Long live the economic crisis?

There is an upside to the global recession: greenhouse gas emissions are expected to fall with 3% this year. This would lead to emissions in 2020 being 5% lower. This contrasts to a 60 year history of an average 3% growth in emissions a year. While this may be good news for our climate, government budgets suffer as a result. But we need these government budgets. To keep our planet from warming more than 2° Celsius, $400 billion a year between now and 2020 will need to be invested in greening our energy infrastructure.

The carbon recession

The International Energy Agency (IEA), the world’s premier energy analysts, published their World Energy Outlook this Tuesday. (link)

They predict a drop in greenhouse gas (GHG) emissions of 3% in 2009, mainly because of the economic crisis. Three quarters of the reduction is the result of less industrial activity, with the rest coming from countries turning to renewable energy and nuclear power.

This is good news for our climate as business as usual would mean an increase in temperatures by 6° Celsius.

Since the 1950s GHG emissions have been increasing globally by roughly 3% a year. The 2009 fall in GHG emissions is the biggest in 40 years. The biggest drop occurred during the oil crisis of the early 1970s when many companies were forced to close down due to a doubling of the oil price. The second drop in GHG emissions occurred after the collapse of the Soviet Union which depended heavily on coal. The most recent drop took place in 1998-99 when carbon emissions fell by 0.3%, interestingly the world economy continued to grow, mainly though information technologies and service sectors which use less energy. (The Guardian)

   

The 3% cut in emissions is the result of less industrial activity.

The cost of change

To prevent the earth from warming more than 2° Celsius, we need about “18 nuclear power stations, 17,000 turbines, 100 concentrated solar power stations and 16 carbon capture and storage plants to be built every year until 2030” according to IEA’s chief economist, Fatih Birol. This adds up to an annual investment requirement of $400bn a year building more than 350 new nuclear plants and 350,000 wind turbines in the next 20 years. As a point of reference, the record sized U.S. economic stimulus plan is worth a total of $787 billion.

According to the IEA oil, coal and gas needs to peak at 2020 and then decline. the share of renewables and nuclear which is now 18% worldwide needs to go up to 33% by 2030. However the key to success, is improving energy efficiency of the world economy.

We also need to move away from the traditional internal combustion engine for cars. By 2020, maximum 40% of cars should make use of internal combustion engines. To hold emissions to 450ppm [parts per million], which corresponds with a global warming of 2° Celsius, you need more and more hybrid and electric cars.

Facing these huge figures, it is easy to despair. Yet we need to act urgently and now. “Every year of delay adds an extra $500 billion to the investment needed between 2010 and 2030 in the energy sector” according to IEA Executive Director Nobuo Tanaka.

The importance of Copenhagen

It is thus extremely important to achieve success in the Copenhagen climate summit in December this year. Not only our climate, but also our future energy supply and government budgets will depend on it.

If Copenhagen is a success we can perhaps hope to no longer need a recession to start the switch from carbon-based fuels to green energy.

Originally published on the Th!nk About It blogging competition (link)

Where did all our money go?

Governments around the world reacted with a spending-frenzy facing a triple crisis of the worst economic downturn since the second world war, energy insecurity and climate change. Never before so much public money was invested in such a short time. But where did all our money go to? Was “smart green growth” merely rhetoric or substance? Research shows that but little was actually invested in green jobs around the world. The best pupils were South-Korea, China and the European Union (see “% green fund” table below).

Governments’ pledge

On September 15, 2008 the Lehman brothers collapsed, marking the biggest bankruptcy in US history. It also marked the beginning of a huge financial crisis, developing in the biggest economic crisis since WWII.

The reaction of governments worldwide was as swift as it was humongous. Trillions of dollars were spent worldwide to save the economy with the citizen’s hard earned tax money. Many pledged to spend the money on green measures. Much in the same wording as at the G-20 summit in London on 2 April 2009 where the largest economies vowed to “make the best possible use of investment funded by fiscal stimulus programmes towards the goal of building a resilient, sustainable, and green recovery.  We will make the transition towards clean, innovative, resource efficient, low carbon technologies and infrastructure.”

How green was the recovery?

The question now arises if the rhetoric matches reality, how green were these individual economic recovery packages? HSBC’s Global Research Division has published a report on 25 February 2009 answering exactly that question. The report “ A climate for recovery” investigated more than 20 economic recovery plans on their green credentials in spending and tax-cutting.

HSBC concluded that roughly 15% of the estimated $2.8 trillion could be associated with investments consistent with stabilising and cutting global carbon emissions.

South-Korea allocated more than 80% of its fiscal stimulus spending to green initiatives, taking the lead on a percentage basis. The European Union (58.7%) and China (34%) followed up closely. But China did top the list in terms of absolute size of planned green spending ($200 billion). By contrast, India was investing nothing of its $13.7 billion stimulus plan for green ventures. Italy and Japan were the least green of the rich G7 countries, allocating just 1.3% and 2.6% respectively. The United States ranks second in terms of absolute spending, although but 5th in percentage.

On the left you can see a graph of the theme allocation in the green stimulus plans. As HSBC notes, the bulk of spending is allocated to green infrastructure. By laying the foundations future green growth is underpinned. Spending went in large part to buildings, grids, rail and water. The construction and capital goods sector are likely to be the major beneficiaries, according to HSBC.

