Economic sense & nonsense of global warming

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SIIA
Published: 16 October 2009Posted in: Comment & AnalysisTags: , , ,
Economic sense & nonsense of global warming
Climate change is a fact. Carbon dioxide concentrations in the atmosphere are higher today than at any point during the last 350,000 years. If carbon dioxide emissions were to double by 2035, the temperature of our planet would rise between 1.5 and 4.5 degrees celsius – with catastrophic consequences for civilization and our entire biosphere. We cannot afford this. Sir Nicholas Stern has calculated the annual economic losses associated with climate change to be at least five percent of the annual global GDP. That’s equivalent to two times the losses caused by the economic crisis – and these losses would occur every year. If we continue to do business as usual, climate change will in effect neutralize economic growth. From a global macroeconomic point of view, fighting climate change is not only compatible with growth, it is essential to growth.
Even if climate change were not a reality, as some falsely claim, it would still make good economic sense to make the transition to sources of energy other than fossil fuels and to strive for greater energy efficiency. Most obviously, fossil fuels are finite. At some point in the distant future, the world’s fossil fuel reserves will be depleted. Yet even now, supply is not keeping pace with demand. As the global population booms and demand for electricity increases, energy prices will inevitably rise in the future. Denying the reality of climate change irresponsibly postpones the transition to a more diversified energy mix and ultimately to a more sustainable economy. The challenge we face is to meet the exploding global demand for energy while reducing emissions.
There are two good reasons to believe we can meet this challenge:
FIRST, the technologies needed to mitigate climate change are already available today; they just have to be deployed.
There’s no doubt that fossil fuel fired power plants will continue to generate the lion’s share of electrical power over the next decades. However, the efficiency of these power plants will improve dramatically. Upgrading all fossil-fuel fired power plants currently in operation worldwide to the best technology available today would save 2.5 billion tons of carbon dioxide emissions per year.
Of course, the long-term objective is to increase renewable energy’s share of the mix. Currently, biomass, wind, geothermal and solar account for only three percent of the global energy mix. (Hydropower’s share is 15 percent.) But our projections and those of the InternationaI Energy Agency indicate that this share will grow to 14 percent by 2030. In absolute terms, that would be an increase from 600 billion kilowatt hours today to 5200 billion kilowatt hours in 2030, or nine times as much power from renewable sources.
In North Africa and the Middle East, three times as much solar power can be produced per area than in Central Europe, and this is the rationale behind Desertec, a visionary project in which power is generated in the desert regions of North Africa and the Middle East and transported to African and European countries. Here, another key technology is needed: High Voltage Direct Current (HVDC) power distribution. This technology is capable of transporting power over long distances at a loss of just three percent per 1,000 kilometers. We are currently helping China build a 1,400-kilometer HVDC superhighway that will transport 5,000 megawatts of power from the country’s interior to its coastal cities.
SECOND, most investments in more energy-efficient technologies pay for themselves – and saving energy is the fastest and most effective way to reduce emissions.
Buildings account for about 40 percent of energy consumption worldwide and for approximately 21 percent of all greenhouse gas emissions. The Intergovernmental Panel on Climate Change (IPCC) estimates that more efficient technologies could reduce the carbon dioxide emissions of buildings by up to 40 percent by 2030. A large share of this reduction is attainable by implementing relatively simple measures, such as electricity-saving technologies, effective insulation, energy-saving lighting, and combined heat and power solutions that generate electricity and heat on site, as well as solutions that utilize sensors and building automation systems to create optimal air and light conditions.
The Shanghai CITIC Square project is an excellent example of how energy-efficient technology pays for itself. The project includes a chiller plant retrofit, chiller water optimization, a building envelope retrofit, a building automation system, and an elevator control system. All these improvements will trim energy costs by about RMB 1.4 million per year and reduce annual carbon dioxide emissions by 600 tons. Most importantly for the owners, the investment will amortize in five years.
Investments in green technology not only save energy and reduce emissions; they save money; and as energy costs steadily increase, that is perhaps the most compelling argument of all for investors.
This explains why the market for energy-efficient and environmental technologies is booming. According to recent forecasts, the global market for green technologies is expected to grow to a volume of €2.2 trillion by 2020. That’s more than seven times the revenue of the entire German auto industry.
At Siemens, we are benefiting from this growth. Our green portfolio as a whole generated €19 billion in fiscal 2008 – or about one quarter of our total annual revenue. We expect our revenue from green products to grow 10 percent annually and reach the €25 billion mark by 2011. Siemens and many other companies understand that the color of future economic growth is green. And we are ready for the green revolution.
Committing to emission reduction targets and time frames for meeting these targets is the most effective action the international community can take to fight climate change. Regulation should transcend national borders and mobilize all major economies and emitters; it should create a level global playing field for all industries; it should link industrialized and developed countries through strengthened global emission reduction mechanisms; finally it should recognize and support all technologies that are both energy-efficient and climate-effective, and this should include renewable energy, nuclear energy as well as clean coal technologies. Firm long-term commitments and uniform international regulation would add even more momentum to an already dynamic green market.
The silver lining in the global economic crisis is that it proved that national governments are indeed capable of joining forces to manage an emergency. The response of the international community to the crisis has been fast, appropriate and unified – and the magnitude of this response is unprecedented.
This is the kind of collective effort needed to meet the biggest challenge of our generation: climate change. And this is an effort we must make for the sake of future generations.

