The New Climate Economy Report

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The New Climate Economy Report is a summary report of a year-long project undertaken by The Global Commission on the Economy and Climate from 2013 to 2014.[1] The Global Commission on the Economy and Climate was created to examine if it is possible to achieve lasting economic growth while also addressing the risks of climate change.[2] The Report aims to inform and recommend actions to economic decision-makers in both the public and private sectors.[2] The core conclusion of the report is that "countries at all levels of income now have the opportunity to build lasting economic growth at the same time as reducing the immense risks of climate change."[2] The focus of the report is a reduction of greenhouse gas emissions and a transition to a low-carbon economic model, and three key systems of the economy are highlighted: cities, land use and energy.[2] Raising resource efficiency, investment in infrastructure and stimulating innovation are proposed as "drivers of change," and the focus is on the benefits of creating well-designed policies in these areas, as well as the tools and systems that can be used in order to implement these policies.[2] The report then outlines a 10-point Global Action Plan of key recommendations.[2]

Contents

Global Commission on the Economy and Climate

The Global Commission on the Economy and Climate is an international group of 24 former heads of government, finance ministers, and leaders in business, cities, international organizations and research institutions. It is chaired by Felipe Calderon, the Former President of Mexico. Although the commission members support the general themes of The New Climate Economy Report, its members were not asked to agree with every word and number found within. The institutions with which these members are affiliated were not asked to endorse the report, and should not be assumed to having done so.[3]

Economics advisory panel

The New Climate Economy Report was advised by a panel of leaders in various fields of economics. This panel was chaired by Nicholas Stern, the IG Patel Chair of Economics and Government at the London School of Economics. Although the panel guided and advised the report, its members were not asked to formally endorse the conclusions, and cannot be assumed to having done so.[4]

Overview

About

The New Climate Economy report approaches its task from the perspective of the economic decision-makers who are trying to deal with problems that appear more immediate than climate change, but whose decisions will decide the future of the climate change management system. The report did not focus directly on how greenhouse gases could be reduced, but rather on how economic decision-makers might achieve their primary goals while also reducing their impact on climate change.[5] The theory assumed in the creation of the report is that "it will be easier for peoples and countries to make the necessary political decisions about tackling climate change if the economic benefits and opportunities, as well as the costs, are clearer."[5] The report also seeks to outline how the necessary climate change actions mesh with their goals regarding growth, poverty reduction and structural change.[5] The New Climate Economy Report was commissioned by the governments of Colombia, Ethiopia, Indonesia, Norway, South Korea, Sweden and the United Kingdom, however the Commission operated as an independent body and was given total freedom to establish its own conclusions.[1]

The summary in full is available online, as is the Synthesis Report. The programme of work was undertaken by a global partnership of eight research institutes:[1]

The work studied was collected from many other institutions and researchers, and was then supplemented by original research conducted in a range of countries.[5] The report acknowledges that it is not comprehensive and instead focuses "on the areas where the relationship between economic growth and climate risk is largest and most pressing.[5] This is most noticeable in that the report does not focus on adaptation to already occurring climate change, although it recognizes it as an essential and interwoven part of the economic strategies found within the report.[5] The report differentiates itself from other economic studies of climate change by approaching the understanding of how economies work with a dynamic view of change and transformation.[6] The report is strongly based in "economic history, the economics of public policy and of risk, theories and experiences of development and poverty reduction, and international, institutional and behavioural economics,"[6] as well as other approaches. The report aims to provide resources and consultation from which economic decision-makers can make judgements, but also explains that while it has gathered as much quantitative evidence as possible, there are many factors involved in the report that are difficult to quantify, such as peoples' health.[6]

Challenge

The report begins by outlining our general position as a global society in terms of the opportunities that we possess, as well as the substantial risks and negative situations that currently exist. Opportunities mentioned include new technologies, economic growth, production and trade. It is noted that "we have the technological, financial and human resources to raise living standards across the world."[7] Negative situations include the pressure put on natural resources through consumption, population growth and urbanization. Additionally, since the economic global recession in 2008, many economies have been unable to sustain prosperity, and there is widespread inadequacy in job creation and production, as well as rising inequality.[7] There are also persistent problems of low employment levels, extreme poverty, and poor health and education.[7] The report notes diverse problems in the economic situations of low, middle and high-income countries, as well as introduces the risks of climate change. The report states that "if current emission trends continue unchecked, the resultant increase in average global temperature could exceed 4°C above pre-industrial levels by the end of the century,"[7] which is double the 2°C that has been set by world leaders to avoid the most dangerous impacts of climate change.[7][8] The risks of this level of warming are introduced, such as an increase in extreme weather events, severe pressures on water resources, reductions in agricultural yields in key growing areas and the loss of ecosystems and species.[7] As temperatures rise, climate change risks increase disproportionately, and more irreversible tipping points are reached, such as the collapse of ice sheets and the consequential rising of the sea level.[7][9] The economic cost of climate change is hard to predict, but it is estimated that a 2°C rise in global temperature would cost .5%-2% of global GDP, and above 2°C, the costs will be even higher but are too difficult to predict due to the uncertainties involved.[7][9] The impacts of climate change are already affecting the poorest people in the world the most, and will continue to do so.[7][10][11] Additionally, the longer the world waits to take strong action on climate change, the more expensive it will be due to GHG concentration in the atmosphere and shifting high-carbon economies.

Economic growth and climate change

The general perception regarding economic growth and climate action is that the two are not compatible, however the report explains why we do not have to choose, as a society, between growth and subsequent climate risk or reduction of climate change at the expense of economic stagnation and under-development.[12] The report states that this view is based on a basic misunderstanding of the dynamics of the global economy. The assumption is that "economies are unchanging and efficient, and future growth will largely be a linear continuation of past trends."[12] However, due to changing structures in production and trade, changing demographics, new pressures on resources and technological advances, the growth path of countries have already altered, which will make the future different from the past.[12] The report estimates that global output will increase by half or more,[12][13] and the total investment in the global economy is estimated to be around US$300-$400 trillion.[12] Due to the unprecedented speed and scale of this investment, structural changes to the economy will be made.[12] The "report suggests that the low-carbon growth path can lead to as much prosperity as the high-carbon one,"[14] and also has other benefits such as better health, cleaner air and stronger energy security.[14]

Key drivers of change

The report states that many of the policy and institutional reforms that are needed to stimulate growth in the next 15 years can also help lower climate change risks.[17] The report highlights opportunities that countries from all stages of development can use to improve economic performance as well climate outcomes, including government, market and policy failures that can be corrected, and new technologies and business models that can be adopted.[14] There are short (less than 5 years), medium (5-15 years) and long term (more than 15 years) opportunities, and they all require good policy design and implementation in three areas: raising resource efficiency, investing in low-carbon infrastructure and stimulating innovation.[14] Raising resource efficiency means taking actions to ensure the full costs of production are reflected and resources are allocated efficiently. For example, doing things like creating a strong and predictable carbon price, and phasing out of fossil fuel subsidies will raise new streams of revenue while also discouraging the wasteful use of fossil fuel energy.[14] Investing in a low-carbon infrastructure means figuring out how to finance infrastructure that will not only reduce GHG emissions, but also allow for modern economic growth. Innovative financial concepts such as green bonds, policy risk-sharing instruments, and other special-purpose alignment vehicles can lower financing costs by up to 20%[15] and which can lower the investment risk for private investors.[14] Stimulating innovation is important because "technology will not automatically advance in a low-carbon direction,"[14] and policy interventions are needed to remove barriers and accelerate the speed of low-carbon innovation.[14]

