Low Carbon Economy Index 2012: Overview

Planning for a warming world

 

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Leo Johnson: Welcome to the low carbon economy index discussion with me in the studio Andrew Sentence, Senior Economic Advisor to the firm, Jonathan Grant, Director in the Sustainability and Climate Change team. Our topic today the movement to a low carbon economy avoiding more than 2 degrees of warming is it a pipe dream or are we on course.

Jonathan Grant: Leo each year we evaluate how much of the global carbon budget has been spent and how much emissions reductions are needed to stay to those 2 degrees target. Now if we had started in 2000 we would have needed emissions reductions of about 3.7% per year, what we have achieved is only about 0.8% per year and so because of that lack of progress we now have to reduce emissions by 5.1% per year, every year from now until 2050.

Leo Johnson: Has that ever been done before.

Jonathan Grant: Not since the second world war and it looks very unlikely that we will be able to achieve those targets, those reductions and therefore we are on track for much greater warming than 2 degrees.

Leo Johnson: Essentially between now and 2050 we have got to 39 years running to meet a target we have never really met before.

Jonathan Grant: That's right and even if we were to double the rate of reduction that we are achieving right now we would still only be on track for 6 degrees of warming, so we are looking at a change in either the economy that is needed or business is going to have to adapt [talking together].

Leo Johnson: How many parts per million does that translate into?

Jonathan Grant: Well for 6 degrees that translates to 1200 parts per million.

Leo Johnson: And we are trying to get somewhere between 350 and 450?

Jonathan Grant: That's right.

Leo Johnson: So we are kind of heading off the carbon cliff according to this analysis if the science is right.

Jonathan Grant: Yes that is right.

Leo Johnson: Shale gas. A lot of talk about shale gas. Is it part of a solution?

Jonathan Grant: Leo last year in the US carbon intensity fell 3.5% and much of that was due to the increased use of shale gas. Now shale gas is a transition fuel which is half the emissions of coal in power generation. But there are three concerns with it, first is the environmental impact of extracting the gas, second is that it lowers the cost of coal which drives up coal demand in other countries and the third is that the increased use of shale gas can actually displace investment in renewables, so it is not the whole answer but it is part of the transition.

Leo Johnson: Andrew what does this mean for business, what does this mean for growth?

Andrew Sentence: Well I think the business and economic growth is both risk and opportunity. The risk is that we wake up quite dramatically to the need to do much more to get ourselves on the sort of track that Jonathan is talking about and therefore we see quite significant shifts in policy say in 5 or 10 years time, and business then has to work a lot harder to adjust and the costs .....

Leo Johnson: [talking over] sudden radical carbon tax for example?

Andrew Sentence: Yes, and the costs to the business and the cost in the economy will be much greater. I think the opportunity is that actually if we think about the next wave of growth, where is it going to come from it could well come from investment in low carbon technologies and new sources of energy. We are already seeing some countries beginning to identify that, for example, the Chinese are the major producer of solar panels now they are interested in getting into electric cars and so you are seeing countries begin to recognise that this is a source of growth opportunity as well.

Leo Johnson: Very interesting. China its 13th five year development plan 1.7 trillion dollars into seven strategic sectors of which renewables clean tech, nano ict are paramount. Do you think that is the future economy that both governments and business should pin their economic futures on.

Andrew Sentence: Well if we are going to make the transition to a low carbon economy, particularly in energy and transport we are going to have to harness these technologies, a whole wide range of technologies to a much greater degree and when we harness technology we do create business opportunities. So we have seen some of the technologies begin to emerge, like solar panels, electric cars those need to go much further but we also need other technologies like carbon capture and storage, innovations in bio-fuels to go much further to take us in the direction that Jonathan is talking together.

Leo Johnson: Competitive drivers will dominate.

Andrew Sentence: Thats, hopefully you will get a number of drivers which will work in the same direction both economic signals, like carbon pricing the commitment of governments to move in the same direction and then countries perhaps competing with each other to be ahead in these low carbon technologies.

Jonathan Grant: And as that innovation takes place so the prices will come down and then there will be broader acceptability of those low carbon technologies and that is critical if governments are to be able to implement these policies rapidly.

Leo Johnson: Key messages for the viewers?

Jonathan Grant: Well I think that unless there is a radical policy shift we are on track for a warming world and I think business needs to prepare for that.

Leo Johnson: Andrew?

Andrew Sentence: I think there are short to medium term risk and opportunities. The risk is that we have bigger costs for business. The opportunity is that we can get an investment wave of low carbon technology.

Leo Johnson: Andrew, Jonathan and all of you who have been watching the low carbon economy index discussion thank you very much.

It’s time to plan for a warmer world. The annual Low Carbon Economy Index centres on one core statistic: the rate of change of global carbon intensity. This year we estimated that the required improvement in global carbon intensity to meet a 2°C warming target has risen to 5.1% a year, from now to 2050. We have passed a critical threshold – not once since World War 2 has the world achieved that rate of decarbonisation, but the task now confronting us is to achieve it for 39 consecutive years.

The 2011 rate of improvement in carbon intensity was 0.7%, giving an average rate of decarbonisation of 0.8% a year since 2000. If the world continues to decarbonise at the rate since the turn of the millennium, there will be an emissions gap of approximately 12 gigatonnes of carbon dioxide (GtCO2) by 2020, 30 GtCO2 by 2030 and nearly 70 GtCO2 by 2050, as compared to our 2-degree scenario.

Even doubling our current rate of decarbonisation, would still lead to emissions consistent with 6 degrees of warming by the end of the century. To give ourselves a more than 50% chance of avoiding 2 degrees will require a six-fold improvement in our rate of decarbonisation.

In the emerging markets, where the E7 are now emitting more than the G7, improvements in carbon intensity have largely stalled, with strong GDP growth closely coupled with rapid emissions growth. Meanwhile the policy context for carbon capture and storage (CCS) and nuclear, critical technologies for low carbon energy generation, remains uncertain. Government support for renewable energy technologies is also being scaled back. As negotiators convene every year to attempt to agree a global deal, carbon emissions continue to rise in most parts of the world.

Business leaders have been asking for clarity in political ambition on climate change. Now one thing is clear: businesses, governments and communities across the world need to plan for a warming world – not just 2°C, but 4°C, or even 6°C.

Figure 1: PwC’s Low Carbon Economy Index - Global

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We use the carbon intensity for countries as a measure of progress towards a low carbon economy. The carbon intensity of an economy is the emissions per unit of GDP and is affected by a country’s fuel mix, energy efficiency and the composition of the economy (i.e. extent of activity in carbon-intensive sectors).