Globalisation and the Low Carbon Society: Help or Hindrance?

1. Globalisation and the Low Carbon Society: Help or Hindrance? Andrew Sentance Professor of Sustainable Business, Warwick Business School CAGE/CCCEP Workshop, 25 January 2011

2. Outline • Globalisation and the “new global economy” • The transition to a future “low carbon economy” • Key issues, opportunities and challenges

3. Forces driving globalisation Reduction in trade barriers Deregulation and liberalisation Political change Technology – cutting cost of communication and transport

4. Global economic growth since 1820 % per annum increase in global GDP per capita Source: Maddison (2001) and 1MF

5. The “new global economy” Since 1950s, trade and investment flows have been increasing across the world economy 1990s and 2000s saw a significant intensification in this process of globalisation: Integration into global economy of China, India and former Soviet Union economies Global liberalisation of financial markets and capital flows These developments extended globalisation pressures from product markets to labour and capital markets

6. The upside of the “new global economy” Opportunities for rapid development in emerging market and developing economies Low-cost production opportunities for firms, generating higher profits Cheaper goods for consumers in US/Europe and in other rich economies A “long boom” in many countries – in which living standards rose and inflationary pressures were subdued

7. World growth, 1960 - 2008 Real GDP, year on year percentage change Note: GDP measured at market exchange rates Source: IMF, OECD, Bank Calculations

8. GDP growth in the world economy Average percentage change on previous years; GDP at constant prices Source: IMF, OECD.

9. World primary energy use Millions tonnes oil equivalent Note: Oil consumption is measured in million tonnes; other fuels in million tonnes of oil equivalent Source: BP Statistical Review

10. Global energy and commodity prices 2000 =100 Source: Thompson Datastream.

11. The downside of the “new global economy” Helped create the conditions for the financial crisis of 2007-9 Volatility and upward price pressure from global energy and commodity prices Energy consumption and carbon emissions rising more rapidly, contributing to global warming

12. CO2 emissions from energy and world growth Average annual growth rates, percent Note: Carbon dioxide is measured in millions of tonnes Source: World Bank and BP Statistical Review

13. Sustainable global emissions scenarios Annual greenhouse gas emissions (GtCO2e) 2016:4 trajectory with global emissions peaking in 2016 with subsequent reduction in total emissions of 4% Source: Climate Change Commission

14. Greenhouse gas emissions, by sourceGlobal GHG emissions in 2000 = 42GT CO2 equivalent Source: Stern Review (2006) * Non-energy emissions

15. Low Carbon Economy: Key steps “Decarbonisation” of power sector and transport Big shift in energy efficiency of industry, buildings & appliances Cutting non-energy emissions from agriculture, changes in land use & waste

16. Building the “Low Carbon Society”

17. Sustainability and economic development • Economic growth and rising living standards have normally gone hand in hand with environmental improvement • Globalisation, based on open trade and investment systems, has been very supportive of economic development • HENCE: Globalisation, economic development and environmental sustainability should be compatible, not conflicting goals

18. Issues, opportunities and challenges Political agreements and frameworks Supporting technology co-operation and transfer Managing the transition to a high energy & carbon cost world

19. Impact of the financial crisis In the short-run, economic and financial issues seen as more pressing than climate change However, low carbon investments featured in many national recovery plans In the long-term, may be a beneficial impact on climate policy through: Development of mechanisms for international policy development and co-operation (eg G20); and Focus on energy issues resulting from high and volatile prices

20. The carbon G7 Gtonnes of CO2, from energy Six countries + EU account for nearly three-quarters of global CO2 emissions from energy Source: United Nations Statistics Division

21. The carbon G7 Tonnes of CO2 (from energy) per head Source: United Nations Statistics Division

22. Carbon strategies and economic development High- income economies (US/Europe/Japan) Large emissions cuts required Leading in low carbon technologies High energy/carbon prices Mid-income economies (inc China) Carbon-neutral growth Co-operation in development of low carbon technologies Rising energy/carbon prices Lower income economies More carbon-efficient growth Rapid technology transfer Support for adaptation to ongoing climate change

23. Accelerating technological change Competition as a spur to innovation Trade and technology transfer International co-operation

24. “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” Adam Smith, Wealth of Nations, 1776

25. Potential size of carbon markets Extending EU ETS to power and industrial sectors in Top 20 countries would create a market of US$90-350 bn

26. Globalisation and climate change Globalisation has put upward pressure on emissions growth But it has also created: greater economic interdependence between nations recognition of the need for international co-operation on major global issues potential spur to innovation and the development and transfer of new technologies increased focus on energy management because of price pressures These forces can potentially act as a spur to the transition to a “new low carbon global economy” But they are not a substitute for concerted policy action to deliver a coherent political framework and stronger economic incentives through carbon pricing