Energy and Green Growth: Recasting the Options, Re-Envisioning Sustainability
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ENERGY AND GREEN GROWTH: RECASTING THE OPTIONS, RE-ENVISIONING SUSTAINABILITY Nathan Hultman, Katherine Sierra, and Greg Carlock ❘ August 2011 © visdia Katherine Sierra is a senior fellow in the Global Econo- my and Development program. A former vice president for sustainable development at the World Bank, she fo- cuses on climate change and energy. Nathan Hultman is a fellow in the Global Economy and Development Program. He specializes in international climate policy, carbon markets, and their relation to low-carbon energy investment decisions. Greg Carlock is a MPP Candidate for 2011 in Environ- mental Policy at the University of Maryland, College Park. This paper was prepared as an input to the Club of Madrid September 2011 workshop ‘The G20 in a Post-Crisis World,’ which aimed at identifying key messages for consideration by the G20 Presidency in preparation of the 2011 Cannes Summit. INTRODUCTION ELEMENTS OF GREEN The threats of global climate change, energy security, GROWTH FOR ENERGY and human health present a major challenge to glob- Like the familiar concept of sustainable development, al development, but are also reasons to re-envision “green growth” is a concept often discussed, but whose our approach to innovation and energy technologies. details are nebulous. Many observers agree that green Re-envisioning sustainable development for the 21st growth is a good and appropriate pathway for diverse century therefore requires more than environmen- economies and invoke it as a proper future route to- tally benign economic growth—instead, it requires ward a low-carbon world. Translating this goal into pol- a broadening of clean energy entrepreneurship and icy, however, requires more precise language. We here innovation to encompass new regions, new technolo- propose a four-part approach to establishing a green gies, and new approaches. For example, new centers growth agenda for the energy economy: of energy innovation in emerging economies and de- veloping countries can become a fount of new ideas, ● Energy innovation. Innovation is at the root approaches, and engineering solutions necessary to of all technological change and encompasses pro- address climate change. With innovative capacity and cesses from basic research to commercialization of technologies. Any serious attempt to trans- technological expertise expanding in this way, the form global energy use requires the technological major obstacles to technological development are building blocks created by the innovative process. now institutional—access to capital and financing, Policy should encourage this innovation, recog- access to markets, market transformation, and the nizing the diversity of entrepreneurial cultures integration of entrepreneurial risk takers with tech- globally and seeking to focus the different ideas, nical experts. experiences, and local needs of each place toward establishing new and transformative approaches In this framing, green growth provides a route to- to providing energy services. ward recasting our energy economy to be sustainable while simultaneously encouraging new industries and ● Energy integration. While new technologies are essential, sometimes the integration of mul- economic diversification. In this sense, green growth tiple existing technologies for an existing need recognizes the integration of long-term strong eco- is sufficient. As one example, this “mundane sci- nomic and environmental performance and the pro- ence” approach has been applied successfully by motion of new ideas, transformational innovations, integrating lower-cost LEDs, rechargeable bat- and state-of-the-art technology. The energy sector teries, and small solar panels to create a lighting poses a particular challenge in the context of green technology for development that is simple, inex- growth given the energy-dense fossil fuels and re- pensive, and robust. Integrated technologies can lated infrastructure that continue to dominate the benefit from market confidence so policy can play energy system. New sources of alternative energy a role in ensuring transparency and quality in the must therefore be deployed at a pace, scale, and cost early stages of diffusion. beyond that of the industrial revolution of the 19th ● Energy implementation. Because of iner- century. Without such decisive action, energy-relat- tia and inherent subsidies in many economies, ed carbon emissions could double by 2050. clean technologies are often at a market disad- vantage relative to conventional technologies, even though they may be less costly when exter- ENERGY AND GREEN GROWTH: RECASTING THE OPTIONS, RE-ENVISIONING SUSTAINABILITY 3 THE G-20 COUNTRIES hold 66 percent of the world’s population, produce 