Capitalising on climate change

17 May 2011 13:00 - 14:15 GMT+01 (BST)
Public event
Streamed live online

Speakers:
Edwin Ritchkins - Special Project Advisor to the Ministers of Public Enterprise, South Africa (by video-conference link)
Bernice Lee - Research Director, Energy, Environment and Resource Governance, Chatham House

Shruti Mehrotra - Independent Advisor on climate change, resource scarcity and state fragility.  

Chair:
Simon Maxwell - Senior Research Associate, ODI

Description

New sources of climate finance and investment, new growth opportunities in green sectors, and shifting patterns of demand and comparative advantage all represent opportunities for new sources of growth and jobs that should be grasped. 

Some countries are already capitalising on this, especially high and middle income countries, and some are well-placed to benefit i.e. because they have carbon assets such as forests, or major mitigation opportunities in the form of heavy industry, or because they have developed new green industries that are generating growth and jobs.  Examples include Brazil’s early investment in biofuel production and associated technologies which have made it a world leader, China and India’s solar technologies, and Guyana’s strategic positioning in relation to the forestry sector which maximise its potential to benefit from carbon markets.  But other countries are being left behind, especially low income countries, and those without carbon assets or mitigation opportunities, and with poor investment climates. 

Low carbon growth strategies need to be put in place to stimulate green investment and innovation, and attract climate finance from both private and public sources.  However, ODI research on the low carbon growth strategies of a range of countries illustrates that many – especially low income countries - are a long way from understanding and responding to these opportunities and challenges.

This meeting explores the following issues:

  • The opportunities and challenges for achieving low carbon growth in low income countries
  • The role of the private sector in driving low carbon growth in developing countries
  • The steps low income countries should take to capitalise on the opportunities and respond to the threats
  • The role of donors in supporting LICs in this process
  • The sources of climate finance that can help to drive low carbon growth

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Presentationpdf

Chair: Simon Maxwell- Senior Research Associate, ODI opened the meeting by stressing the highly topical and controversial nature of green growth. He outlined some important questions that need to be answered:

·         Have we reached a point where developed countries should stop growing and what would that mean for developing countries?

·         Is green growth feasible in terms of cost effectiveness?

·         If green growth is possible what is the policy framework that should be used to achieve it (e.g. feed in tariffs, subsidies, targets etc)?

1st speaker: Edwin Ritchkins,Special Project Advisor to the Ministers of Public Enterprise, South Africa.

The first speaker focused on South Africa’s Renewables Initiative, which is using a dual strategy to promote the uptake of renewable energy and overcome the cost differentials with conventional energy

1)      Decrease the costs of renewable energy: As clean energy is highly capital intensive the financing costs are a very important part of the overall costs (for example for a wind mill 45% of its costs are the financing costs). In order to bring these costs down instruments like concessionary funding, political risk insurance and cheap loans are used

2)      Increase funding available for procurement of renewable energy: The initial procurement of a critical mass of clean technology is an important way to reduce institutional and technology risks, which are very high in the pioneering phase of technology development. This can happen through grants, certificates, fiscal subsidies etc. There is a distinction between international contributions, that are paying for the reduced emissions entailed in clean technology development and domestic contributions, that are paying mainly for the positive impact clean technology is expected to have in the economy (e.g. job creation).

The speaker also underscoredthe importance of integrating energy policy with industrial policy in order to capitalise on the production of clean technologies, but also the concern that border tariffs could become an impediment for green growth.

In conclusion the speaker summarized the main benefits of the South Africa Renewables Initiative:

·         Localisation

·         Energy security

·         Contribution to climate commitments

·         Trade

Questions from the chair:

1) Are there other policies in place for the promotion of renewable energy in South Africa?

2) When talking about job creation are possible jobs losses in other sectors from the promotion of a green economy factored in (e.g. jobs in coalmines)?

Answers:

1)      South Africa is in the process of establishing a feed in tariff (which guarantees buying renewable energy power in a standard price), however there are a number of institutional challenges namely in providing the guarantee that all renewable energy supplied will be purchased

2)      No. Jobs are purely calculated with the economic activity associated with the renewable energy industry. No comparative study has been made yet

2nd speaker Bernice Lee,Research Director, Energy, Environment and Resource Governance, Chatham House

The second speaker focused on what is currently happening in China in terms of green growth and possible lessons that can be learned from it. She underscored that there is a consensus currently in China that low carbon economy has to be the model for the future. The current carbon intensive model presents many challenges to the country in terms of energy and resources security and climate impacts. In addition China is looking to achieve higher value added technology exports and clean technology is promising in that respect.