Did governments become greener in the last months?

Although the HSBC report is a good documentation of the planned spending behaviour of the world’s recovery packages, many has changed in the last 8 months. Perhaps most notably, Japan has elevated its climate change targets to a 25% cut in carbon emissions by 2020, baseline 1990. The green character of the recovery package in United States diminished starkly under pressure from the Senate (and its associated lobby groups). Chinese President Hu Jintao pledged to cut emissions of carbon dioxide by a notable margin in coming years, even with a still booming economy. And India’s environment minister Jairam Ramesh says India could agree to “implicit” carbon emissions targets as part of a global climate change deal, by passing domestic laws enshrining concrete measures that India would take to control greenhouse gases as its economy grows.

But this is again just rhetoric, I am looking forward to the next hard facts in a comprehensive study.

Give us back our money

3.4 million jobs were created in Europe alone through green funding and regulatory support. However, only 15% of the recovery packages went to stimulating jobs in this sector. Meanwhile the prospects for the earth’s climate are further deteriorating.

The lesson learned is that we shouldn’t be so rash anymore letting our political leaders spend so much public money so fast on things like fast German cars or easy tax-cuts.

In my last post I documented the rise of green jobs. Governments play a crucial role in stimulating these new jobs. Which country did best for its people?

Green jobs on the rise – world climate business revenue $2 trillion by 2020

The worldwide New Green Deal is becoming a reality. Global revenues from all climate-related businesses are now worth a stunning $530 billion. It could even exceed $2 trillion by 2020. In Europe 3.4 million jobs are already directly related to the low carbon economy, compared to 2.8 million jobs in polluting industries. Climate change has become a real business driver and more and more companies are interested in becoming green.

The green world economy

The famous 2006 Stern Review on the economics of climate change forecasted climate-related revenues to climb to $500 billion by 2050.

However, HSBC Global research estimates that we have already surpassed that. Global climate-related revenues now already top a stunning $530 billion and are likely to exceed $2 trillion by 2020.

The proliferation of green deals all over the world caused a rise of 75 percent in this market in the last year alone. This contrasts starkly with a slowdown of the world economy in 2009 to less than 1% GDP growth.

The climate sector has not only surpassed Stern predictions. According to the HSBC report it has even surpassed the size of the global aerospace or defense industry.

Countries such as the United States, Japan, France, Germany and Spain profit the most from this new green growth. They account for 76 percent of global climate revenues.

HSBC differentiates between four main categories in the green economy. Of these four, investments in energy efficiency present the largest opportunity, with a 30 percent return on investment. Carbon/climate finance follows closely with investment returns at 24 percent. The two other climate investment categories are low-carbon energy production and the control of water, waste and pollution.

Green jobs

Behind every company there are workers. Behind every profit there is a wage. The green economy is no different and is already boosting employment.

The WWF report “Low carbon jobs for Europe” shows that at least 3.4 million European jobs are directly related to renewable energy, sustainable transport and energy efficient goods and services. This compares with 2.8 million jobs in polluting industries, such as mining, electricity, gas, cement, and iron and steel.

Split up in different sectors this means 400,000 people are employed in renewable energy activities, some 2.1 million in efficient transport, and over 900,000 in energy efficiency goods and services.

These green jobs require a very broad range in skills. Low to medium skilled workers are needed for manufacturing, installing and the maintenance of wind turbines and solar panels. High skilled workers are needed to research and develop the innovative green solutions for tomorrow.

Green business model

In order for businesses to continue green investments, the business model needs to change. Paying attention to the impact of economic activity on the planet needs to become a source of profit.

A recent study suggests this is already the case. Sustainability is now seen as a major business driver with 52 percent of companies (65 percent of large companies) designing and offering sustainable products or services, about 72 percent of American companies (85 percent of large) reducing costs through improved materials efficiency, and 58 percent (60 percent of large) manufacturing or sourcing domestically/locally. In addition, 59 percent of large companies offer energy-efficient products and another 59 percent provide customers with more information about social and environmental impacts of their products and services.

Governments need to continue their support for the green economy

However, to support these changes in business model and the profits in the green business, governments need to sustain their support for the green economy. Much still needs to be done after the initial money boost through the green deals worldwide.

Buildings are still using too much energy while it is economically viable to renovate them to become more energy efficient. The energy production needs to change to renewables, while a smarter electrical power grid is needed to support this change. Transport is still far too carbon-fuel dependant while investments are required to make carbon-friendly alternatives such as trains and boats more attractive. Support in many other sectors is needed to supply the green economy with the adequate infrastructure and provide incentives to businesses wishing to go green.

Governments have often lagged in implementing climate change policy, sometimes even in spite of an obvious direct positive impact. Belgium for example has been one of the three EU countries who did not oblige car fuel to be mixed with biofuel. As a result 100s of jobs in the Belgian biofuel sector were lost to the gain of the oil sector. Other countries have lagged in renovating their building stock to use less energy, in spite of the fact they would not have to pay one Eurocent for the works.

In my next post I will therefore focus on the recovery packages of governments around the world to combat the economic crisis. Was all the green rhetoric reflected in actual spending of all that public money? And how well did Europe score?