90 percent of global GDP, and emit nearly 80 percent of global greenhouse gases.1 As such, these countries constitute the global leadership for green energy. nalities are included. Many existing technolo- hold 66 percent of the world’s population, produce 90 gies could therefore be utilized more frequently percent of global GDP, and emit nearly 80 percent of without any economic loss to society, and policy global greenhouse gases.1 As such, these countries con- can encourage this in many ways. Carbon pric- stitute the global leadership for green energy. ing is one route, but minimum standards, label- ing, and other regulatory incentives can help Unfortunately, uncertainties in global climate gover- bring existing technologies off the shelf and into nance after Copenhagen have reduced market predict- widespread use. ability, which limits investment in alternative energy ● Energy transformations. The goal of green technology. Coupled with the recent global economic growth for energy is the fundamental rework- recession, limited capital has been available for energy ing of energy economies over a decadal tim- innovation. G-20 countries did employ spending pack- escale, while realizing benefits to the local ages to stimulate the economy, but only a small per- economy. For this goal to be realized, though, centage was applied to green initiatives.2 This forgone signals to the private sector must be, to use opportunity only perpetuates the gap between govern- Stern’s phrase, “clear, credible, and long term.” ment declarations on climate action and actual practice. Studies of past energy transitions show that To successfully mitigate and adapt to the effects of cli- consistency in policy is one of the primary fac- mate change by 2050, an estimated USD 46 trillion is tors underpinning success. required, or around USD 1 trillion a year.3 Within that, investments in sustainable energy must increase more CHALLENGES than two-fold, to exceed USD 500 billion per year, if Governance & Investment CO2 emissions are to peak by 2020 and keep the rise 4 Several key challenges surface when evaluating the in- in global average temperature under 2 degrees Celsius. tegration of energy into a green growth framework, In Copenhagen, developed countries pledged USD 100 especially one needed to address the consequences of billion in international support for both mitigation and climate change due to increased emissions. Interna- adaptation by 2020. This will come from a variety of bi- tional climate negotiations have led to mostly voluntary lateral, multilateral, and private sources. The countries incremental steps insufficient to return greenhouse gas also agreed that part of this funding would be channeled concentrations to pre-industrial levels. No clear glob- through a Green Climate Fund (GCF). In Cancun, a al system of governance has arisen to address climate Transitional Committee made up of developing and de- mitigation or adaption, yet such a threat requires co- veloped countries was tasked with designing the GCF operation on a global scale, for neither costs, impacts, based on an agreed framework, and work is underway.5 or resources are evenly distributed. The G-20 countries The GCF should be designed to use scarce public funds 4 ENERGY AND GREEN GROWTH: RECASTING THE OPTIONS, RE-ENVISIONING SUSTAINABILITY to support ambitious country strategies and policies bon pollution. In Indonesia, for example, subsidies re- that provide the enabling environment that supports the duce investment in new infrastructure and production needed energy transition, while providing funding to processes and lock-in inefficient technologies. The over- reduce costs and risks of investments. The GCF should consumption of cheap energy increases dependency on also aim to leverage private finance in ways that deepen imports and makes public spending more vulnerable to domestic capital markets for clean energy investments. shifts in global energy. Finally, fuel consumption cor- This is particularly important since private capital will relates with income so that high-income groups primar- ultimately be needed to finance the scaling up of the ily feel the benefits of cheaper energy, while the cost is energy transition. spread across the whole population.6 In Pittsburgh, the G-20 agreed to phase out and ra- Mitigation Policy, Technology, tionalize over the medium term inefficient fossil fuel & Fossil Fuel Subsidies subsidies while providing targeted support for the Bolstering the level of green energy investment relies poorest. Leaders stated, “Inefficient fossil fuel sub- on clear and stable market signals, including consistent sidies encourage wasteful consumption, reduce our and comprehensive carbon pricing or other market in- energy security, impede investment in clean energy struments that account for externalities.