Can the private sector deliver climate compatible development?

On 9 November 2016, I was invited to give a keynote address at the launch of the Annual Report of the Colombia Competiitiveness Forum. The paper I prepared for the event can be accessed here and has now been published by CDKN, here. The Introduction and Conclusion are pasted in below. As you will see, I have been especially interested in the drivers of innovation, and in the winners and losers from the process of change. I made three key points:

* First, that a new industrial revolution is inevitable if climate change is to be managed -and, indeed, has already begun. There is nowhere to hide.

* Second, that the private sector will central to the new revolution, and that the private sector winners will be those who embrace innovation and increase competitivenes.

* Third, that policy frameworks will shape distributional and other outcomes - and a responsible private sector will want to help shape policy

Introduction

The Paris agreement on climate change is an essential pillar of the transition to green growth and climate compatible development. It complements and underpins the new Sustainable Development Goals, approved in 2015, which bring together for the first time, and at a global scale, the issues of growth, environmental protection and poverty reduction. 

The Paris agreement entered into force on 4 November 2016, thirty days after ratification by at least 55 parties to the Convention, accounting in total for at least 55% of global GHGs. There is no doubt that the agreement, and its subsequent ratification, marks a milestone in slowing global warming. Further momentum has been imparted by the agreement to phase out HFCs, reached at the meeting in Kigali in October 2016 of parties to the Montreal Protocol on substances that deplete the ozone layer; and by the agreement reached by ICAO, in the same month, to stabilise and offset C02 emissions from aviation. Taken together, these agreements lay down a challenge, and also open significant opportunities for the private sector.

The challenge does, however, need to be put in context. As observed by Christiana Figueres, the distinguished Costa Rican diplomat who led the UNFCCC, Paris was the departure station, not the arrival station.

The private sector challenge and opportunity also needs context. Certainly, there are new technologies and markets. Great leadership is being shown by countries and by the private sector. But what is it that policy makers and the public should expect of the private sector? And what does the private sector need in return? We need to explore market failures, business standards, and inclusiveness in managing the disruption associated with the transition to a green economy. Inclusiveness is especially important at a time when the debate about the losers from globalisation plays such a large part in global politics.

This leads us back to policy and partnership. Policy for green growth and climate compatible development should be consistent with the overall policy stance and adapted to local conditions. It should be effective, efficient, sustainable, equitable and credible. However, policy decisions cannot avoid choices.

The overall conclusion is optimistic. Action on green issues is inevitable in every country and every private sector business, as a contribution to the global commons, but also to protect and enhance competitiveness. There is no hiding place from the new industrial revolution now underway. ‘Recipes’ are few, but many ingredients available which can together combine in delivering a programme of economic transformation and a just transition.

Conclusion

Green growth and climate change action are difficult, we can agree. However, there is no alternative to urgent and radical measures which reduce emissions – in high-emitting countries, but also in those with smaller footprints. For a reasonable (66%) probability of holding warming to 2 degrees, total global emissions of CO2 need to fall to zero by 2070, and total emissions of all greenhouse gases need to be at zero by 2085. If the world wishes to hold temperature rise to 1.5 degrees, 20 years can be taken off those target dates. In the long run, there is nowhere for any country or any private sector actor to hide from the responsibility of tackling climate change.

Achieving this level of mitigation will require, as Lord Nicholas Stern rightly insists, a new industrial revolution. Like previous revolutions, associated with steam, canals, railways, the internal combustion engine, or information technology, the move to a green economy will be characterised by disruption on a global scale, in technology, to be sure, but also in financial markets, in institutions, and in the relative prosperity of countries and regions. On this, see, for example, the work of Carlota Perez. The ’creative disruption’ associated with action on climate change will run alongside that associated with other current and forthcoming revolutions, including the spread of automation and artificial intelligence, with its impact on jobs, but also medical advances which reduce disease and increase longevity.

The historical record is clear that technological revolutions have the potential to increase living standards in the long run, but only if the right policies are in place to ensure that the transition is smooth and the benefits shared: Christine Lagarde’s call for economic fairness resonates. In the UK, protests against mechanisation in the textile industry by the Luddites were suppressed; but in the long term, labour unions were formed, the suffrage was widened, working conditions were improved, education became free, and social welfare was put in place. Living standards improved. Thus, the public and private sectors must work together: to identify new growth drivers, foster innovation, increase competitiveness, and ensure that change is managed for the benefit of all.

In the environmental field, a key insight is that climate-related decisions taken in one part of the world, have impacts which resound elsewhere. For example, efforts to improve energy efficiency in Europe will, in principle, reduce costs and improve the competitive position of plants which invest in new measures. They will obtain innovators’ rent, providing the profits and resources to innovate further and strengthen competitive advantage.

Countries and businesses can adopt an ostrich strategy and wait with their heads in the sand, hoping for the best, as change begins to happen. They can retreat behind protective barriers, relying on tariffs to sustain industry which is increasingly uncompetitive, imposing costs on consumers in the process.

Alternatively, countries and their private sector can work together, to produce long-term policy frameworks and practical measures both to tackle climate change and to boost competitiveness. Economic transformation can become a national project. As the Commission on Growth and Development emphasised, however, it is difficult to provide precise recipes or lists of ‘necessary conditions. . . . There are many different recipes for pasta. The precise ingredients and timing are different for each. But if you leave out the salt or boil it too long, the results are distinctly inferior.’

The MAPS project, supported by CDKN, provides illustrations of how progress can be made on climate change mitigation in developing countries, with examples from South Africa, Chile, Peru, Brazil and Colombia. There are other examples, from the work of CDKN, GGGI and NCE, among others. All, in different ways, stress bottom-up, participatory processes leading to long-term strategies, with multiple interventions at sectoral level, and multi-level engagement by national governments as well as regions and local authorities. The private sector plays a key part in all these processes. CDKN has brought together the lessons of its work in a book, ‘Mainstreaming Climate Compatible Development’. The book has a strong focus on implementation – surely the next frontier for national and sub-national action.

As Pope Francis observed in his Enclycical Letter of 2015, ‘On Care for Our Common Home’,

‘We require a new and universal solidarity. . . The urgent challenge to protect our common home includes a concern to bring the whole human family together to seek a sustainable and integral development, for we know that things can change.’