Making it happen

In order to strengthen growth and address climate change risk, policy makers must "adopt an explicitly low-carbon pathway in economic policy."[16] If "government-induced uncertainty is the enemy of investment, innovation and growth,"[16] then the current changing and mixed signals regarding climate change in many countries mean that short-term investment in low-carbon options are riskier, less profitable and carry a higher cost of capital.[16] The report examines how low-carbon policies can generate strong growth in the next 5-15 years, if the governments necessary investment and policy choices; for example, building more compact cities with good public transit reduces GHG emissions while also allows for the faster, more efficient movement of people, reduces traffic congestion and air pollution and provides business opportunities at transit hubs.[16] Short term opportunities to advance economic and climate change objective within the next five years include correcting market failures and policy distortions.[16] These include ensuring that subsidies do not promote inefficiency and waste, that supporting established businesses does not stifle low-carbon innovation competition, and increasing communication across levels of government and communities to prevent sprawl and scattered development.[16]

Decoupling growth from carbon emissions

The theoretical basis for decoupling growth from high-carbon emissions has been around for some time, however now this theory has been applied in practical manners and has met with success.[16] Governments and businesses at both a national and local scale that have embraced low-carbon policies and strategies have found them to be associated with economic performance on par with or better than their high-carbon peers.[16][17] The main driver behind the success has been technological advances, and as proved by some of the best-performing economies in Northern Europe and North America, gains can be made in jobs, incomes, profit and rates of innovation when a low-carbon, resource-efficient model of growth is implemented.[16][18][19] The report recognizes that while low-carbon growth will look different in countries of differing incomes, multiple opportunities are exhibited in each to achieve strong economic growth while reducing GHG emissions.[16] The Commission analyzed the cost difference between low-carbon forms of growth and high-carbon forms of growth and found the difference in infrastructure investments needs are expected to be relatively modest.[20] An estimated US$90 trillion will be invested in infrastructure between 2015-2030, which is about US$6 trillion a year, and to shift to low-carbon investments, only an additional US$4 trillion would be needed, which is about US$270 billion a year.[20] This amounts to less than a 5% increase in expected combined infrastructure investment requirements, although the higher capital cost would be mostly offset by lower energy supply requirements.[20] The costs will still need to be financed, which means, for many developing countries, international support.[20]

Quality of growth

Beyond economic growth in the areas of income and GDP, the switch to a low-carbon economy brings many other benefits including an improved quality of life, stronger, more resilient communities, and increases in economic freedoms, among others.[20] These benefits matter to people but are invisible in GDP, which is the metric used most often to measure economic output.[20] The Commission encourages the development and use of a wider set of economic indicators to evaluate the impact of policies and actions as well as track economic performance more broadly.[21] Many of the policies and investments outlined in the report are especially impactful to the poorest and most vulnerable people in developing countries such as the 350 million people who live in and depend on forests,[21][22] small scale farmers whose crops are increasingly put at risk by climate change and land degradation, the billions who lack modern cooking facilities and/or electricity and those who are of low-income urban residents and rely on public transportation, as there are many ways that the low-carbon economy can raise living standards and reduce poverty.[21] The low-carbon economy also has a significant potential to improve air quality, which will in turn lead to major improvements in public health and lower the health and mortality burden on GDP.[21] Although air quality can also be improved by interventions which do not also lower GHG emissions, research done by the Commission suggests that "doing both together is often the most cost-effective option."[21] For example, the "real cost" of fossil fuel is higher than alternative power sources when accounting for air pollution is added,[21][23] and efficient urban transport systems can stimulate economic performance, and reduce GHG emissions, while also improving air quality, and reduce road accidents.[21][24][25] "Climate-proofing" low-carbon investments is an important part of the transition process, and includes ensuring that new infrastructure will not make people more vulnerable to hazards, and building in resilience to future climate change.[21]

Managing the transition

Standard economic models are not adept at handling four sets of variables that are discussed in the report: the process of structural transformation, the dynamics of technological change and innovation, the local and global economic impact of growing climate risk, and the valuing process of non-market outputs like better air quality.[26] Growing evidence suggests that standard models "tend to overestimate the costs of climate change action and underestimate the benefits,"[26] yet even in the face of this, these models suggest that economic growth and climate action can work together.[26] Although shorter term models vary on agreement in terms of growth rates,[26] longer term models predict that the global GDP difference between a low-carbon and high-carbon scenario by 2030 is only about 1-4%,[27][28] which is the equivalent of reaching the same GDP level 6-12 months later.[27] Although economic modelling suggests low-carbon policies will create employment in some sectors, it will also cause the loss or non-creation of employment in other sectors.[27] The overall effects are small however, about plus minus 1-2% of total employment, and depend partially on the types of policies adopted.[27] In some sectors, such as the coal sector, as well as heavy and energy-intensive industrial sectors, there will likely be significant impacts on jobs, and the value of companies involved in the fossil fuel sector is likely to decline as demand falls.[27] In countries where these sectors are important, this will create real challenges and governments might need to support affected sectors in developing new low-carbon strategies.[27] Job gains from a low-carbon economy are significant, especially in the renewable energy sector, as is business expansion.[27] In order to ensure the political viability of the low-carbon transition, governments will need to be active and take explicit measures such as direct financial assistance, reskilling and retraining as well as investment in community economic development.[27][29] Attention to fair transitioning is also required to ensure support in low-income households that are more heavily affected by higher energy and resource prices as a result of the low-carbon policies suggested by the Commission.[27] Positive examples of this type of support are found in both lower and higher income countries in the form of financial assistance, and subsidized energy efficiency measures.[30] Due to the fact that a transition to a low-carbon economy will be hardest for low-income countries, the Commission suggests that "the developed world has an obligation to provide developing countries with additional finance, technical and capacity-building support" in their transition to a low-carbon economy.[30] An important aspect of this includes the developed world showing how they will achieve their agreed upon goal of mobilizing US$100 billion per year in public- and private-sector finance by 2020.[30]

Reducing climate risk

To achieve the target reduction in global emissions to hold the global temperature rise to 2°C, the carbon productivity of world economy would need to increase by 3-4% per year until 2030, although the current 25-year trend has been about 1% a year.[30] From 2030-2050 the improvement in carbon productivity would need to accelerate to 6-7% per year to remain under 2°C.[30] With this is mind, the Commission specifically focused on actions that not only have multiple economic benefits, including standard economic indicators, but also have welfare-enhancing factors such as improvements in health due to better air quality, and reductions in rural poverty as well as the protection of ecosystem services.[30] The range of suggestions (see the 10-Point Global Action Plan) made by the Commission could result in 50-90% of the emission reductions needed by 2030, with the high end of the range requiring early, wide and ambitious implementation of these actions, as well as decisive policy change, strong leadership and international cooperation for rapid sharing and learning of best practices.[31] There are also actions that may require net economic costs to achieve total mitigation, which include building retrofitting, the early retirement of coal and gas power stations (or the fitting of carbon capture and storage technology), and stronger reductions in industrial, agricultural and transport emissions.[32]

