Eco economy could unlock billions

By Fiona Harvey, Environment Correspondent

Published: December 13 2009 23:12 | Last updated: December 13 2009 23:12

For the past week, governments from around the world have been meeting in Copenhagen to discuss a new global framework on greenhouse gas emissions.

It is “the most important international gathering since the second world war”, according to Lord Stern, the economist and author of a landmark review of the economics of global warming.

The ministers, negotiators and officials will soon be joined by heads of state and government, in the hope of finalising an agreement that will take over from the Kyoto protocol, the main provisions of which expire in 2012.

So complex are these negotiations that an outcome is still impossible to predict, but one thing is certain: to be successful, a Copenhagen agreement must include significant financial commitments.

Industrialised countries must assist the developing world to curb its emissions, by investing in low-carbon technology, and to adapt to the effects of climate change.

If an agreement is signed, developed countries must also look to their own economies, and set out plans for how to achieve substantial emissions cuts, through efficiencies, alternative energy sources and innovative technologies such as electric cars.

But rather than see these commitments as a cost, countries should view them as an opportunity, argues Lord Stern. “The low-carbon growth story is going to be the only economic growth story of the future,” he says.

Achim Steiner, executive director of the United Nations Environment Programme, agrees: “Copenhagen could unlock billions of dollars across the global economy.”

The economic stimulus packages put in place around the world in the wake of the financial crisis are expected to result in finance flows of more than $500bn to green projects, according to estimates from HSBC. These projects range from renewable energy development and high-speed rail systems to insulating homes.

Public money is only part of the story. Mr Steiner also points out that investors, venture capitalists, bankers and other companies are waiting to see the outcome at Copenhagen before making investments in low-carbon infrastructure.

“There has been a period already where businesses and investors have been holding back,” he says. “This means a very significant amount of money is in a holding pattern in the global economy.”

The risk is that if there is no deal, this money would be diverted to other investments, including high-carbon infrastructure, such as new coal-fired power plants.

“If Copenhagen does not come up with a good signal, then a lot of that money will disappear. It will go on other things,” Mr Steiner warns.

Also at the Copenhagen meeting are a large group of other leaders – the mayors, governors and council leaders who make up local government around the world. The mayor of Copenhagen will welcome dignitaries from dozens of countries, including famous names such as Arnold Schwarzenegger, governor of California, and Michael Bloomberg, mayor of New York. The mayors of London, Stockholm, Johannesburg, Buenos Aires, Sydney and about 50 other major cities will also be present.

What they must discuss is how to take any overarching goals on emissions cuts arising from the summit, and translate them into action at the regional and local level. Implementing such cuts must involve local government because so many of the tasks involved can only happen at that scale – from schemes to encourage householders to insulate their homes, to changes to street lighting, to public transport and cycle routes.

For instance, delegates will hear how in New York, efforts to cut emissions are focusing on retrofitting existing buildings, including the Empire State Building. Copenhagen’s own district heating system will be shown off, there will be a report on Johannesburg’s new public transport system, and London’s aim to host a green Olympic games in 2012.

Michèle Sabban, president of the Assembly of European Regions, the biggest organisation of regional authorities in Europe, says: “National governments must recognise and take advantage of the crucial role regions play in tackling climate change and energy challenges. If they fail to secure a truly multi-level response to these challenges, our national leaders will be putting our environment and economic security at grave risk.”

But none of these initiatives are possible without financing. Although most of the funds needed to kickstart the green economy are being allocated at a national, and in some cases even at an international level, there will also be a role for local fund-raising, for instance through local taxation and rates, and special charges to encourage “green” behaviour.

One striking example is London’s congestion charge, a fee levied daily on cars entering a zone in the centre of the city. The scheme has cut car use relative to the levels that were being predicted without such restrictions. The revenues raised are not dedicated to environmental ends, but there is no practical reason why they should not be. Other cities looked at emulating the system.

Some funds from national governments will also cascade down to local governments who will decide the detail of how they are spent.

Some generate savings immediately. Chuck Reed, mayor of San Jose in the US, says: “Some of our efforts are being financed through energy savings that are recycled into additional efficiency and conservation measures. We place two years of savings from energy efficiency and conservation into a separate account to fund additional efforts [which] creates a revolving fund to keeps our efforts going in tough budget years.”

Developing nations have another route open to them. Under the Kyoto protocol, rich countries can meet their targets to cut greenhouse gas emissions by investing in projects – such as solar panels or wind turbines – that reduce emissions in the developing world. They do so by buying carbon credits, each representing a tonne of carbon dioxide avoided, which are awarded to the project developers under a UN system known as the clean development mechanism.

One example of the CDM in practice is Jakarta. There, so-called “carbon finance” of this kind has allowed the city to raise funds to cut greenhouse gases, which officials say has also helped the local economy by creating new jobs.

At the Copenhagen talks, the CDM will come under discussion, and in the next few years is likely to be subject to sweeping reforms. This may make it easier for local governments to gain access to the finance it offers, for instance by allowing whole sets of projects to be grouped together to apply for funding, instead of having to be considered for funding one by one, as is the case at present. This should significantly cut the administrative costs of such developments.

If a strong deal emerges from Copenhagen, local governments can hope that at least some of the finance they need to cut emissions will be unlocked. For that reason, they are lobbying hard at the summit. “Our citizens and cities will help implement the agreement signed by government officials at [Copenhagen],” says Sten Nordin, mayor of Stockholm. “We urge the decision-makers to sign [an] agreement, and to use this opportunity for real change. We need the legislation and economic means to put [the] words into action.”