The long-anticipated United Nations Climate Change Conference began Nov. 30 in Paris and will continue through Dec. 10—yet there is almost no chance that it will produce an agreement anywhere near adequate for achieving the climate stabilization targets set by the Intergovernmental Panel on Climate Change (IPCC) for 2050 or an intermediate target for 2035.
Despite significant pledges on behalf of their countries, political leaders throughout the world simply do not want to make major cuts in their consumption of oil, coal, and natural gas, which is the major source of global carbon dioxide emissions. Even putting aside the obvious self-interest and political power of both public and private fossil-fuel companies, most political leaders remain convinced that significantly cutting fossil-fuel consumption will slow economic growth and cost jobs—a price they are unwilling to pay.
Yet this premise is wrong. In fact, a workable plan is at hand for stabilizing the climate while also supporting economic growth and expanding job opportunities. But we first need to overcome the idea that shrinking the fossil-fuel industry is an insurmountable task, since, in fact, it isn’t.
A green-energy investment program would create tens of millions of new job opportunities. In writing my book, Greening the Global Economy (MIT Press, 2015), I found that by investing between 1.5 and 2% of global GDP per year in raising energy-efficiency standards and expanding clean renewable-energy supply, we could bring global emissions down by 40%, relative to today, within 20 years—while still supporting healthy economic-growth rates. This green-energy investment program would also create tens of millions of new job opportunities, even after accounting for job losses through contractions in oil, coal, and natural-gas production. The global contraction of fossil-fuel consumption would then need to proceed at a rate of about 2% per year to reach the IPCC’s goals.
Will weaning ourselves off fossil fuels be easy? Of course not. Will there be job losses for fossil-fuel sector workers and do we need policies in place to help those workers transition to clean-energy jobs and other opportunities? Absolutely. Most importantly, do we have the wherewithal to withstand the fierce resistance that the big energy corporations will inevitably continue to mount to protect the value of their assets?
The answer here is also yes, and here’s why: The best estimate (pdf), according to researchers at the London School of Economics, is that about $3 trillion worth of privately-held fossil-fuel reserves will have to stay in the ground permanently—i.e., not be sold and burned as energy—to meet our climate stabilization goals. That’s serious money that the companies will not relinquish without a brutal fight.
However, this $3 trillion loss will not happen in one fell swoop, but rather will occur incrementally over a 20-year period. On average, this amounts to asset losses of $150 billion per year. By contrast, as a result of the US housing bubble and subsequent financial collapse, US homeowners lost $16 trillion in asset values in 2008 alone. That’s about 100 times the annual losses fossil-fuel companies would face. We survived the financial crisis, so we can readily handle a slowly shrinking global fossil-fuel industry.
We survived the financial crisis, so we can readily handle a slowly shrinking global fossil-fuel industry. In addition, the losses that the fossil-fuel companies will experience won’t be happening in a vacuum. Rather, expanding clean-energy investments simultaneously will be fully supportive of a healthy economic growth path for countries at all levels of development.
This is, first of all, because raising energy efficiency standards, by definition, saves money for energy consumers. A major 2010 study by the US National Academy of Sciences found that, for the US economy, “energy efficient technologies … exist today or are expected to be developed in the normal course of business, that could potentially save 30% of the energy used in the US economy while also saving money.”
Similarly, a McKinsey and Company study (pdf) focused on developing countries found that, using existing technologies only, energy efficiency investments could generate savings in energy costs in the range of about 10% of total GDP for all low- and middle-income countries as of 2012.
The International Renewable Energy Agency estimated in 2013 (pdf) that, in all regions of the world, average costs of generating electricity with most clean renewable-energy sources—wind, hydro, geothermal, and low-emissions bioenergy—are now at rough parity with fossil fuels. This is without even factoring in the environmental costs of burning oil, coal, and natural gas, the cost of which would of course rise through a carbon tax or cap. Solar energy costs remain higher. But they have fallen by 80% between 2007 and 2013, according to Bloomberg New Energy Finance. They are likely to reach cost parity with fossil fuels in less than a decade.
Clean energy investments at between 1.5 and 2% percent of global GDP will generate tens of millions of new jobs throughout the world because they are more labor-intensive than maintaining the existing fossil-fuel-based energy infrastructure. Research that I have conducted with co-authors has found this relationship to hold in Brazil, China, Germany, India, Indonesia, South Africa, South Korea, Spain and the United States. With India, for example, we found that increasing clean energy investments by 1.5% of GDP every year for 20 years will generate a net increase of about 10 million jobs per year. This is while India’s CO2 emissions could be stabilized at its current low level and GDP would grow at an average of 6% per year.
Energy-efficiency investments generally pay for themselves over three to five years But increasing clean-energy investments by 1.5% of global GDP will not happen without strong government support. Even though, for example, energy-efficiency investments generally pay for themselves over three to five years, somebody still needs to provide the initial capital and bear the project risk. The experience in Germany is valuable here, since it is the most successful advanced, large economy in developing its clean energy economy.
According to the International Energy Agency (pdf), a major factor in Germany’s success is that its “state-owned development bank, KfW, plays a crucial role by providing loans and subsidies for investment in energy efficiency measures in buildings and industry, which have leveraged significant private funds.”
This German development-banking approach could be adapted successfully throughout the world. It could provide the financial foundation for a global clean-energy investment program capable of delivering, in combination, dramatic cuts in CO2 emissions along with healthy economic growth and an expansion of job opportunities; in other words, a viable solution to global climate change.
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