Leadership

In order for a successful transition to a low-carbon scenario, well-functioning markets and well-governed public institutions are necessary.[33] Businesses have an especially important role in the transition because they will need to support the adoption of government-implemented policies rather than oppose them.[34] Reporting on environment and social impacts need to be standardized and integrated into the core financial reporting requirements.[34] In general a more sophisticated framework that explores how economic and business outcomes relate to environmental impact needs to be incorporated in the assessment of performance and risks for governments, businesses, finance institutions and international organizations.[34] The uniting force in the transition to a low-carbon development path should be an "international agreement committing countries to this collective economic future."[34]

Cities

Although only half the world's population lives in urban areas, they are responsible for 80% of the global economic output,[35] and 70% of global energy use and energy-related GHG emissions.[35] Due to the long life span of urban infrastructure, the methods used to build, maintain, rebuild and enhance the global urban areas will determine their economic performance and citizens' quality of life as well as possibly defining the trajectory of global GHG emissions for the rest of this century.[35] Three categories of cities are focused on: emerging cities (291 rapidly expanding middle-income, mid-sized cities in emerging economies), global megacities (33 major knowledge-, service-, and trade-based urban hubs) and mature cities (144 prosperous, established mid-sized cities in developed countries).[35] These cities will account for 60% of the GDP growth between now and 2030, as well as almost half the global energy-related GHG emissions, with the emerging cities accounting for over half of this growth.[35] Much of the urban growth in the "world involves unplanned, unstructured urban expansion, with low densities and high rates of car use."[35] The continuation of current development trends means a potential tripling in global area of urbanized land from 2000 to 2030,[35][36] which means adding an area larger than the size of Manhattan every day. Meanwhile, the number of cars, 1 billion today, could double.[35][37] The sprawling expansion model carries significant costs such as an increase in the cost of providing utilities and public services by 20-50%, as well as doubling the land use per housing unit.[35] These costs can be doubled or tripled in fast-growing low- and middle-income countries because they often need to import the construction equipment.[35] Sprawl is also detrimental to implementing more efficient models of waste management and district heating, as well as carries consequences such as higher rates of traffic congestion and accidents, higher air pollution costs and "locks in inefficiently high levels of energy consumption."[35] Research shows that sprawl carries incremental costs of about US$400 billion per year in the US[35][38] as well as calculates that if employment density in Chinese cities doubled, labour productivity would rise by 8.8%.[35][39] Although economically attractive investments in buildings, transport and waste sectors pose opportunities to boost productivity and reduce GHG emissions in the next 15 years, the report's research suggests that these benefits would be overwhelmed by economic and population expansion under current economic models, and, especially in Emerging Cities, these benefits could be erased in seven years or less.[40][41] The report suggests that to lock in long term urban productivity improvements, "a systemic shift to more compact, connected and coordinated development"[40] is needed. Cities that follow this model are more productive, resilient, socially inclusive, quieter, cleaner and safer, while also having lower GHG emissions.[40]

Better model for urban development

The alternative to sprawl is a more efficient urban development model that is based on managing growth by encouraging higher densities, walkable local environments and mixed-use neighbourhoods, and in Global Megacities and Mature Cities, the revitalization and redevelopment of urban centers and brownfield sites, as well as green spaces.[40] The priority in this model is high-quality public transport systems to reduce car dependence and congestion, as well as boosting resource efficiency via "smarter" utilities and buildings.[42] This model has the potential to "reduce urban infrastructure capital requirements by more than US$3 trillion over the next 15 years,"[42] and it is particularly beneficial for Emerging cities and smaller urban areas to follow this model from the beginning, as they can learn from others' experience.[42] Estimates in the US suggest transit-oriented urban development can reduce per capita car use by 50%, reducing household expenditures by 20%.[42][43] If the compact, transit-oriented model was adopted in the world's 724 largest cities, it could reduce GHG emissions by 1.5 billion tonnes of CO2e per year by 2030, and would lead to even greater resource savings and emission reductions in the following decades.[42] Examples of this shift is already happening, such as the 160 cities that have implemented bus rapid transit (BRT) systems that transport a large number of passengers daily at 15% the cost of a metro.[42][44] Urban rail networks and bike-sharing schemes are also growing in use globally.[42] A strong example of this model's effectiveness is found in Stockholm, where emissions were reduced by 35% from 1993 to 2010, while its economy grew by 41%, which is one of the highest growth rates in Europe.[42][45]

Strategic approach to managing urban growth at national level

Cooperation and coordination between national and regional governments and city leaders is essential to prioritize better-managed urban development and increased urban productivity, and to this end, a unifying national urbanization strategy is suggested as a key step.[42] Examples of this is China's New National Urbanization Plan, which places urban policy at the center of the Chinese decision-making process.[42][46]

Stronger policies and institutions to drive compact, connected and coordinated urban development

The shift to better-managed, compact, connected and coordinated urban development takes time, however early adoption of opportunities to boost resource productivity in areas such as building, transport and waste management can "build momentum for broader and longer-term reform, especially in capacity-constrained cities."[42] An important step is changing transport incentives by reforming fuel subsidies and introducing pricing mechanisms like road user changes, to reduce and eventually eliminate the incentives of fossil-fuel vehicle use, as well as placing higher prices on land then buildings through land and development taxes.[47] These new sources of revenue can in turn be invested in public transit and transit-oriented development.[47]

Role of the international community

Due to the international community's role in building and sharing best practices knowledge, as well as directing finance towards compact, connected and coordinated urbanization, the Commission suggests that a global urban productivity initiative should be developed.[47] The initiative should develop from the existing work being done in this field by key international organizations such as C40 and Local Governments for Sustainability (ICLEI), and incorporate rapidly urbanizing countries, business leaders and mayors.[47] Important activities of this initiative might be "reviewing institutional options for systematic collection of city-level data, developing urbanization scenarios and best practice guidance, creating an international standard for integrated municipal accounting, and targeted capacity-building."[47] A scaling up of the existing World Bank creditworthiness program is also recommended to both developed and developing countries to develop strategies to improve their "own source" revenues.[47] Another important step is the phasing out of financing investments that lock in "unstructured, unconnected urban expansion"[47] by multilateral development banks (MDBs). Instead these banks can work with donors and clients to increase the focus on integrated citywide urban strategies, as well as investment in smarter infrastructure and new technologies. [47]

Land use

There is heavy pressure on land and water resources due to rapid population growth, rising incomes, urbanization and resource constraints.[47] Currently about a quarter of the world's agricultural land is severely degraded,[47][48][49] forests are being cleared for charcoal and timber as well as for use as crop land or pasture.[47][50] This means key ecosystem services are being compromised, natural resources are becoming less productive, and climate change means an increase in flooding and drought in many places, as well as an alteration in hydrological systems and seasonal weather patterns.[47] Agriculture, forestry and other land use (AFOLU) are responsible for a quarter of global GHG emissions[47][28] due to deforestation and forest degradation (responsible for 11%, net of reforestation)[47] as well as emissions from methane (livestock), nitrous oxide (fertilizer) and carbon dioxide (tractors and fertilizer production).[47] Agriculture and forests are therefore a top priority for climate change policy, especially in tropical countries that have substantial carbon-rich forests, and in developing economies, where it generally accounts for between 20-34% of GDP on average.[51][52] 70% of the poorest people in the world live in rural areas and depend on agriculture for survival.[51] "By 2050 the world's farms will need to produce 70% more calories than 2006"[51] to feed economic and population growth, and 80% of the global demand for growth in agriculture and forest products over the next 15 years will occur in developing countries.[51][53]

