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After Cancun

Cancun_and_Low_Carbon_EconomyScientists have been warning us about the threat of human-induced climate change since the 1950s, and some even predicted the phenomenon as far back as the 1800s. However, due to our complex weather system, with its intricate web of feedback loops, exactly how our climate will change is hard to predict. Take the extraordinary weather events of the past year: forest fires in Russia due to soaring temperatures; flooding in Pakistan, Australia and Brazil; unusually severe winter conditions in Europe and the US.

Likewise, it remains difficult to forecast exactly how the world will react to, and hopefully tackle, climate change. Step by step, however, we are beginning to see advances toward the low-carbon economy (LCE) that most consider crucial to any potentially successful strategy. Take, for example, last year’s United Nations Climate Change Conference in Cancun, Mexico, which beat all expectations in making real progress. This was a significant moment, indicating a worldwide commitment to take action.

The sixteenth session of the Conference of the Parties (COP 16) to the UN Framework Convention on Climate Change (UNFCCC) demonstrated that countries around the world recognise climate change as an urgent, potentially irreversible threat to human societies and the planet. It culminated in an agreement – as opposed to a binding treaty – including a commitment by major economies to limit their emissions; the establishment of a Green Climate Fund, set to be worth $100bn per year by 2020, in support of developing countries’ efforts to both tackle and adapt to climate change; a general commitment to a limit of two degrees’ global warming; and REDD+, an extension of the UN Collaborative Programme on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries (UN-REDD) which attempts to provide financial incentives for conservation, sustainable forest management and building forest carbon stocks.

The outcome of Cancun debunked the view that major
emitters such as China and India are not committed to addressing climate change. Indeed, China is currently one of the largest investors in green technology and is the world market leader in the provision of solar photovoltaic (PV) power.

Furthermore, Cancun will give confidence to businesses and investors in the low-carbon economy. Yvo de Boer, former Executive Secretary to the UNFCCC, stated in a speech at last month’s Aldersgate Group event, ‘What next after Cancun?’: ‘I see Cancun as being a goldmine in terms of advancing the green growth agenda.’ The green race has started, and governments, businesses and investors alike are recognising the potential economic value in meeting the demand for services and products aimed at tackling climate change. The following trends, therefore, are likely to be observed over the coming years:

Clean, renewable energy. The market for renewable energy is already growing fast: HSBC estimates that it will be worth US$1 trillion by 2020. Meanwhile, the cost of renewable energy is likely to fall – solar modules, for example, have been getting cheaper year on year. Governments around the world are increasingly implementing strategies to support renewable energy; here in the UK, the government recently introduced Feed-In Tariffs (FITs), a scheme that pays people for creating their own green electricity, along with the Renewable Heat Incentive (RHI), a similar measure for heat. These measures have been introduced by the government to help meet its legally binding EU target of 15 per cent of total energy from renewables by 2020. But as renewable technologies improve and become cheaper (while oil prices rise), they will become an increasingly attractive alternative even without subsidies.

According to the International Energy Agency (IEA), if we continue on our present path, energy demand will increase by over 40 per cent over the next 20 years, demanding an investment of US$26 trillion. To keep within the agreed two-degree temperature increase, we need to green these investments and we need to do it now.

Sustainable business. A survey by consulting firm Accenture, found that 95 per cent of CEOs perceive the employment of sustainable technologies as vital to maintaining competitiveness. Companies are also voluntarily acknowledging carbon’s relevance for their business and investors: 2562 companies in 60 countries now report on their carbon footprint and climate change strategies to the Carbon Disclosure Project. Unilever, Walmart and Tesco are examples of multinational companies with bold ambitions to decrease emissions across their supply chains. Furthermore, whereas previously businesses focused mainly on energy efficiency and cutting costs, they are now actively seeking out LCE opportunities.

Cities go green. Our cities are beginning to become more energy efficient. Retrofitting existing buildings with energy efficiency equipment is on the increase, and has been made a priority by the current UK government, whose Green Deal, allowing private companies to offer homeowners and businesses energy efficiency improvements for a deferred fee (collected by instalment on subsequent energy bills), is set to be introduced in autumn 2012. The Green Deal is an ambitious programme to improve the UK’s 21 million houses, many of which are badly insulated, and one which is expected to create 250,000 jobs and be worth £200 billion to the UK economy between now and 2050.

Transformation of transportation. We are likely to see more and more electric vehicles (EVs) on the road, with Mayor of London Boris Johnson having set London a target of 100,000 – five per cent of the capital’s fleet – by 2020 and installing charging stations in streets, supermarkets, train stations and car parks. But the advantages of EVs go beyond carbon: they are also quieter, create less pollution and tend to be smaller. The IEA estimates that if we don’t shift half of our own production into ‘advanced cars’ – such as hybrids, plug-in hybrids and EVs – by 2025, then we will not be able to hit our targets for emissions cuts.

The developing world. The developing world is implementing clean technology without the need for subsidies and in some instances at a faster rate than the developed world. In Africa, Latin America and South East Asia, microfinance is being used to build solar power and other clean technologies. There is an added value of clean technology in the developing world which lies in its low cost and simplicity – for example, connecting up solar lanterns so that electricity can be shared among neighbours creates a micro grid that is cheaper and more efficient than the older, more cumbersome grid system predominant in the developed world. Leapfrogging old, dirty technologies and going straight to clean, renewable ones makes a great deal of sense.

Finance and policy. A growing LCE requires increasing amounts of finance, and structures are beginning to be implemented to respond to this. The UK government has promised £1 billion toward a proposed green investment bank, which should prove crucial in funnelling money toward the sector. Furthermore, green businesses – indeed, all businesses – seek stable public policies to grow and develop. The government’s recent array of policies, some of which are described above, goes some way toward meeting this requirement.

There is a great deal of positive change taking place, but we still have a long way go and many challenges ahead. We should be encouraged by the recent UN conference in Cancun – in light of its successes, its failure to bring about a global legally binding agreement should not be looked upon too harshly. As we experience more severe weather conditions, and as the advantages of the LCE for our planet, resources, business, health and subsequent generations become more apparent, those governments and businesses that don’t make the change will increasingly be the ones that miss out on the many opportunities this sector presents.

Gervase@aumitpartners.co.uk

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