Can we make progress on green growth without a global deal?

Can we make progress on green growth without a global deal? This was one of the over-arching themes at the Chatham House Conference on climate change, and the main theme of my presentation. It was also the headline topic at the Green Growth Leaders’ Conference in Copenhagen. The first day had consisted of workshops on a variety of topics (smart grids, buildings, wind, cities, one or two others). The second day started with a couple of high-level round-tables, and then an open conference programme in the town hall, with a series of presentations on various aspects of green growth. I was asked to participate in one of the round-tables, along with a dozen or so business leaders, plus Yvo de Boer, Martin Lidegaard, the new Danish climate minister, and a couple of academics.

The round-table was presented with eight building blocks of a sustainable future. I complained that these didn’t resonate very strongly for me from a developing country perspective, with some big omissions; but I liked the approach, and I was left wondering what our building blocks might be. Their eight were: smart grids; buildings; sustainable cities; bio-business; wind; welfare and green growth; and communicating green growth. What’s missing? Well, I mentioned agriculture, mining, forestry. What else should we have? And can we give our building blocks catchy names, as they do?

The big exam question was really how far it is possible to go in the absence of a new international regime and an international carbon price. The answer people gave, perhaps surprisingly, was quite a long way:

1. At the national level, we had briefings on Denmark’s new policy and on Korea’s, in both cases setting out ambitious targets, and, in Korea’s case at least, really rapid progress. Thus, the new Government in Denmark has announced the most ambitious targets in the world, with a reduction of 40% on 1990 levels of emissions by 2020, a 50% share of wind in electricity by 2020, all energy except for transport to be completely renewable by 2035, and transport by 2050. Proposals on how to do this will be made within two weeks, but the main legs will be energy efficiency on a very large scale, and a massive investment in renewables. Korea has also set very ambitious targets, targeting emissions reductions of 30% below BAU by 2020, establishing a joint public and private sector Commission on Green Growth, and focusing policy interventions, regulations, and finance on key industries which will unleash green growth dynamism. Investment in green businesses is growing at 78%  a year, employment has gone up by  factor of 4, and exports by  a factor of 7. Korea will introduce a national emissions trading scheme by 2015. China was another example extensively discussed. It will pilot emissions trading next year, and have a nation-wide carbon price by 2015.
2. Company reports echoed the enthusiasm – in sectors as diverse as shipping, lighting, windows, and wind power. Just as one example, the ceo of Seoul semiconductors said that LEDs are now price competitive with traditional low-energy bulbs, with the price falling at 25% per quarter. When combined with solar panels, he said, also falling in price, LEDs will transform lighting prospects in poor countries. He would say that, of course, but I was convinced.
3. Individual cities and regions also spoke to make the same point. There was quite a lot of talk about the C-40 and the R-20.

Lots of issues arise. First, what is driving this? The main driver, and this is from Korea and Denmark, but also Connie Hedegaard, the EUEuropean Union Commissioner, who spoke in the afternoon, is growth and jobs, not necessarily climate change. Governments and businesses see big opportunities in being first movers. Of course, there are other factors, like quality of life, and even concern for the climate (!). However, a focus on growth works to make the engagement positive, not doom-laden, and contributes enormously to building political alliances and making this a cross-party issue. There was quite a bit of talk about communicating climate change differently, and making the discourse more positive.

Second, what are the instruments? Everyone accepts that infant industries need support initially. Direct subsidies help, but money is tight, so regulation plays an important part: feed-in tariffs, building regulations, emissions standards for vehicles. . . Fiscal measures include emissions trading, of course, and some ecological taxes. And there are subsidies in the system, including investment in R and D, and support to new clusters. There was quite a bit of talk about public sector procurement as an important instrument. Both Korea and Denmark have independent climate change commissions which help build policy frameworks in a non-political way (cf UK also).

Third, development finance plays a part. Many felt, actually, that there was no shortage of money, esp if new business models could be established. But if there was a need for funding, the trick was imaginative use of finance – blending, risk instruments, co-financing, equity investments and the like. Plutarchos Sakellaris from EIB made this point persuasively, as did Yvo de Boer. I mentioned PwC work for the WEF.

Fourth, what all this tells us is that green growth is about industrial policy. That’s really important. Connie Hedegaard said how important it was that climate policy was no longer the preserve of environment ministers. The most used phrase during the day was ‘disruptive innovation’ (with references to the work of Clayton Christensen). Often, it was said, disruptive innovation is about systemic change, not just individual technologies - for example, not just wind turbines, but smart grids. In transport, as the Maersk representative pointed out, shipping can be managed to reduce emissions in a modest way (by 7% through slow steaming), but thinking systemically would mean finding ways to transfer freight from air to sea, thus saving 90% of emissions. There was lots of talk about clusters, competences and capabilities, all terms familiar to industrial economists.

Fifth, it goes without saying that industry needs regulatory certainty. There was unfavourable mention of Spain reducing feed-in tariffs, Netherlands reducing subsidies, and the opposition in Australia saying they would repeal the carbon tax just introduced.

Finally, and this was not really discussed, is that disruptive innovation, and a drive for green growth, imply losers as well as winners – as between regions, sectors, generations and genders, as I am always saying, but also as between countries. It struck me quite forcibly during the day that a new industrial revolution could well leave the poorer countries behind unless they get a move on  – not China, India, South Africa or Brazil, but certainly others. Well, I’m always saying that as well.

A further point is that Government has a critical role to play, both in facilitating innovation, and in protecting losers. I was surprised there was not more discussion of education, for example, of public-sector research, and of safety nets. These all form part of climate compatible development planning.

In fact, this whole discussion plays quite well to themes I have been developing myself, and that we have been discussing in CDKN. For ‘disruptive innovation’, read ‘creative destruction’, and reference Schumpeter. On instruments, see e.g. the table on fiscal and regulatory measures in my ten propositions on green growth. And on drivers, see my Chatham House presentation on a six-point programme, focusing on win-win options and economic opportunities.

All this said, everything would be easier and faster if there were an international regime and a climate tax. But I didn’t detect any optimism that change was on the way, even from Yvo de Boer and Connie Hedegaard. Small steps likely at Durban and after on adaptation and forests. Perhaps agreement on the architecture of the Green Fund, but probably not much money. As the Danish minister said, we won’t get a deal any time soon, so change has to be from the bottom up.

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