Supply-side measures in agriculture

Many of the issues that need to be addressed today are location-specific, such as drought, pests, floods and saltwater intrusions.[51] For example, a promising innovation is "Scuba Rice," which can withstand submersion in water and has been adopted by 5 million farmers in India since its introduction in 2008.[51][54] Research in the areas of cereal crops as well as rice and orphan crops (starchy root crops, vegetables, legumes, etc.) will be invaluable,[51] however in 2008 governments only spent US$32 billion on agricultural R&D, with another US$18 billion in private-sector funding.[55][56] One of the ways funding can be freed up for R&D is to reduce input subsidies for things like fertilizer and water, which are used widely in developing and developed countries, and are meant to boost productivity, but which can also lead to environmental damage and waste.[55] Stopping and reversing land degradation through well-tested practices can: control water runoff, improve soil fertility and water retention, and increase carbon storage in trees, plants and soils.[55] For example, the Loess Plateau projects in China focused on halting activities that caused degradation, such as planting on steep slopes, free-ranging goats and tree-cutting, and brought in heavy equipment to build wider and sturdier terraces, as well as encouraged farmers to let marginal land grow wild and plant trees. The projects led to a sharp increase in grain yields, lifted over 2.5million people out of poverty and increased soil carbon storage.[55][57]

Forests as natural capital

Forests need better protection, as demand for bioenergy, timber and pulp is going to grow over the next 15 years.[58] 2050 projections expect wood removal in volume will increase by 300% from 2010.[58][59][60] Forests are an "important form of natural capital, generating economic returns (and climate benefits) for countries, companies and citizens,"[58] especially in regards to the ecosystem services that forests provide, which are important to the resilience of agricultural landscapes.[58] Deforestation and forest degradation often go hand-in-hand, however the drivers are different and can require different approaches to face the problem; for example, demand for forest products lead to forest degradation, while the choice between forest regeneration and conversion to another use can be driven by property rights, the financial viability of other uses and the governance of markets and resources.[61] Governance and market failures such as lack of information, lack of accountability, powerful vested interests and corruption, as well as the inability to account for the wider economic value of a forest mean that the capital needed for strong economic growth cannot be enhanced or used effectively.[61] "Radical transparency" is more and more possible in today's world of low-cost satellite imagery, high-speed internet, cloud computing, social media and smartphones, and means that the verification for results-based finance is much easier nowadays.[61]

Demand-side measures

Demand-side measures are also important to ease pressure on the land; for example, "on a caloric basis, a quarter of the world's food is now wasted between farm and fork."[61] Included in these measures are a reduction in the demand for food crops for biofuels, and the promotion of a shift in diet, especially away from red meats.[61]

Energy

The current period of energy expansion is unprecedented, as global energy use has grown by more than 50% since 1990,[61][62] and will keep growing to support development. Past projections failed to account for dramatic shifts, and the future remains even more uncertain, as projections show anywhere from a 20-35% expansion in the next 15 years for global energy demand.[61] Around US$45 trillion in investment will be needed to meet this demand between 2015-2030 in key categories of energy infrastructure.[63] It is important for the world's policy-makers to decide how this money is spent: either on flexible, robust, long-lasting energy systems or infrastructure that is vulnerable to future market volatility, and increases air pollution and other social and environmental stresses.[63]

Changing outlook for coal

Although coal has historically been plentiful and cheap, fast-rising demand and a significant increase in coal trade means prices are currently twice the prevailing historical levels,[63] and are projected to keep rising.[63] At the same time, other options such as renewable energy sources and shale gas have fallen in cost, and "the future security advantage of coal is less clear than before."[63] Coal also carries high costs in terms of air pollution; in China mortality from air pollution is currently valued at 10% of GDP.[63][64] Coal is the most intensive of fossil fuels, and accounts for 73% of power sector emissions, but only makes up 41% of generated electricity.[63][65] To reduce the use of coal, governments could require that new coal construction may only be approved once a full assessment has been done that shows other options are infeasible and that the benefits of coal are more than the costs.[63]

New era for renewable energy sources

Large-scale and affordable alternatives to fossil fuels, especially in the power sector, have emerged quickly in the form of renewable energy sources.[63][66] Hydropower is now joined by wind and solar power as increasingly cost-competitive options to coal and gas,[63][67] and over 25% of the growth in electricity generation from 2006-2011 came from renewables.[63][68] Module prices for solar photovoltaic power have fallen 80% since 2008,[63][69] which means solar power costs half as much now as it did in 2010.[63][70] Other proven technologies include biomass, geothermal and nuclear power.[71] Even baseline scenarios foresee wind and solar power as large contributors to new power in the next 20 years,[71] and overall, zero-carbon sources can be a mainstay to meet future energy needs.[71] However, "renewable energy can only compete where institutions and markets are set up to accommodate it,"[71] current markets that are set up for fossil fuels will need to be adapted, and the benefits of lower pollution and energy security need to be accounted for in planning and decision-making.[71] With the right mechanisms, plans and financial arrangements in place, renewables can have a central role in new supply for the next 15 years in most countries.[71]

Natural gas as a 'bridge' to low-carbon energy and the role of CCS

Except for a few coal-dependant countries, natural gas is already the dominant source of energy,[71][62] due to lowered costs.[71] Gas can also displace coal and reduce CO2 emissions as well as local air pollution, while supporting power systems that have higher shares of variable renewable energy.[71] In order for gas to act as a 'bridge' fuel, strong policies will need to be put in place, such as a carbon emission price, production regulation regarding fugitive methane emissions, recognizing the full social cost of coal and supporting the development and implementation of low-carbon technologies.[71] Carbon capture and storage (CCS) has the potential to reduce CO2 emissions while still using some fossil fuels, and many scenarios to limit global warming rely on some levels of CCS implementation.[71][28][72] CCS is a proven technology in the petroleum sector, however it is still in the early stages in the power sector, and investment is only a fraction of what is needed to make CCS a realistic option.[71]

Making the most of our energy supply

The people who will most benefit from modern energy is the 1.3 billion people in the world without access to electricity, the 2.6 billion who lack modern cooking facilities, and large numbers of people in urban and peri-urban areas in developing countries who only have partial or unreliable access to electricity.[71] Traditional models of electricity access through grid extension and urbanization are now helped by off-grid and mini-grid systems, which are increasingly cost effective due to new business models, technological innovations and falling costs.[71] Innovation and experimentation are needed to support low-carbon electricity past lighting and low-power appliances, and the pace for access to better cooking facilities needs to be sped up.[71][73] Energy efficiency and productivity can also be improved to provide the world with additional fuel; for example, "in developed countries, energy efficiency improvements have cut the effective demand for energy by 40% in the last four decades."[74] The benefits of focusing on energy efficiency as the "first fuel" include: growth potential, greater levels of energy service, reduction in local air pollution, balance of payments (from avoided fossil fuel imports), and lower carbon emissions.[74] Efficiency opportunities will be especially important for emerging economies, to meet their growing energy demands.[74] There are areas that remain largely untapped for energy efficiency, especially in terms of buildings, vehicles and industry.[75] Energy efficiency is held back by ineffective energy pricing, lack of awareness, policy distortions, poorly aligned incentives within key markets like housing and the low prioritization of energy efficiency in businesses.[75]

