Climate Change and Low-carbon Economy

I would like to share this essay, which I wrote as part of the assignment for a MOOC entitled, "Climate Change," on Coursera. Rapid climate change driven by global warming associated with human activity is seen as one of the biggest threats to the future of humanity. The rate at which the increasing concentration of greenhouse gases (GHGs, primarily carbon dioxide, methane, nitrous oxide and chlorofluorocarbons) in the atmosphere is quite alarming. Greenhouse gases present in the atmosphere absorb thermal radiation emitted from the earth’s surface, thus acting as a blanket causing global warming.  Carbon dioxide is regarded as the most important of the manmade greenhouse gases blamed for raising the temperature on the planet (Figure 1). It is worth noting that GHG concentrations have increased from around 285 ppm CO₂e in the 1800s to around 445 ppm as on today and it is estimated that this is likely to reach 750 ppm by the end of this century. This could result in an eventual temperature increase of more than 5 ^oC compared with the pre-industrial era. In fact, the planet has not seen even 3 ^oC for about 3 million years and it is predicted that a 450 ppm gives rise to around 20% chance of greater than 3 ^oC [1]. Therefore, there is an urgent need to contain these greenhouse gas emissions into the atmosphere. Solving this problem poses unprecedented challenges to the mankind. It requires multipronged strategy involving scientific, technical, economic, cultural, social, and political elements and a switch towards low-carbon economy (LCE). 

Figure 1: Figure showing the overlay of the average global surface

temperature and atmospheric CO2 for the past million years follow

a similar trend. Notice that warmer temperatures and higher CO2 

levels as well as colder temperatures and lower CO2 levels correlate 

well with each other (top). Figure showing the history of atmospheric

carbon dioxide concentrations as directly measured at Mauna Loa,

Hawaii (bottom). Bottom Image credit: Narayanese, Semhur, and
NOAA via Creative Commons.

What is a low-carbon economy or LCE?

LCE is an economy characterized by low energy consumption, low emission, and less polluting. It is characterized by the range of activities which emit low levels of carbon dioxide into the atmosphere. In other words, LCE is higher energy efficiency and a cleaner energy structure which will maximize the value and growth across the whole economy [2].  Traditional economy focuses on the continuous growth, prosperity, costs and opportunities without paying any attention to the increased emissions of carbon dioxide into the atmosphere. LCE on the other hand emphasizes the need for sustainable growth with efficient use of resources, technology and man power, which are environmental-friendly compared to high carbon resource-intensive traditional growth economy.

In October 2006, British government issued a report “Stern Review on the Economics of Climate Change” by Sir Nicholas Stern, former chief economist of the World Bank. In the report, Sir Stern claims that with 1% of annual global GDP invested to address climate change, we could avoid future loss worth 5% to 20% of annual GDP [1]. He further called a transformation to LCE. According to Lord Stern, “The evidence shows that ignoring climate change will eventually damage economic growth. Our actions over the coming few decades could create risks of major disruption to economic and social activity, later in this century and in the next, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century. And it will be difficult or impossible to reverse these changes. Tackling climate change is the pro-growth strategy for the longer term, and it can be done in a way that does not cap the aspirations for growth of rich or poor countries. The earlier effective action is taken, the less costly it will be."

For effective minimization of carbon dioxide emissions from all sectors in a LCE requires innovative solutions including new technologies and new energy sources. This will attract new ideas bringing new technologies from prototype to mass market and presents significant investment opportunities. These can include renewable energy sources such as marine or wind energy or other low-carbon technologies such as hydrogen fuel cells. Thus, a LCE not only opens up new investment opportunities but also new business as new markets emerge. Because LCE involves diverse sectors, the nature of its growth is also unpredictable unlike the traditional growth economy.

Need for Private and Public Sector Investment

LCE offers significant commercial potential and encourages private sector organizations to enter and capitalize on the revenues that are available in this area. Nearly, $2.5 trillion is estimated to be financed by the sources procuring low-carbon technologies.  A case in point is “The Carbon Trust” set up in UK. Their ventures like Connective Energy and Partnerships for Renewables are a great success [3]. Likewise there are many others who ventured in this sector such as Accenture, McKinsey and others [4]. There’s a need to spread this across the spectrum rather than limiting to few large companies. Climate bonds set up recently would suit this purpose very well. Climate bonds, which are defined as asset-backed infrastructure bonds designed specifically to finance climate change solutions like climate change adaptation measures and or mitigation projects that deliver genuine reductions in emissions. Climate bonds allow governments and/or private sector to raise funds to build renewable energy generation and related infrastructure, implement energy efficiency measures in cities and industries as well as support the adaptation measures. This market has touched more than $12 billion as per 2011 estimates [5,6].

Social and Cultural Costs

Climate change impacts the economic, social, cultural, and religious practices of all people of all religions in the world. Therefore, the cost of living, moving, eating, and consuming aspects of people across the globe plays a major role in mitigation and adaptation strategies of climate change and thereby the cost benefit analysis in a LCE as well [7]. It is estimated that the monetary losses as a result of global damages related to climate change will equal to 1.5% to 2% of Gross World Product (GWP, defined as the market value of all the goods and services sold throughout the world). This is an estimate for a single, unspecified year – the year when CO2e concentrations will have doubled, which is thought to occur in around 2050 or 2060 [8]. The Working Group III (WG3) of the Intergovernmental Panel on Climate Change (IPCC) also estimated damage costs of 1% to 1.5% of Gross National Product (GNP) in OECD countries and between 2% and 9% of GNP in countries outside the OECD.

