Dennis Anderson Issues in Energy Symposium Nicholas Stern

1. Dennis Anderson Issues in Energy Symposium Nicholas Stern Chair of the Grantham Research Institute on Climate Change and the Environment, IG Patel Professor of Economics & Government, London School of Economics and Political Science In memory of Dennis Anderson (1937-2008) 17 June 2010

2. Three Part Structure • Part 2: Low-carbon growth • Part 3:From Copenhagen to Cancun • Part 1: The challenge 2

3. Introduction • Two defining challenges of our century are overcoming poverty and managing climate change: we must act strongly, urgently and internationally. • The next decade is fundamental. Must handle great risks and uncertainties, and launch a new energy and industrial revolution. • Need to manage this new energy and industrial revolution, and intensify the fight against poverty, during a decade of great challenge, e.g., deficit reductions, great international macro imbalances, sustaining a fragile recovery, continuing recasting of the international division of labour, etc. Will do better on each if we understand them together. • Can move forward on managing climate change if people understand both the great risks and the attraction and dynamism of the transition to low-carbon growth plus the attractions of low-carbon growth itself. • Both parts of the argument are crucial: this discussion is basic to action and is intensifying around the world including China, India, US….. 3

4. What our targets should be Holding below 500ppm CO2e, and reducing from there, is necessary to give a reasonable (say 50-50) chance of staying below 2 degrees. This requires bringing emissions down from 47Gt CO2e today to below 20Gt CO2e (approx. 50% of 1990 levels) by 2050. A plausible emissions path is around 47Gt CO2e in 2010 (reduced by economic slowdown – might have been 50), 44Gt in 2020, under 35Gt in 2030 and under 20Gt in 2050. Likely to have to go ‘well under’. Clearly necessary to ‘peak’ before 2020. *These results are based on the Hadley Centre climate model MAGICC. Thanks to Jason Lowe and Laila Gohar for running these trajectories through the model. 4

5. Three Part Structure • Part 1: The challenge • Part 3: From Copenhagen to Cancun • Part 2: Low-carbon growth 5

6. Low-carbon growth The transition to low-carbon growth will be dynamic and innovative. Schumpeterian models of ‘endogenous growth’ and creative destruction are central to the transition; new firms and methods drive out old. But policy essential. Endogeneity of technological progress: learning from experience; trial and error; direct investment in R&D. Acemoglu et al. (2009) and Aghion et al. (2009): support for green technologies can accelerate learning. Learning and environmental costs will be growth models of the 21st century: they speak the language of opportunity, substitutability and change. The Leontief input-output approach speaks language of burdens and fixed coefficients of mid-20th century. Will be many new goods and quality improvements. Significant “green collar” job creation potential (Kammen et al., 2006) and significant investment opportunities in new technologies and industries. Language of “opportunity” better than that of “jobs”? When achieved, low-carbon growth will be more energy-efficient, more energy secure, more equitable, safer, quieter, cleaner and more bio-diverse. Far more attractive than what has gone before. 6

7. History of technological revolution (à la Perez) Great surges of technological innovation characterise past periods of economic change. Five technological revolutions since 1770 (Perez, 2002 and at LSE, 2010). Each revolution displays similar characteristics - a breakthrough in a technology sets off a transformative, dynamic and innovative period of industrial and social change, e.g., the microprocessor or the Model-T Ford. The end of the revolution sees a major crash or recession where the bubble deflates. A “golden age” of prosperity follows. What low-carbon technologies will provide the “breakthrough” to drive the new low-carbon technological revolution forward? What Kuznets termed an epochal innovation capable of changing the speed and direction of growth. This time likely to see a range of technologies and methods rather than a single “key idea”. 7

8. Green growth: what it might look like Already great breadth to this nascent low-carbon technological revolution. This is not sci-fi, this is the start of a real period of innovation and there will be (already are) exciting developments and “breakthroughs” along the way. Range from highly speculative to known technologies being implemented now. Scientists (Craig Venter) recently created synthetic life. May soon be possible to artificially create bacteria that produce biofuels or soak up CO2 from the atmosphere. New high-capacity batteries made with titanium dioxide-coated carbon nanotubes may be able to overcome the capacity and life-span problems that limit lithium-ion batteries. Vanadium fuel cells can store vast amounts of energy, reducing intermittency problems with some renewables, e.g,. wind and solar. Solar cells printed on aluminium film using nanotechnology have the potential to significantly increase solar efficiency and reduce costs. Potential of solar energy constantly being revised upwards. IEA predicts that, with strong policy, solar electricity (PV and CSP) could represent up to 20% to 25% of global electricity production by 2050 (IEA 2010). 8