Economics of change

The usual perception is that there is a trade-off between economic growth and climate action, however this is based on a misconception built into many model-based assessments that "economies are static, unchanging and perfectly efficient."[75] When this assumption is used, anything that deviates from the normal has the large short-and medium-term goals.[76] In reality, there are numerous reform opportunities that can reduce market failures and rigidities that hold back growth, lead to the inefficient allocation of resources and generate excess GHGs, which can actually reduce or eliminate the perceived net costs of climate action.[76]

Framework for 'better growth' and a 'better climate'

'Better growth,' meaning an increase of quality of life in the key areas of incomes, more liveable cities, better health, resilience, faster innovation and poverty reduction can also mean achieving a 'better climate' (reducing GHGs).[76]

There are four building blocks to this model:

  • Short-run opportunities to deal with market imperfections that increase climate risk and hurt economic performance;
  • Structural change, investment and growth according to different country contexts
  • Flexible approaches to the management of the transition, especially political economy challenges and distributional issues that need to be addressed; and
  • Development and use of new measurement and modelling tools to improve economic decision-making and lead to better policy choices.[76]

This framework will have to be applied differently to different countries, depending on economic structures and income levels.[76]

Policies to tackle market failures and strong institutions

In order to manage change and make growth opportunities a reality, clear and credible government and institution policies are required to guide investors, align expectations, stimulate innovation and avoid carbon-intensive infrastructure and behaviours, as weakness and policy uncertainty makes change more expensive and slow.[76] Market failures to be tackled through policy reforms include: pricing GHG emissions, energy efficiency, congestion, air pollution, R&D.[76] Policy distortions that subsidize the wasteful use of resources in the areas of energy, water and land also need to be corrected.[76] Fossil fuel subsidies in OECD countries are estimated at US$55-90 billion per year from 2005-2011,[76][77] and in emerging and developing countries, are estimated at US$540 billion in 2012.[76][65] The phasing out of these subsidies, as well as agricultural input subsidies should be carefully planned and pay special attention to transparency, communication and "targeted support to the poor and affected workers."[78] A strong carbon price taxes an "economic bad" and raises revenue for governments which can then be recycled intelligently to offset short-term costs, especially for low-income households.[78] 40 countries, and 20 sub-national jurisdictions apply a carbon pricing system, and 26 other countries and jurisdictions are considering a carbon price, which altogether cover about 12% of global emissions.[78][79] Starting with a low carbon price that has an obvious and credible rising price path provides clear policy signal while giving time for industry and households to adapt and make the necessary investments to reduce their GHG emissions.[78] Energy and fuel efficiency standards for transportation, buildings and appliances industries are also helpful; for example, "existing fuel economy standards in the auto sector are expected to increase fleet efficiency by 50% over the next decade."[78] In order for countries to make a successful transition to a low-carbon economy, economic flexibility needs to be supported in terms of better capital market, labour market, competition, educational and innovation policies.[78] To ensure resources flow where they are most productive, prices need to properly reflect the full costs of production.[78] In addition, metrics and models that give a more reliable, comprehensive analysis of natural and societal capital to potential climate risks, as well as the costs and benefits of climate action, are needed to guide the low-carbon transition, and should be developed and deployed by public international institutions and national governments.[78]

Tackling barriers and resistance to change

Governments have found it difficult to implement policies such as carbon tax, partially due to political economy pressures such as "powerful vested interested in a fossil fuel-based economy and concerns around competitiveness and around the potential for regressive impacts on households from these policies."[78] To address these issues governments might find it more effective to start with "second-best" approaches and use a step-by-step plan to discover the right path towards a complete transition that will reflect country-specific circumstances and contexts, as well as include reviews regarding the effectiveness and efficiency of policies.[78] The social and economic costs of transition also need to be recognized, analyzed and managed by governments, and include not only reducing the costs and tradeoffs for low-income households, but also ensuring the transition for workers whose livelihoods are affected is just.[80]

Finance

The transition to a low-carbon economy will need significant investment from: businesses, farmers, land owners and households to improve efficiency, from energy producers who will need to switch to low-carbon generation, and from governments who will need to not only enhance and expand infrastructure productivity, but will also need to influence the direction of private finance through regulation, co-investment, incentives, and risk-sharing instruments, as well as other policy measures.[80] Most of the necessary investment can be done through existing mechanisms and structures, however some sectors such as the low-carbon transition in the power sector, are more challenging and might need dedicated policy.[80] Before climate action is included, an estimated US$89 trillion investment in infrastructure in cities, land use and energy will be required by 2030 to support the growing global population.[80] To have a good chance of keeping the global temperature rise under 2°C, many of these investments will have to be reallocated, and an additional US$8.8 trillion of incremental investment in improving energy efficiency in buildings, transport and industry could be required, while another US$4.7 trillion could be needed to deploy low-carbon technologies such as renewables, nuclear and carbon capture and storage (CCS).[80] However, an estimated US$5.7 trillion could be saved in fossil-fuelled power plants and along the fossil fuel supply chain, and "up to US$3.4 trillion from building more compact, connected cities and reducing sprawl" could be saved.[80] The overall net incremental investment needed for the transition to a low-carbon economy up to 2030 could be US$4.1 trillion, if the investments were done well.[80] Therefore, "infrastructure capital needed for a low-carbon transition would only be 5% higher than in a business-as-usual scenario, helping to limit future climate impacts and adaptation costs, and some studies have suggested even lower investment needs due to the potential synergies in infrastructure and fuel savings.[80][81] With both public and private sources, there is already "sufficient capital available to finance a low-carbon transition,"[80] however capital is often allocated inefficiently by current industry and financial structures so the right long-term policies, such as carbon pricing and regulation, will be needed to access the necessary capital and reduce government-induced uncertainty.[80]

Policies to reduce finance costs for low-carbon energy

Providing stable, clear, and consistent policies are essential to shape market expectations, and lower the cost of transitioning to a low-carbon economy, as well as accelerate the pace of the change, while mixed policy signals stifle innovation and investment.[80] If properly structured, new vehicles for low carbon investment like "YieldCos," crowd-sourcing, municipal finance and "green bonds" in high-income countries could reduce financing costs for low-carbon electricity by up to 20%.[80][82] These instruments "provide a way for institutional investors to invest directly in illiquid infrastructure assets and earn predictable inflation-hedged returns (well-matched against long-term liabilities) with greater liquidity."[83] If the right financial intermediation and regulatory regime are in place, the intrinsic riskiness of low-carbon assets may actually be lower than volatile fossil fuel assets.[83] In middle-income countries, the use of lower-cost public capital can greatly reduce the financing costs for low-carbon energy, as they are so high they generally wipe out the cost advantage in these countries due to lower labour and construction costs; for example, "financing in India adds 25% to the cost of solar power".[83] National development banks, national sovereign wealth funds and investments from national budgets and state-owned enterprises (SOEs) fund a large portion of the world's low-carbon investment,[83] and lower financing costs cause a huge reduction in the cost of renewable energy.[84] For low-income countries it is still a major challenge to mobilize capital for both high- and low-carbon energy investments, and multilateral banks and development finance institutions play an important role in financing infrastructure.[84] Multilateral banks have a harder time supporting low-carbon energy investments due to the higher capital cost affecting their balance sheet capacity.[84] However, there are many "new initiatives, funding vehicles and programmes, special-purpose funds and institutions dedicated to providing energy in low-income countries," to assist.[84]

