresight, the low-carbon switch would happen automatically. Investors would go green to maximise returns. But markets don’t work perfectly, said Stern. In fact they are rigged by massive subsidies for high-carbon fossil fuels that the International Energy Agency estimates are worth nearly $550 billion a year. That is more than five times the subsidy for renewables.

So action by governments is crucial to levelling the playing field, says the report. And to making sure that the hidden costs of the traditional power-generating ways – such as surging health bills as people get sick from breathing urban smogs – are reflected in energy prices. Public funds will also be needed for research vital to deliver the innovations in digitisation, new lighter materials and biotechnology that can all help deliver a buoyant high-efficiency, low-carbon economy, the report argues.

Finally, if governments could agree on a strong climate treaty, legally limiting national emissions, that would also set the tone for making the changes happen. But, said Oppenheim: “It’s not essential. All the things we propose are in the economic interests of countries on their own terms.”