9. Green growth: what it might look like EMC Cement has developed Energetically Modified Cement (EMC), a new manufacturing process where materials such as fly ash or blast furnace slag substitute for clinker. This can reduce CO2 emissions in cement production by up to 70%. Carbon capture and storage (CCS) with storage in cement. California based company Calera has developed a technique to store GHGs in cement. They pump CO2 (and other gases including SOx) from power stations through saltwater. This transforms the gases into carbonate (CO3), a synthetic limestone, one of the main ingredients in cement. Could potentially reduce costs of CCS at power plants to zero. Avoids need for geological storage. 9

10. Green growth: what it might look like Agriculture: Techniques for low-till agriculture can reduce emissions from tilling, save energy, save water, and provide climate resilience; Avoiding flooding paddy fields reduces methane and saves water. Buildings: Architectural engineers coming up with many ideas for energy efficiency and local power generation. Natural gas has the potential to play a transition role on the path to a low-carbon future due to new discoveries and improved extraction technologies (Brown et al., 2009): substituting natural gas for coal in electricity generation can reduce emissions by around a half. 10

11. Green growth: sources of emissions reductions 11

12. Green growth: where are we now? Firms are taking a long-run view: Car manufacturers, e.g., General Motors developing hybrid/electric vehicles; Banks and financial institutions, e.g., HSBC/Deutsche/Crédit Agricole climate research and products; Many large long-term funds managing trillions of dollars seeking opportunities; Firms are seeking and finding opportunities, e.g., DuPont finding $2bn p.a. in energy efficiency savings; Firms are subjecting themselves to scrutiny and adopting tough targets, e.g., Carbon Disclosure Project. 12

13. Three Part Structure • Part 1: The challenge • Part 2: Low-carbon growth • Part 3: From Copenhagen to Cancun 13

14. Advances at Copenhagen • Advances at Copenhagen: • The 2°C target. Provides direction and points to a global emissions reduction path; • US$100 billion p.a. 2020 target for financial flows ($10bn p.a. 2010-2012); • The High-Level Advisory Group on new sources of finance; • Forestry issues, REDD+ (Paris-Oslo process). • These represent real collaboration across key countries and a real platform for advance (to date 110 of 194 member nations have associated with the accord). • The Accord is less fragile than feared and much progress has been made in the first half of 2010. 14

15. Progress since Copenhagen • Submissions on emissions targets, plans and intentions were submitted by or close to the date specified in the Accord (31 January 2010). • All major countries have submitted plans to the Accord - covers well over 80% of world emissions (see next slide). • High-Level Advisory Group on new sources of finance has been announced by UN Secretary General. Co-chaired by Meles Zenawi, Prime Minister of Ethiopia, who took the initiative in formulating the funding proposals, and the Prime Minister of the UK, David Cameron. • Mechanism in place to take REDD+ forward (Paris-Oslo process) with the first successful meeting held in March in Paris and a further meeting held in Oslo in May. • China 12th 5-year plan preparations. • Health bill and BP oil spill in Gulf of Mexico permitting renewed focus in USA. Discussion of moving from 20% to 30% ‘unconditional’ cuts in EU. 15

16. Estimates of global emissions in 2020 based on Accord Appendix targets and actions • Targets, plans and intentions submitted to the Accord Appendix represent a very important advance relative to BAU. • Represent around 8 billion tonnes less than BAU of around 56 billion tonnes in 2020. • Will involve global emissions peaking around or just before 2020. • However, they fall some way short (4 to 5 billion tonnes) of the 44 billion tonnes that is required for a 2oC path. • Proposals must be strengthened by both developed and developing countries if total emissions consistent with a 2°C path are to be achieved by 2020. • Further cuts could come from roughly 1½ to 2 billion tonnes from each of the developed and developing world groups. Extra possible from international aviation and maritime and from peat/deforestation. 16

17. The road to Cancun • Need explicit understanding of implications of 2°C; • The 4 subjects; finance, REDD+, deployment and sharing of technology, and MRV, must all be studied carefully and quickly. Need to also consider notions of equity and how these are relevant to this issue. • A pre-requisite to rational and substantive negotiations is careful work putting together well-studied options. • We need manageable bodies for discussing proposals, covering a broad range of countries. • A group of 28-30 counties emerged at the end of COP15; far too late. The Mexican presidency of COP16 has built on this group and established a contact group to help prepare and to represent a range of perspectives. • This kind of group is essential if good text, based on common understandings, is to emerge. It cannot emerge from a process of 192 countries, many with fundamentally different points of view. 17

18. The road to Cancun • Collaboration, not confrontation, involves mutual learning about actions and difficulties (China/US); • Establishing what key players can and should be doing and what mutual support they can offer is crucial. Only then can explore the meaning of a treaty or a more formal international agreement, including the meaning of binding. • Possible outcome in Cancun is a clear, realistic, strong political agreement built on finance, forests, technology, MRV. • A clear political treaty in Cancun necessary for a treaty in South Africa. Involvement of leaders crucial. • Use existing institutions but agreement would implicitly define key elements of a role for a WEO. • More detailed Copenhagen style political agreement in Cancun then treaty in South Africa COP17? We have the opportunity but will we take it? 18