Creating new value and reducing stranded-asset risks

When a broader financial perspective is taken, the global economy could create value through a low carbon transition, as "low-carbon infrastructure has significantly lower operating expenses and a longer expected lifespan than fossil fuel assets."[84][85] If finance and energy systems are structured to take advantage of the inherently lower risks of low-carbon energy, lower capital costs could be achieved.[84] In the power sector, these two factors combined can offset the increase in capital investment needed to switch from coal to renewables.[84] When the full financial picture is considered, including the decline of some fossil fuel assets ("stranding"),[84][86] there is an estimated US$1.8 trillion net benefit over 2015-2035 from a low-carbon transition in the electricity sector.[84] If clear policy signals are sent, it could discourage new investment in fossil fuels that are at risk of being stranded, which especially applies to coal, as it produces less economic value per tonne of CO2 emitted than oil or gas.[84] For example, "over the next 20 years, reducing the use of coal can achieve 80% of the required energy-sector emissions at only 12% of the total potential stranded-asset cost."[84]

Innovation

Innovation makes growth in a world of finite resources possible, as well as determines gains in productivity and new product development; it is "essential to transforming global energy systems, agriculture and cities."[84] The OECD predicts that, if current trends continue, when the global population grows from 7 billion (2010) to 9 billion (2050), per capita consumption will triple, and global GDP will quadruple, which will require 80% more energy.[87][88] Only through radically new products, business models and means of production can growth at that scale be sustained.[87]

Transformative innovation toward a low-carbon economy

Fundamental innovation trends that hold a high potential to drive strong growth towards a low-carbon, resilient and resource-efficient economy include "materials science, digitization and related business model innovations."[87] These innovations can reshape entire industries and "leapfrog" over less efficient, higher pollution stages of development.[87] In the last decade, new and improved materials have cut costs and improved performance in wind and solar energy, facilitated huge improvements in lighting and appliance efficiency, improved the energy efficiency of the building envelope,[87][89] led to continual improvements in vehicle fuel efficiency,[87][90] and have improved energy storage as well as carbon capture use and storage.[87] Digital technologies can use new business models to reduce energy- and capital intensity across the economy; for example, cloud computing "can increase efficiency and reduce companies' overhead costs, energy use and related emissions."[87] On an individual level, digital technologies are being used guide users through public transit, to create and spread ride sharing services, to help drivers find parking and avoid congested roads, as well as to help people control the temperature and lighting in their homes more reliably.[91] When technological advances are combined with open-innovation approaches and new business models, big opportunities can happen; for example, Tesla Motors increased its market capitalization from US$2 billion in 2010 to US$26 billion by 2013 through a similar process.[91]

Potential for a 'circular' economy

Traditional supply chains move in one direction, from material extraction to waste, and the result of this is "landfills full of useful products and components, representing wasted resources and lost potential revenues."[91] An alternative "circular economy" is emerging that attempts to reuse, remanufacture and recycle as much as possible, and materials-related innovation and technologies are key components of this type of economy.[91] Digital tools support this market creation by matching used goods to potential remanufacturing or reuse markets.[91] A strong example of this type of economy is practiced by the remanufacturing division of Caterpillar, where the company "disassembles products at the ends of their lives, cleans all the parts, and salvages all that is reusable," which allows the company to boost profit margins, reduce GHG emissions and waste and create "same-as-new" products which can be sold at a fraction of the cost of new ones.[91] If a circular economic model was adopted worldwide, it is estimated it would create more than US$1 trillion a year by 2025 and 100,000 new jobs in the next five years while reducing GHG emissions.[91][92] This shift requires that businesses operate in new ways, with a focus on cross-sector alignment and collaboration, as well as better labelling, new systems, new skills, and reduced taxes on goods with refurbished components.[91] It is also "crucial that recycling and remanufacturing efforts be underpinned by policies that ensure safe working practices and environmental protection."[91]

Making buildings and materials more sustainable

"Buildings consume 32% of global energy and produce 19% of energy-related GHG emissions,[91][28] while the construction industry produces 30-40% of global waste;"[91][92] and the sector is expected to grow significantly in the next couple decades.[91] The value chain of buildings has a substantial potential for improvements in energy efficiency, reductions in GHGs and the creation of economic values through levers such as modular construction and pre-assembly, new products that reduce building energy use, improved building materials, sustainable architecture design, circular business models and process efficiency in cement and steel.[91] Modular construction and pre-assembly can already reduce both raw material use and construction time significantly by achieving efficiency similar to manufacturing.[91] Innovation in the building sector is slowed by the complexity of the building process, misaligned incentives, and the reliance on prescriptive standards and regulations.[91]

Promoting innovation to support a low-carbon transition

Innovation is essential to the transition to a low-carbon economy, however the invention process has many barriers; for example, the value of innovations is hard to protect as it becomes widely accessible.[93] It can also be hard to disperse innovations on a large scale due to market failures such as "the failure to accurately price environmental damages; disincentives to be the first to adopt untested new technologies; and difficulties achieving network economies, which are crucial for innovations such as electric vehicles."[93] Barriers to entry, such as favouring incumbent industry that have sunk costs, technology maturity and outdated policy frameworks also stop new technologies and business models, or delay their adoption.[93] Innovation can be promoted by increasing support for research and design, by building market demand for new technologies through pricing mechanisms (like a fossil fuel tax), regulatory standards or direct procurement, and by ensuring strong and fair competition through intellectual property and anti-trust regimes to protect the value of the innovation.[93] Although clear and strong intellectual property rights can attract significant private investment in low-carbon technologies,[93][94] they can also prevent barriers to the dispersal of environmental technologies by limiting access, raising costs, and putting countries that have a low institutional capacity at a disadvantage.[93] To combat this problem patent pools could offer a solution: "consortia created by owners of similar technologies pull together, and sometimes cross-license common or complementary technologies,"[93] and international support will be required to assist the poorest countries with technical capacity-building as well as technology adoption and adaptation.[93] A range of different policy interventions are required to foster low-carbon innovation, especially policies that monitor and evaluate results as well as set goals and have built-in flexibility to change over time.[93]

International cooperation

Rapidly increasing globalization has a huge impact, from significant economic growth and expansion to a substantial rise in GHG emissions.[95] Although the low-carbon economy is a growing global phenomena, there is still much potential for the international community to support and accelerate the transition.[95] Although much policy-making has to happen at national and subnational levels, there are five key forms of international cooperation that can strengthen and support those policies: "a new climate change agreement, increased flows of international climate finance, improved trade agreements, various kinds of voluntary initiatives at the sectoral level, and changes to the rules and norms of the global economy."[95]

New international climate agreement

A new legal climate change agreement is needed to drive the innovation and investment in low-carbon, climate-resilient growth that is required to keep global warming below 2°C.[95] The agreement needs to be something countries sign voluntarily, and which provides a framework of global rules and commitments that will encourage stronger climate action.[95] The new agreement has to be equitable, as most of the existing GHGs in the environment are from developed countries,[95][28][96][97] however developing countries have now exceeded the emissions created by developed countries due to their fast-growing economies.[95] The difficult part is ensuring developing countries' emissions slow while ensuring their economies continue to grow and their poverty is alleviated; another significant factor is that most of these countries have lower per capita emissions than developed countries.[95] The onus is then on developed countries to make deeper, earlier, absolute cuts to their own emissions, and thereby providing strong examples of how to effectively use good policy to reduce climate risk while increasing economic growth.[95] A new legal agreement that is used to put in place ambitious national targets, laws and policies across all major economies will expand the markets for low-carbon goods and services as well as increase confidence in their sustainability; in general it can be used as a macroeconomic policy instrument and will send a clear signal to investors.[95]