OP-ED CONTRIBUTOR
Are global responses to the challenge of climate change compatible with future economic growth?

By Peter Löscher

Climate change is a fact. Carbon dioxide concentrations in the atmosphere are higher today than at any point during the last 350,000 years. If carbon dioxide emissions were to double by 2035, the temperature of our planet would rise between 1.5 and 4.5 degrees celsius – with catastrophic consequences for civilization and our entire biosphere. We cannot afford this. Sir Nicholas Stern has calculated the annual economic losses associated with climate change to be at least five percent of the annual global GDP. That’s equivalent to two times the losses caused by the economic crisis – and these losses would occur every year. If we continue to do business as usual, climate change will in effect neutralize economic growth. From a global macroeconomic point of view, fighting climate change is not only compatible with growth, it is essential to growth.

Even if climate change were not a reality, as some falsely claim, it would still make good economic sense to make the transition to sources of energy other than fossil fuels and to strive for greater energy efficiency. Most obviously, fossil fuels are finite. At some point in the distant future, the world’s fossil fuel reserves will be depleted. Yet even now, supply is not keeping pace with demand. As the global population booms and demand for electricity increases, energy prices will inevitably rise in the future. Denying the reality of climate change irresponsibly postpones the transition to a more diversified energy mix and ultimately to a more sustainable economy. The challenge we face is to meet the exploding global demand for energy while reducing emissions.

There are two good reasons to believe we can meet this challenge:

FIRST, the technologies needed to mitigate climate change are already available today; they just have to be deployed.

There’s no doubt that fossil fuel fired power plants will continue to generate the lion’s share of electrical power over the next decades. However, the efficiency of these power plants will improve dramatically. Upgrading all fossil-fuel fired power plants currently in operation worldwide to the best technology available today would save 2.5 billion tons of carbon dioxide emissions per year.

Of course, the long-term objective is to increase renewable energy’s share of the mix. Currently, biomass, wind, geothermal and solar account for only three percent of the global energy mix. (Hydropower’s share is 15 percent.) But our projections and those of the InternationaI Energy Agency indicate that this share will grow to 14 percent by 2030. In absolute terms, that would be an increase from 600 billion kilowatt hours today to 5200 billion kilowatt hours in 2030, or nine times as much power from renewable sources.

In North Africa and the Middle East, three times as much solar power can be produced per area than in Central Europe, and this is the rationale behind Desertec, a visionary project in which power is generated in the desert regions of North Africa and the Middle East and transported to African and European countries. Here, another key technology is needed: High Voltage Direct Current (HVDC) power distribution. This technology is capable of transporting power over long distances at a loss of just three percent per 1,000 kilometers. We are currently helping China build a 1,400-kilometer HVDC superhighway that will transport 5,000 megawatts of power from the country’s interior to its coastal cities.

SECOND, most investments in more energy-efficient technologies pay for themselves – and saving energy is the fastest and most effective way to reduce emissions.

Buildings account for about 40 percent of energy consumption worldwide and for approximately 21 percent of all greenhouse gas emissions. The Intergovernmental Panel on Climate Change (IPCC) estimates that more efficient technologies could reduce the carbon dioxide emissions of buildings by up to 40 percent by 2030. A large share of this reduction is attainable by implementing relatively simple measures, such as electricity-saving technologies, effective insulation, energy-saving lighting, and combined heat and power solutions that generate electricity and heat on site, as well as solutions that utilize sensors and building automation systems to create optimal air and light conditions.

The Shanghai CITIC Square project is an excellent example of how energy-efficient technology pays for itself. The project includes a chiller plant retrofit, chiller water optimization, a building envelope retrofit, a building automation system, and an elevator control system. All these improvements will trim energy costs by about RMB 1.4 million per year and reduce annual carbon dioxide emissions by 600 tons. Most importantly for the owners, the investment will amortize in five years.

Investments in green technology not only save energy and reduce emissions; they save money; and as energy costs steadily increase, that is perhaps the most compelling argument of all for investors.

This explains why the market for energy-efficient and environmental technologies is booming. According to recent forecasts, the global market for green technologies is expected to grow to a volume of €2.2 trillion by 2020. That’s more than seven times the revenue of the entire German auto industry.

At Siemens, we are benefiting from this growth. Our green portfolio as a whole generated €19 billion in fiscal 2008 – or about one quarter of our total annual revenue. We expect our revenue from green products to grow 10 percent annually and reach the €25 billion mark by 2011. Siemens and many other companies understand that the color of future economic growth is green. And we are ready for the green revolution.

Committing to emission reduction targets and time frames for meeting these targets is the most effective action the international community can take to fight climate change. Regulation should transcend national borders and mobilize all major economies and emitters; it should create a level global playing field for all industries; it should link industrialized and developed countries through strengthened global emission reduction mechanisms; finally it should recognize and support all technologies that are both energy-efficient and climate-effective, and this should include renewable energy, nuclear energy as well as clean coal technologies. Firm long-term commitments and uniform international regulation would add even more momentum to an already dynamic green market.

The silver lining in the global economic crisis is that it proved that national governments are indeed capable of joining forces to manage an emergency. The response of the international community to the crisis has been fast, appropriate and unified – and the magnitude of this response is unprecedented.

This is the kind of collective effort needed to meet the biggest challenge of our generation: climate change. And this is an effort we must make for the sake of future generations.

***

Peter Löscher is the President and CEO of Siemens AG

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