The scope for ‘green’ growth and a new technological revolution

Alex Bowen,

Grantham Research Institute on Climate Change and the Environment, LSE

CAGE/CCCEP workshop, 25 January 2011

‘Green’ growth: outline

• Necessity

• Potential

• Challenges

• Policy implications

‘Green’ growth: necessity

• Business as usual

• Costly

• Risky

• Unsustainable

• Growth still necessary

• Poverty alleviation

• Politics

Projected primary energy supply

Source: WITCH model runs for the RECIPE project

EJ

BAU 410 ppm CO2

Change in UK emission intensity required to meet 2050 target

Emission intensity

Country YearCO2 per head

(tCO2)GDP per head (Intl$ppp2005)

CO2 emissions/energy

use (tCO2/toe)

Energy use/GDP (toe/Intl$ppp2005)

x 10^6Population (millions)

United Kingdom 1998 9.2 27,708 2.4 137.1 58.52007 8.7 34,206 2.5 101.3 61.02050 2.0 85,334 0.85 27.6 72.4

Assume energy intensity remains constant to 2050Assume CO2 per head from energy around 2 t/cap. in 2050

Trend 1998-2007Energy growth (toe) p.a. -0.5%GDP growth p.a. 2.6%Energy intensity p.a. -3.0%

Source: toe and GDP - World Bank Development Indicators.Source: Energy CO2 emissions - UK UNFCCC National Inventory Report 2008.Source: Population - World Bank Development Indicators; UN Population Prospects Database: 2008 revision.

• bullets

• bullets

• bullets

• bullets

• bullets

Source: World Bank data. Green Accounting: Adjusted Net Savings.

Net national savings (NNS) and Adjusted national savings (ANS), 2007, as a percentage of GNI, selected regions

-5

0

5

10

15

20

25

30

35

40

Euro a

rea

High in

come

World

South A

sia

East A

sia &

Pac

ific

Latin

Am

eric

a & C

arib

bean

Low inco

me

Mid

dle E

ast &

North

Afri

ca

Heavi

ly in

debte

d poor c

ountries

LDCs: U

N cla

ssifi

catio

n

Sub-Sah

aran

Afri

ca

% o

f G

NI

2007

NNS ANS

The challenge of sustainability

‘Green’ growth: potential

• Keynesian stimulus in the short run

• Wave of innovation in the medium run

• Loosening the energy resource straightjacket in the long run

• Global primary energy consumption c. 12,000 mtoe p.a.

• Technical potential for renewable energy >180,000 mtoe, 2/3 geothermal (Rogner, 2000)

6th industrial revolution: new energy technologies? Biotech?Source: Perez (2010)

Perez: techno-economic paradigm shifts

Sources of energy used for power in UK

‘Green’ growth: challenges

• Costs

• Lower productivity (for how long?)

• Crowding out consumption and/or other investment

• Managing structural change

• Timing with respect to macroeconomic conditions

Global consumption costs

Target of 410 ppm CO2

Source: RECIPE project synthesis report (2009)

Job creation or low productivity?

Source: Wei et al (2010)

Not all measures equally ‘jobs-friendly:’the Korean stimulus

Structural adjustment challenge

Source: Babiker and Eckaus (2007)

‘Green’ growth: challenges• Are the conditions for a new long

wave of development present?

• Size of sector

• Competition from old technologies

• Sailing ship effect

• Fossil fuel rents

• Difficulties in differentiating the product

Source: ONS Blue Book 2010 edition

Industry contributions to total gross value added, UK

Selected UK industries as a share of total GVA (current basic prices)1990-2007

0%

2%

4%

6%

8%

10%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Sh

are

of

tota

l GV

A

Mining of coal, extraction of oil and gas, coke, petroluem and nuclear fuel, electricity, gas and water.

Transport, storage and communication

Energy substitutions in lighting (UK)

Source: Fouquet (2010)

Innovation to dominance

Diffusion to dominance

Where are the new jobs going to be?

Source: Pollin, Heintz and Garrett-Peltier (2009): ‘The economic benefits of investing in clean energy’ CAP/PERI, June

‘Green’ growth: challenges

• Dependence on policies

• Credibility

• Time inconsistency

• Lack of understanding

• Rent seeking

• Free riders

• Lags in implementation

‘Effort’ versus carbon intensity

Source: HSBC (May 2009) and WRI CAIT

Total Green Stimulus Spending and Emissions per head

0%

1%

2%

3%

4%

5%

6%

7%

8%

0 5 10 15 20 25 30

Emissions per head (CO2e)

To

tal g

reen

sti

mu

lus

spen

d -

% o

f G

DP China

South Korea

Saudi Arabia

AustraliaUS

CanadaIndonesia

Focus on energy efficiency

Source: HSBC (2009): ‘Taking stock of the green stimulus’ November

Promoting technological innovation

Source: World Bank WDR 2010

Promoting technological innovation

Source: World Bank WDR 2010

Environmental MDG: progress by 2010

Source: UN Millennium Development Goals progress Chart 2010. www.un.org/millenniumgoals/reports.shtml

‘Green’ growth: policies and the need to use all the tools in the tool-kit• The GHG externality

• Innovation

• Competition

• Network externalities

• Financial system (need for a GIB)

• Trade (energy security issue)

• Scrutiny of policies and learning

Ratio of ‘clean’ to ‘dirty’ auto patents

Source: Aghion, P, Dechezlepretre, A, Hemous, D, Martin, R, and J Van Reenen (2010)

Promoting technological innovation

versus