Increasing international finance flows

Global flows of finance aimed at climate-resilient and low-carbon investments in 2012 are estimated at US$359 billion,[98][99] with a quarter of that being international (flowing across national boundaries). Of this quarter, 46-73% was from sources in developed countries to developing countries, and 80-90% of this financing came from public sources.[98][99] In order for developing countries to succeed on a lower-carbon path, international climate flows need to increase and developed countries need to plan how they will meet their agreed upon goal of "mobilizing US$100 billion per year in public- and private-sector finance by 2020."[98] Development finance institutions (DFIs), play an important role, as they distributed about a third of climate financing in 2012,[98][99] and in order to increase flows of private capital, public finance and policy instruments must be devised and used to lessen the risks private investors face in terms of low-carbon investments.[128] Direct public finance, such as concessional loans and grants, remain important for renewable energy as well as adaptation and mitigation.[98][100][101]

Role of trade agreements

Global deployment of low-carbon and environmental goods is slowed down by tariffs, and proposals have been made to eliminate these tariffs in the world Trade Organization (WTO),[98][102] however serious trade disputes have also broken out over specific low-carbon products such as renewables,[98][103] which raises prices and damages deployment. New rules for faster dispute settlement, and new regional trade agreements can "support low-carbon growth through new common standards, and the liberalization of trade in sectors such as construction and urban planning."[98]

Voluntary cooperative initiatives

International cooperative initiatives, carried out by governments, civil society organizations, cities (such as C40 Climate Leadership Group) and/or businesses are increasingly playing a more important role in in supporting and promoting climate action across specific sectors and fields.[98] Business-led initiatives (such as the Global Protocol on Packaging Sustainability) can make a significant difference in sectors of the global economy where managing related GHG emissions can be difficult due to the large percentage of internationally traded products.[98] For example, "the Climate and Clean Air Coalition to Reduce Short Lived Climate Pollutants (CCAC) is already stimulating reductions in methane and hydroflurocarbons (HFCs)."[98]

Changing the rules and norms of the global economy

A long-term transition into a low-carbon model of development and growth requires a systematic shift by all major economic actors, who "will need to integrate climate risk management into their core economic and business strategies."[104] Although some of this is done of their own accord, many more will follow suit if they are required by the rules and norms that they operate under.[104] For example, in recent years over 4,000 global companies have been reporting their GHG emissions to their major investors,[104] however the reports are not part of their mainstream financial reports, nor are they treated the same way, by either companies or shareholders.[104] Additionally, few "report systematically on the climate risks they face: the extent to which business assets, activities, and future profits are made vulnerable by climate change and climate policy."[104] Reporting on asset portfolios that are subject to climate risk is also important, including risks of "stranding" or devaluation.[104]

Global Action Plan

The Global Action Plan, which is the Commission's 10 principled recommendations are divided into two classes: 1-6 define the conditions needed for better, low-carbon, climate-resilient investment and growth, while 7-10 focus on sectoral change.[105]

1. Integrating climate action and risk into economic decision-making

The recommendation:

"Accelerate a low-carbon transformation by integrating climate action and risk into strategic economic decision-making."[105]

The recommendation includes:

  • "All governments, major businesses, investors, development, commercial and investment banks, international organizations and leading cities should work to integrate climate risks and opportunities into their economic and business strategies."[105]
  • "Climate and other environmental risks should be integrated into core decision-making tools and practices, such as economic and business models, policy and project assessment methods, performance indicators, discounting approaches used to estimate the present value of longer-run costs and benefits, risk metrics and models, resilience tests, and reporting requirements."[105]
  • "Businesses, working through associations such as the World Business Council on Sustainable Development and with government regulators, should adopt and implement a standardized Integrated Reporting Framework for financial and non-financial performance that includes the assessment of climate risk and risk reduction strategies. Investors and stock exchanges should require companies to disclose this information."[105]
  • "Investors, working together with government financial regulators, should develop an approach to report transparently on the carbon exposure of their assets, and the potential risk of stranded fossil fuel assets. Banks should deepen their assessment of environmental and carbon risk in transactions."[105]
  • "The G20 should make climate risk assessment and reduction a standing agenda item in its meetings. Major international organizations concerned with the management of the global economy, such as the International Monetary Fund, the Organization for Economic Co-operation and Development, and the multilateral development banks, should reflect climate risk assessment and reduction in their surveillance processes and policy assessments as relevant to their mandates."[105]

2. Create confidence with an international climate agreement

The recommendation:

"Create the confidence needed for global investment and climate action by entering into a strong, lasting and equitable international climate agreement."[105]

The recommendation includes:

  • "All governments should set clear, ambitious medium-term (e.g. 2025) national greenhouse gas emission targets or actions which reflect their common but differentiated responsibilities as part of the global agreement. They should agree a global goal which would achieve annual greenhouse gas emissions of near zero or below in the second half of the century. The agreement should include a mechanism for regular strengthening of national commitments (e.g. on five-yearly cycles); financial and technical support for developing country action; and strong commitments to take adaptation action. It should also provide as much transparency as possible to build confidence. The principles of equity and a just transition should underpin the agreement, reflecting the current and changing circumstances of countries."[105]
  • "Developed countries should commit to a clear pathway for meeting the Copenhagen commitment to mobilize US$100 billion annually by 2020 in public and private finance, combined with greater transparency of financial commitments and identifying new sources of finance (see Recommendation 5)."[105]
  • "Businesses, cities, states, national governments, international institutions and civil society organizations should complement an international agreement by strengthening (and where appropriate, creating) cooperative initiatives to drive growth and climate risk management in key sectors, including major commodities and energy-intensive industries, and to achieve the phase-out of hydrofluorocarbons (HCFs)."[105]

3. Phase out subsidies and incentives for fossil fuels and urban sprawl

The recommendation:

"Phase out subsidies for fossil fuels and agricultural inputs and incentives for urban sprawl."[105]

The recommendations include:

  • "National governments should develop comprehensive plans for phasing out fossil fuel and agricultural input subsidies. These should include enhanced transparency and communication and targeted support to poor households and affected workers. Governments should explore innovative approaches with multilateral and national development banks on how to finance the upfront costs of reducing the impact on low-income households, and enhancing service delivery as or before the subsidies are phased out."[105]
  • "Export credit agencies should agree to restrict preferential terms for new coal power stations to supercritical or more efficient technologies, and then to a timetable for phasing out these preferential terms, initially for middle-income countries, and then for low-income countries (see Recommendation 5)."[105]
  • "Regions, cities and urban development ministries should phase out incentives for urban sprawl. Multilateral and national development banks should work with countries to redirect infrastructure spending away from projects that enable urban sprawl and towards more connected, compact and coordinated urban development."[106]

4. Introduce strong carbon prices

The recommendation:

"Introduce strong, predictable carbon prices as part of good fiscal reform."[106]

The recommendation includes:

  • "National governments should introduce a strong, predictable and rising carbon price as part of fiscal reform strategies, prioritising the use of resulting revenues to offset impacts on low-income households and finance reductions in other distortionary taxes."[106]
  • "Major companies worldwide should apply a "shadow" carbon price to their investment decisions and support governments in putting in place well-designed, stable regimes for carbon pricing."[106]
  • "Efficient regulations, standards and other approaches should be used to complement pricing; these can also help to put an "implicit" price on carbon for countries where a low level of carbon pricing is politically difficult, preferably with flexibility built in to facilitate the introduction of explicit pricing later."[106]
  • "National governments should seek to reduce policy risk and uncertainty by enacting domestic climate legislation, modifying their national plans and developing the institutional arrangements needed to meet their commitments under an international climate agreement (see Recommendation 2)."[106]

5. Reduce the capital cost of low-carbon infrastructure investment

The recommendation:

"Substantially reduce the capital cost of low-carbon infrastructure investment."[106]

The recommendation includes:

  • "Donors, multilateral and national development banks should review all lending and investment policies and practices, and phase out financing of high-carbon projects and strategies in urban, land use and energy systems, except where there is a clear development rationale without viable alternatives."[106]
  • "Governments and multilateral and national development banks should help provide new and existing financing institutions with the right skills and capacity to provide finance for low-carbon and climate-resilient infrastructure, and to leverage private finance towards this goal. This would include finance for distributed off-grid and mini-grid renewable energy solutions, as a contribution to achieving universal access to modern energy services."[106]
  • "In rapidly developing countries facing high interest rate environments, governments should shift their support models for low-carbon infrastructure more towards low-cost debt, and away from price subsidies such as feed-in tariffs. This could reduce the total subsidy required, bring down the cost of energy over time, and in some cases, may reduce the need to buy imported fuel."[106]
  • "Governments, working with investor groups, should help develop well-regulated asset classes, industry structures and finance models for renewable and other low-carbon energy investment which match the needs of institutional investors, and identify and remove barriers that may hamper these investments."[106]

6. Scale up innovation

The recommendation:

"Scale up innovation in key low-carbon and climate-resilient technologies and remove barriers to entrepreneurship and creativity."[106]

The recommendation includes:

  • "Governments of the major economies should at least triple their energy-related research and development expenditure by the mid-2020s, with the aim of exceeding 0.1% of GDP; in addition, all countries should develop coordinated programmes to support the development, demonstration and deployment of potentially game-changing technologies, such as energy storage and carbon capture, use and storage."[106]
  • "Governments should strengthen the market pull for new low-carbon technologies, in particular through carbon pricing, performance-based (technology-neutral) codes and standards, and public procurement policies."[106]
  • "Governments should work individually and together to reduce barriers to the entry and scaling of new business models, particularly around "circular economy" and asset-sharing mechanisms, and trade in low-carbon and climate-resilient technologies."[106]
  • "Donors, working with international agencies such as the Consultative Group on International Agricultural Research (CGIAR), the UN Food and Agriculture Organization and national research institutes in emerging and developing countries, should double investment in agriculture and agroforestry R&D, with the aim of boosting agricultural productivity, climate-resilient crop development and carbon sequestration."[106]
  • "Learning from the CGIAR experience, governments should collaborate to establish an international network of energy access "incubators" in developing countries. These should enhance public and private R&D in off-grid electricity, household thermal energy, and micro- and mini-grid applications. They should also boost business model development for new distributed energy technologies."[106]

7. Connected and compact cities

The recommendation:

"Make connected and compact cities the preferred form of urban development."[107]

The recommendation includes:

  • "Finance and urban planning ministries, national development banks, and city mayors should commit to a connected, compact and coordinated urban development model, centred on mass transport and resource-efficient service delivery."[107]
  • "City authorities, working with national and sub-national governments, should identify ways to increase locally generated revenues to finance and incentivize smarter, more compact and resilient urban development – for example, through greater use of congestion charging, parking fees, land development taxes and land value capture mechanisms."[107]
  • "Governments, multilateral and national development banks should work with major cities and private banks to strengthen the creditworthiness of cities. They should work together to set up a global city creditworthiness facility."[107]
  • "Networks of cities, such as the C40 Cities, Climate Leadership Group and ICLEI – Local Governments for Sustainability, working with international organizations and the private sector, should create a Global Urban Productivity Initiative aimed at significantly increasing the economic and resource productivity of the world's cities. The initiative could start by developing, quantifying and disseminating best practices in boosting urban productivity, and support countries' efforts to put sustainable urbanization at the heart of their economic development strategies."[107]

8. Halt deforestation

The recommendation:

"Halt the deforestation of natural forests by 2030."[107]

The recommendation includes:

  • "Developed countries should scale up payments for Reducing Emissions from Deforestation and forest Degradation (REDD+) to at least US$5 billion per year, focused increasingly on payments for verified emission reductions."[107]
  • "Forest-rich countries should take steps to correct the governance and market failures undermining natural forest capital, including actions to improve land use planning, secure tenure, strengthen enforcement of forest laws, and increase transparency concerning the condition and management of forests."[107]
  • "Companies and trade associations in the forestry and agricultural commodities sectors (including palm oil, soy, beef, and pulp and paper) should commit to eliminating deforestation from their supply chains by 2020, for instance through collaborative initiatives such as the Consumer Goods Forum and its Tropical Forest Alliance 2020, and in cooperation with banks willing to incorporate environmental criteria into their trade financing instruments."[107]

9. Restore degraded forests

The recommendation:

"Restore at least 500 million hectares of degraded forests and agricultural land by 2030."[107]

The recommendation includes:

  • "National governments, working together with farmers, development banks, non-governmental organizations (NGOs) and the private sector, should commit to and start the restoration of at least 150 million hectares of degraded agricultural land, to bring this back into full productive use – for example, through agroforestry measures. This target could be scaled up over time, based on learning from experience. It is estimated that such action could generate additional farm incomes of US$36 billion, feed up to 200 million people and store about 1 billion tonnes of CO2e per year by 2030."[107]
  • "Governments, with the support of the international community, should commit to and start the restoration of at least 350 million hectares of lost or degraded forest landscapes through natural regeneration or assisted restoration by 2030. This could generate an estimated US$170 billion per year in benefits from ecosystem services, and sequester 1-3 billion tonnes of CO2e per year."[107]

10. Shift away from coal-fired power generation

The recommendation:

"Accelerate the shift away from polluting coal-fired power generation."[107]

The recommendation includes:

  • "Governments should reverse the "burden of proof" for building new coal-fired power plants, building them only if alternatives are not economically feasible, bearing in mind the full range of financial, social and environmental costs associated with coal power."[107]
  • "All countries should aim for a global phase-out of unabated fossil fuel power generation by 2050. High-income countries should commit now to end the building of new unabated coal-fired power generation and accelerate early retirement of existing unabated capacity, while middle-income countries should aim to limit new construction now and halt new builds by 2025."[107]
  • "Governments and multilateral and national development banks should adopt an integrated framework for energy decisions, ensuring a public and transparent consideration of all the costs and benefits of different energy sources, including demand management options, based on consideration of supply costs, energy security impacts, health costs of air pollution, other environmental damage, risks related to climate change and technology learning curves."[107]
  • "Governments worldwide should steer energy sector investments towards renewable energy sources, energy efficiency improvements and other low-carbon alternatives. Energy efficiency should be prioritized, given the cost savings and energy security benefits it provides."[108]
  • "Governments should provide assistance to support workers, low-income households and communities in coal-dependent regions and carbon-intensive sectors that may be adversely affected by these policies, to ensure a just transition with appropriate social protection measures, using where relevant some of the revenues from carbon taxes and subsidy reform for this purpose."[108]

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