                Already China’s production on clean energy is substantial and it has managed to reduce production costs for the rest of the world. There are also policies in place to promote clean energy like targets to reduce China’s carbon intensity in production, renewable energy targets and certain policies considered still in the pilot stage (carbon trading, low carbon piloting areas). In addition the 12th 5th year plan includes clean industry amongst the industries that will receive funding.

                However, despite the progress so far there are certain challenges. On the one hand there is still no consensus on when a transition to low carbon growth should happen and who will be involved (no one size fits all policy is possible due to China’s domestic inequalities). In addition, decision making is not easy as there are many conflicting interests that need to be bridged. Finally, China’s export led growth remains highly carbon intensive and there is no credible alternative yet for economic restructuring.

                    Concluding the speaker summarized the challenges present to China’s low carbon tradition in three clusters:

1) Trade barriers

2) Reorganisation of the energy sector

3) Lack of democracy (innovation tends to prosper in open societies)

Question from the chair:

Doesn’t the economic success of China in other sectors put in question this notion about innovation occurring only in open societies?

Answer: China has been very good in adapting to technologies, but remains mainly a producer of parts (for example there are no Chinese brands in the market)

3rd speaker Shruti Mehrotra - Independent Advisor on climate change, resource scarcity and state fragility

The third speaker focused on the lower income countries (LICs) and the role played from the private sector. She emphasised the different opportunities LICs face in comparison to middle income countries and she concluded that there are areas for LICs to pursuit low carbon growth and benefit from it, but there remain challenges (both old and new ones)

The speaker outlined certain assets LICs have that can provide them with opportunities to capitalise on international mitigation efforts:

·         Forests can become a revenue generating source through various initiatives namely REDD however, there remain challenges as far as poor institutions and governance are concerned

·         Minerals used for low carbon development (e.g. in electricity storage, batteries and part manufacturing) in countries like Bolivia, Ethiopia, Mozambique, Burma, Zimbabwe. These minerals are not usually scarce but there might be challenges in their extraction  for example: poor data, potential conflicts, resource curse, no adequate production capabilities, lack of institutions and good governance

·         Scarce resources like conventional energy and food. These resources are becoming scarcer in developed countries and therefore some LICs could help address these scarcity dynamics. However, there are potential dangers like land acquisitions.

·         Renewable energy capacity. LICs can achieve clean energy development through decentralised models or ambitious regional projects. This would be a way to address energy poverty. There are barriers to achieve clean energy leapfrogging (e.g. lack of institutions, good governance and ability to attract foreign capital), but the threats of carbon lock-in are very large (e.g. price volatility etc.)

The speaker also addressed the issue of engaging private capital, in addition to the carbon markets, for clean energy. She stressed the crucial role of policy frameworks in attracting capital and noted that opportunities for the private sector in LICs are smaller. Lessons learned from middle income countries are important, but a new narrative (model) is needed probably needed for LICs (e.g. very small scale production)

Discusssion

1)      Where do you see BRICS countries going in terms of using green growth to eradicate poverty?

2)      What happens when there is a trade off between resource extraction, forest preservation and indigenous rights?

3)      How big are the price differentials between clean and conventional energy and how easy it will be to phase out renewable energy subsidies?

4)      What are the prospects for Chinese clean investments in Africa? What will the future pattern of urbanisation and development be (e.g. will LICs economies benefit more if they remain rural)?

Edwin Ritchkins

·         The rules of the game in the global economy are not likely to change in the future

·         The threats of border taxes will be considerable

·         Lack of base load capacity is the biggest challenge for renewable vis a vis conventional energy

Bernice Lee

·         Price differentials should not be exaggerated. Currently fossil fuel subsidies are much higher than subsidies in place to promote renewables

·         There are many Chinese investments in Africa and many free trade zones have been established

·         Water intensity in energy production and use is crucial and has been understudied

Shruti Mehrotra

·         The debate over potential tradeoffs between preserving forests and extracting minerals is ongoing. There are prospects to put in place compensatory mechanisms