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

OP-ED CONTRIBUTOR
By Bjørn Lomborg

Our current approach to solving global warming will not work. It is flawed economically, because carbon taxes will cost a fortune and do little, and it is flawed politically, because negotiations to reduce CO2 emissions will become ever more fraught and divisive. And even if you disagree on both counts, the current approach is also flawed technologically.

Many countries are now setting ambitious carbon-cutting goals ahead of global negotiations in Copenhagen this December to replace the Kyoto Protocol. Let us imagine that the world ultimately agrees on an ambitious target. Say we decide to reduce CO2 emissions by three-quarters by 2100 while maintaining reasonable growth. Herein lies the technological problem: to meet this goal, non-carbon-based sources of energy would have to be an astounding 2.5 times greater in 2100 than the level of total global energy consumption was in 2000.

These figures were calculated by economists Chris Green and Isabel Galiana of McGill University. Their research shows that confronting global warming effectively requires nothing short of a technological revolution. We are not taking this challenge seriously. If we continue on our current path, technological development will be nowhere near significant enough to make non-carbon-based energy sources competitive with fossil fuels on price and effectiveness.

In Copenhagen this December, the focus will be on how much carbon to cut, rather than on how to do so. Little or no consideration will be given to whether the means of cutting emissions are sufficient to achieve the goals.

Politicians will base their decisions on global warming models that simply assume that technological breakthroughs will happen by themselves. This faith is sadly – and dangerously – misplaced.

Green and Galiana examine the state of non-carbon-based energy today – nuclear, wind, solar, geothermal, etc. – and find that, taken together, alternative energy sources would get us less than halfway toward a path of stable carbon emissions by 2050, and only a tiny fraction of the way toward stabilization by 2100. We need many, many times more non-carbon-based energy than is currently produced.

Yet the needed technology will not be ready in terms of scalability or stability. In many cases, there is still a need for the most basic research and development. We are not even close to getting this revolution started.

Current technology is so inefficient that – to take just one example – if we were serious about wind power, we would have to blanket most countries with wind turbines to generate enough energy for everybody, and we would still have the massive problem of storage: we don’t know what to do when the wind doesn’t blow.

Policymakers should abandon fraught carbon-reduction negotiations, and instead make agreements to invest in research and development to get this technology to the level where it needs to be. Not only would this have a much greater chance of actually addressing climate change, but it would also have a much greater chance of political success. The biggest emitters of the twenty-first century, including India and China, are unwilling to sign up to tough, costly emission targets. They would be much more likely to embrace a cheaper, smarter, and more beneficial path of innovation.

Today’s politicians focus narrowly on how high a carbon tax should be to stop people from using fossil fuels. That is the wrong question. The market alone is an ineffective way to stimulate research and development into uncertain technology, and a high carbon tax will simply hurt growth if alternatives are not ready. In other words, we will all be worse off.

Green and Galiana propose limiting carbon pricing initially to a low tax (say, $5.00 a ton) to finance energy research and development. Over time, they argue, the tax should be allowed to rise slowly to encourage the deployment of effective, affordable technology alternatives.

Investing about $100 billion annually in non-carbon-based energy research would mean that we could essentially fix climate change on the century scale. Green and Galiana calculate the benefits – from reduced warming and greater prosperity – and conservatively conclude that for every dollar spent this approach would avoid about $11 of climate damage. Compare this to other analyses showing that strong and immediate carbon cuts would be expensive, yet achieve as little as $0.02 of avoided climate damage.

If we continue implementing policies to reduce emissions in the short term without any focus on developing the technology to achieve this, there is only one possible outcome: virtually no climate impact, but a significant dent in global economic growth, with more people in poverty, and the planet in a worse place than it could be.