ALINA AVERCHENKOVA interviwed by TOBIAS UDSHOLT 09/10/2014
Perspectives: What are the costs of action and inaction on climate change?
Dr. Averchenkova: The Stern Review of 2006 was one of the first pieces of work that argued that the costs of inaction on climate change are several folds higher than the costs of action. The costs of having a 50 percent chance of limiting global temperature increases to 2 degree are estimated at below 1-2 percent of global GDP per year depending on the pathway of emission reductions. Climate change is essentially a risk management issue and should be approached from this perspective rather than from a narrow cost-benefit perspective. The risks are immense and we do not have full clarity on the level and location of future damages. There is therefore a strong case for investment in avoiding these risks.
P: What type of damages could that be?
A: As an example, we experienced the impacts of sea levels rising and the increased frequency of floods in the UK last year which resulted in the loss of property, damage to infrastructure, roads and power stations.
In arid to semi-arid territories increased temperatures will mean that countries will become drier which will affect agriculture with implications for water and food availability and prices. As the result of decreased availability of freshwater, in particular in African countries, you can see migration and political conflict. So there are all sorts of issues.
In Northern countries like Russia some sceptics may argue that climate change may be beneficial since people would not experience cold winters. However, increasing temperatures could melt the permafrost for example, which could lead to the failure of power infrastructures such as train lines, roads, etc.
P: Do you see a trade-off between economic development and low emissions?
A: No, instead I observe a lot of synergies. A report released this year by the Global Commission on the Economy and Climate shows that 50-90 percent of emission reductions that need to be achieved are actually beneficial as they improve energy security, air quality, and deliver other benefits to local economies. Some countries, such as China, have already realised this and are implementing quite aggressive emission reductions particularly for health concerns. There will also be some costs involved, for removing barriers to low carbon investment, R&D in new technologies, etc. but the projected damages from climate change outweigh the costs of mitigation.
P: How do you view the prospects of developing countries in achieving low emission growth?
A: In the last few years we have seen a drastic shift in thinking. There is a realisation that everyone has to reduce emissions including developing countries, because that’s where the majority of the future growth will occur.
A second aspect is the recognition of the positive co-benefits of green investment and of the compatibility of a lot of development goals [with low emission growth]. We are seeing an increasing number of fast growing countries, like China, Brazil, Mexico, South Africa and Indonesia taking more ambitious stances on climate change and shifting to a lower carbon path of development. The same is happening in less developed countries, for example Ethiopia has been very actively developing its low carbon strategies. We see countries like Vietnam, Kenya, and many others doing the same. The level of ambition is different depending on the circumstances of the country, but I think the trend is promising. We need to do more and we can do better, but I think it is a good start.
P: In December, multilateral climate change negotiations will take place in Paris. Why are these negotiations seen as particularly important?
A: Primarily due to the urgency of the issue: climate change is not waiting and the current target on emissions will not get us near a 2 degree scenario. Paris is important because the negotiators have set a deadline for an agreement on the main features of the future post-2015 framework for climate action and they need to deliver.
P: Is it realistic to expect a binding agreement from Paris?
A: The effectiveness of international action on climate change will depend on how effective countries are in implementing their targets domestically because that’s where the emission reductions are happening. We can argue about legally binding at the international level but the real focus is that it needs to be legally binding nationally. If a country implements national climate legislation where there is a clear time frame, a process for adjusting the target upwards in the future as new information comes in, a system of checks and balances, collection of data and so on – that’s when we get strong implementation. The ‘internationally binding’ agreement in the Kyoto mould may not be achievable due to political difficulties in China and US, but we should not be obsessed with it. We should instead be focusing on national frameworks to have credibility at the national level.
P: What outcome do you expect from Paris?
A: I think there will be an agreement on the major elements of the framework, especially, the global goal of staying within 2 degrees and the need for ambitious emissions reductions, backed up by individual emission reduction pledges by countries. It is also critical that agreement is reached on the framework for measuring, reporting and verifying emissions (MRV). Regardless of the level of bindingness, the MRV will be the key element that will hold the international system together. Even though you may implement emission reductions domestically there needs to be international checks on the credibility of data. Finally a mechanism for discussing how to achieve the ambitious targets: right now it is likely that the pledges will not add up to what we need. Paris will be the first step. These elements of mitigation framework would need to be backed up by an agreement on infrastructure and pledges for financial support, capacity building and cooperation on technology and adaptation to the impacts of climate change that cannot be avoided.
P: Do you think it will be successful then?
A: Well that’s a good question: What is success? If you ask me ‘was Copenhagen a success or failure?’ I was there and felt that what we had achieved was pretty amazing: for the first time we had heads of states of a large number of key players internationally discussing, drafting and agreeing on the main principles and elements of the international action on climate change. What then happened was that the media and some NGOs labelled it as a failure. The expectations were set too high with a call for a new legally binding deal, but the political realities were not in touch with the expectations built up. So I think for Paris it’s the same question, how do we define success? For me success will be if we have a clear framework agreed for how mitigation and adaptation actions are to be undertaken nationally and enabled through international cooperation, if the main pledges from the major emitters are on the table as part of that framework and that they are ambitious, and, as I said, that there is a strong MRV mechanism and a clear pathway of how to revise targets upwards in the future. For me, that would be a success.
P: What do you see as the role of the private sector in the transition to a low carbon economy?
A: I think the private sector is absolutely crucial. The data shows that around 80% of the investment would need to come from private capital. If you look ahead to 2050, the New Climate Economy report ‘Better Growth Better Climate’ has showed that $90 trillion cumulatively will need to be invested into infrastructure to meet the energy demand of growing populations and other resulting needs. If you compare that to the “climate finance”, currently there is $10 billion committed from the donors to the Green Climate Fund and there is a target of mobilizing $100 billion annually, which will be an important marker for Paris. However, if you compare $100 billion to $90 trillion that tells you that maybe the focus should be on how to direct the $90 trillion [of private sector investment] into low carbon infrastructure.
P: What obstacles exist to private sector investment in green technology?
A: Low carbon investment is often less competitive for various reasons: financial institutions do not have experience of lending to low carbon projects e.g. to renewable energy or energy efficiency, so they require high interest rates. Another problem is subsidies to fossil fuels which creates huge competitive advantages to high-carbon technologies. Furthermore, the general risk environment in developing countries is often an issue: high risk means high interest rates, so once again proven fossil-fuel based technologies take precedence.
P: How can these issues be addressed?
A: There are several tools that can be applied: one is the regulatory framework and that’s why the Paris discussions are so critical – by putting in place a clear policy in terms of transition to a low carbon economy, governments can improve the competitiveness of low carbon investment. There are different ways of doing this: for example subsidies to low carbon (e.g. renewable energy) technologies, letting markets internalise costs by putting a price on carbon and incentives for R&D.
P: The Grantham Research Institute and the Carbon Tracker Initiative have calculated that up to 80% of current fossil fuel reserves cannot be burnt if the world is to stay below a 2 degree temperature increase. What does that mean for investments held in fossil fuel companies?
A: Investors should think very hard on where they put their investment and bets on the future. Effectively as countries start adopting more aggressive climate policies, fossil fuels will become “unburnable” and lose their value. We know that investors are starting to think about this, there is change in the investment community. Several multilateral development banks including the World Bank have said they will not support coal projects anymore so that’s a reflection of that change, I think.