Need for Ethical and Political Framework

The LCE does require ethical and political framework for the governments to support the low-carbon economic activities and development of new technologies. The governments are in a position to plan a long-term strategic perspective regarding the future development of these activities. The governments need to have proper agenda and plans in this direction if they were to cut the global carbon dioxide emissions. Governments need to identify the LCE as an area for global economic growth in the coming decades. The wider political, economic and social context must also be addressed. A coherent portfolio of policy measures and specific mechanisms is needed to drive the transition to a LCE and only the governments can play a critical role in doing so.

Role of Science and Technology

The research and development is a key for a LCE as it involves the development of new and high energy-efficient end-use technologies, natural energy technologies, employing innovative manufacturing techniques such as iron (steel) making techniques using hydrogen instead of coal as a reducing agent, which results in large reduction of CO₂ emissions,  building highly efficient zero-emission thermal power stations, advanced atomic power generation, highly efficient electric power transmission etc. Development of alternative energy sources involve the renewable energy sources including bioenergy, which may be used to produce electricity or heat for home heating and transport through biofuels, advanced solar power generation, and wind farms. Other areas of interest include hybrid technologies in cars driven by hybridized electric motors and batteries, all-electric battery vehicles or fuel-cell vehicles probably fuelled by hydrogen or the combination of the two, etc.  Production of Shale gas for example will reduce the overdependence on LNG as Shale gas life cycle emissions (especially methane leakage, more potent of GHGs) are thought to be lower compared to LNG [9]. Energy Systems Modeling (ESM) by UKERC is designed to develop insights into a range of scenarios of future energy system evolution and the resultant technology pathways, sector trade-offs, and economic implications [10].

Divide Between Developed and Developing Economies

According to Stern review, the poorest countries will be hit earliest and hardest by climate change, even though they have contributed little to causing the problem. Their low incomes make it difficult to finance adaptation. Therefore, the international community has an obligation to support them in adapting to climate change. Without this support, there is a serious risk that development progress will be undermined and also it is for the developing countries themselves to determine their approach to adaptation in the context of circumstances and aspirations of their people. Due to this economic and consumption mismatch between the developing and the developed world, many developing countries are unable to come to terms with any international agreements on climate change. The transfer of low carbon technologies – including some cleaner coal technologies - could play a pivotal role in creating incentives for developing countries such as China and India to enter a post-2012 Kyoto agreement.

Leadership and Regulation from an International Body

Taking cues from the Stern review, the key building blocks of any collective action include developing a shared understanding of the long-term goals of climate policy, building effective institutions for co-operation, and demonstrating leadership and working to build trust with others. Therefore, building and sustaining collective action is very much in need and there is still time to avoid this catastrophe of climate change if strong collective action starts now. Intense strategies are being pursued for a global agreement that will bring all countries to the table. They include funding by the developed countries in most of the investment and R&D to reduce greenhouse gas emissions and the transfer of technology at minimal or zero cost to developing countries; and the developed countries to transfer funds to developing countries in exchange for cost of effective reductions of pollution. Let’s hope a global treaty on climate change, which remained elusive would be a reality sooner rather than the later.

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[1]. Stern, N. Stern Review on the Economics of Climate Change, 2007, Cambridge University Press, Cambridge, UK.

[2]. Shengxian, Z. In “Introduction of Low-carbon Economy” Kunmin, Z.; Jiahua, P.; Depeng, C (Eds.) 2008.

[3]. Delay, T. Low-carbon Economy – What are the opportunities? The Guide to the UK Environmental Industry, 2008, p.53.
[4]. Whitehouse, S.; Lacy, P.; Veillard, X.; Keeble, J.; Richardson, S. Carbon Capital - Financing the Low-carbon Economy, Social Intelligence Series, 2011, Barclays, London.
[5]. Kidney, S.; Mallon, K.; Silver, N.; Williams, C. Financing a rapid, global, transition to a Low-carbon Economy, Climate Solutions II: Low Carbon Re-Industrialiazation, A Report to WWF International, 2009, Climate Risk Ltd.
[6]. Kidney, S.; Clenaghan, S.; Oliver, P. Climate bonds – the investment case, Bond Markets, City UK Financial Services, 2011.
[7]. Kysar, D. A. Climate Change, Cultural Transformation, and Comprehensive Rationality, Faculty Scholarship Series. Paper 383, 2004, 555-589. Retrieved 20 October 2013 from http://digitalcommons.law.yale.edu/fss_papers/383
[8]. Meyer, A.; Cooper, T. A Recalculation of the Social Costs of Climate Change, Global Commons Institutet Report, London, UK, 1995.
[9] Joffe, D. A role for Shale Gas in a Low-carbon Economy, Modelling at CCC, 2012. Retrieved on 20 October, 2013 from www.theccc.org.uk/blog/a-role-for-shale-gas-in-a-low-carbon-economy/
[10]. Anandarajah, G.; Strachan, N.; Ekins, P.; Kannan, R.; Hughes, N. Pathways to a Low Carbon Economy: Energy Systems Modelling, UKERC Energy 2050 Research Report 1, 2012, UKERC/RR/ESM/2009/001.