CONTRIBUTION TO UN SPECIAL
THE PATH TO A LOW-CARBON ECONOMY

Negotiators from all around the world will meet at the United Nations Climate Change Conference in Copenhagen from 7–18 December this year to forge the post-Kyoto climate regime. The world is waiting with bated breath.

LAURA ALTINGER¹

That climate change is occurring and that it is caused by man are the unequivocal conclusions of the Fourth Assessment Report (AR4)² of the Intergovernmental Panel on Climate Change (IPCC), which reflects broad, global scientific consensus. Many key observed climate indicators are already moving beyond their natural variability patterns, including global mean surface temperature, global ocean temperature, the extent of Arctic sea ice, sea-level rise, precipitation, ocean acidification, and extreme climate events. Since 2000, fossil fuel emissions — the main cause of anthropogenic climate change — have grown at an accelerating rate, by some 3.4 percent per annum.

Since the publication of AR4, new research has revealed further, discomforting evidence of global climate change. Previously observed climatic imbalances are considered to have been further exacerbated by feedback effects. Current estimates show that ocean warming is about 50 percent higher than was reported in AR4. The rate of sea-level rise has been on the increase since 1993. Further, a dramatic reduction in the area of Arctic sea ice in summer has been discernible since the publication of AR4, with a loss of almost 2 million square kilometres in the minimum area covered in 2007, and a similar decrease occurring in 2008.³

In parallel, the burden on the environment from human activities is increasing. Rising prosperity and population growth are, and will continue to be, major determinants of global greenhouse gas (GHG) emissions. For example, accelerating energy needs of large developing countries, such as the drive by India and China to boost their standards of living and growing populations, are likely, at least in the short run, to be met by more coal-fired power plants, which are rapidly turning these countries into important GHG emitters.

The effects of climatic warming include higher temperatures, greater climate variability, increased precipitation in wet areas but declines in dry areas, as well as a higher incidence of extreme weather events, such as heat waves, storms, and floods.
Poor and developing countries and communities are particularly vulnerable, due to their geographic location and limited resources. Many developing countries will be hit hard by climate change and will face a variety of development risks and challenges, especially those related to ecosystems, agriculture and food security, water management, infrastructure, and health.

To prevent dangerous anthropogenic interference with the climatic system, AR4 estimates that the global mean temperate rise would need to be contained to 2°C. Estimates suggest that for this to occur, global GHG emissions would have to be reduced by some 19 Gt of CO₂ equivalent (GtCO₂e) by 2020⁴, in part by changes in land use and forestry, and by applying existing or near-market technologies and resource efficiency measures. In the longer run up to 2050, projection scenarios run by the International Energy Agency (IEA) show that global savings of CO₂ emissions in the order of 48 Gt would be necessary.⁵

Four major polluting sectors, energy, transport, buildings, and industry, hold the largest potential for applying new technologies with major GHG-abatement potential in the near and long term. The types of technology identified as playing a central role in mitigation efforts include energy efficiency improvements from production through to end use; solar, wind, nuclear fission and fusion, geothermal, biomass, and clean fossil technologies, including carbon capture and storage; energy from waste; hydrogen production from non-fossil energy sources, and fuel cells.

The UN Framework Convention on Climate Change (UNFCCC) and its Kyoto Protocol are the only formally recognised process for determining intergovernmental agreement on climate change. Signed in 1992, the UNFCCC established a shared global objective — to ‘avoid dangerous climate change’ — as well as a set of important principles and commitments. Its Kyoto Protocol contains binding emissions commitments by industrialised countries. With the first five-year commitment period up to 2012 nearing its conclusion, the Copenhagen meeting is expected to produce new binding commitments for a second commitment period. Furthermore, the negotiations are expected to produce further financial and other commitments by developed countries to help developing countries acquire and implement environmentally-sound technologies.

In addition to binding or voluntary emissions targets, effective policies and institutions are needed both to support the development of GHG-abatement technology, as well as to finance its global diffusion and adoption. It is vitally important that economic prices of goods and services better reflect their real costs, especially those to the environment.

Creating a positive price for GHG emissions based on the “polluter pays” principle — for example, through cap-and-trade systems, such as the European Trading Scheme (ETS) or the Kyoto Protocol of the UNFCCC — is therefore the first step for potentially internalizing this environmental externality and realigning polluters’ incentives both to pollute less and to make full use of existing emissions-abatement technologies. This additional market demand for such technologies attracts higher R&D on the supply side, aimed at producing new or better pollutionabatement technologies.

The incentive to invest in new environmental technology will be influenced by many external factors as well as systemic features of the cap-and-trade systems. For example, if the level of the cap is set too generously, there will be little incentive for making behavioral changes including investments in alternative environmental technologies. Many GHG emission sources may not be covered. Similarly, uncertainty about the continuity or future of the cap-and-trade regime will certainly deter investors in new technologies. The carbon price is another major factor influencing investment. Investment in new technologies is a positive function of the carbon price. The higher the price of carbon, the more incentives there will be to exploit new opportunities offered by environmentally sound technologies. Therefore, in a downturn, there will be fewer incentives to invest in clean technologies, unless the government provides support, for example, in the form of production or consumption subsidies, additional demand through public procurement, or resources to boost R&D.

A positive development in realigning incentives has been the introduction of a carbon tax in countries such as Sweden, Denmark or France. Such schemes bring the cost of production closer to its true cost, by internalizing the environmental externality. Carbon taxes give both consumers and producers an incentive to reduce their carbon emissions, through the introduction of carbon-cutting technologies.

Last, but not least, information campaigns and financial incentives targeting changes in behaviour at the household level, to encourage the greater use of public transport or lower carbon forms of transport, of renewable energies, better home insulation, and energy efficiency in the home, can also have an important role to play in cutting emissions.

¹ This text is based on a longer article by the author, Technology and Innovation for Addressing Climate Change: Delivering on the Promise, forthcoming in Lopez-Claros, A. (2009), ed., The Innovation for Development Report 2009–2010: Strengthening Innovation for the Prosperity of Nations, Palgrave-Macmillan: London.
² Intergovernmental Panel on Climate Change (IPCC). 2007a. Climate Change 2007: Synthesis Report. Contribution of Working Groups I, II and III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change. Geneva.
³ University of Copenhagen. 2009. Synthesis Report from Climate Change – Global risks, challenges and decisions, Copenhagen 2009, 10–12 March. Available at: www.climatecongress.ku.dk.
⁴ McKinsey & Company. 2009. Pathways to a Low-Carbon Economy: Version 2 of the Global Greenhouse Gas Abatement Cost Curve: McKinsey & Company.
⁵ International Energy Agency (IEA). 2008. Energy Technology Perspectives: Scenarios and Strategies to 2050. Paris: OECD/IEA.