Toward low-carbon competitiveness - China Dialogue
Climate

Toward low-carbon competitiveness

As world leaders meet in Pittsburgh, a new report from E3G and the Climate Institute explains how the G20 nations can adapt to a carbon-constrained world and create prosperity for their citizens.

A concerted global effort to reduce greenhouse-gas emissions will be required if a global average temperature rise of more than two degrees Celsius is to be avoided. Fundamental changes in both the global economy and the economy of each individual country will be necessary to achieve this goal. How each nation adapts to a carbon constrained world will, to a large extent, determine its future economic competitiveness and ability to create prosperity for its residents.

The report, G20 low carbon competitiveness, assesses the low carbon competitiveness of the nineteen G20 countries (there are nineteen country members of the G20 plus the European Union; the performance of the EU as a whole is not considered in the report). Traditional measurements of competitiveness fail to assess the consequences of how countries adapt to the opportunities and costs of moving to a carbon constrained world. This report seeks to fill this gap by providing a comparative, data-driven analysis of the progress countries are making to carry out this transition now and over time.

The G20 countries account for 76% of world GDP and 69% of total greenhouse-gas emissions. The G20 is therefore an important group in addressing climate change. Plans to unlock public and private sector financing for low carbon solutions are on the agenda at the G20 summit in Pittsburgh, United States, which opens today; therefore this meeting may play a crucial role in the lead up to the United Nations Climate Change Conference in Copenhagen in December 2009.

There are three elements to assessing overall low carbon competitiveness: where countries are positioned now, the rate at which this is changing, and the scale of the challenge they face. This report therefore compares the performance of the G20 countries along three key metrics:

* the low carbon competitiveness index: measuring the current capacity of each country to be competitive and generate material prosperity to its residents in a low carbon world, based upon each country‟s current policy settings and indicators;

* the low carbon improvement index: the extent to which countries are demonstrating an ability to improve their carbon competitiveness as they grow;

* the low carbon gap index: the difference between this rate of improvement and the rate required if that country, given its projected economic growth, is to succeed in meeting its share of the required carbon reductions for atmospheric concentrations of greenhouse gases to be stabilised at 450 ppm (parts per million) CO2e (carbon dioxide equivalent).

Figure 1 European and East Asian countries do well in the low carbon competiveness index

Source: Vivid Economics calculations

Generally speaking, countries that have both high levels of GDP per capita and have acknowledged the need to make adjustments to their economies to allow for low carbon growth come towards the top of the low carbon competitiveness index. This index is charted in Figure 1. By contrast, countries towards the bottom of the index are Australia and non-Annex I nations that are heavily dependent upon carbon intensive production for income.

The extent to which countries are improving (or retracting) in their carbon competitiveness is potentially more important than their current position. Rich countries may be failing to make any significant improvement in this capacity. Conversely, countries with low GDP per capita may not have high levels of carbon competitiveness, but nevertheless may be making significant progress towards having such. This is captured in the low carbon improvement index which is shown in the figure below.

Figure 2 Germany comes top of the low carbon improvement index, but some industrialising economies also perform well

Source: Vivid Economics analysis of World Bank data

While Germany comes top of this index, a number of middle income countries are improving their carbon productivity at a faster rate than some advanced economies. In particular, South Africa and Mexico are second and third in this index. These three countries have demonstrated, in the recent past, an ability to both grow their economies while also significantly increasing the amount of GDP obtained from each tonne of carbon dioxide emitted. By contrast, recent economic growth in Saudi Arabia has only been achieved through increasing the carbon intensity of its economy. Japan, while highly placed in the low carbon productivity index, has shown little ability to improve its carbon productivity over the period analysed.

Finally, the low carbon gap index, shown in Figure 3, compares changes in carbon productivity in each country with the rate of carbon productivity growth required if ambitious targets for greenhouse-gas emission reductions are to be achieved given (country-specific) projected economic growth rates. To do this, the IPCC reduction scenarios which envisage eventual stabilisation of atmospheric emissions at 450 ppm CO2e are used. This requires global growth in emissions to peak at around 25% above 1990 levels by 2020 with differential targets for developed (Annex I) and industrialising (non-Annex I) countries. Without early action, the economies with the largest gaps are likely to find the transition to an emissions constrained world relatively more difficult and costly both economically, and potentially also socially and politically.

Figure 3 Only two G20 countries are currently improving carbon productivity quickly enough to meet carbon reduction targets

Source: Vivid Economics Analysis of World Bank data

Two countries are currently improving their carbon productivity at a rate which is high enough to meet the global emissions reduction goal, given expected growth rates of population and GDP: Mexico and Argentina. Both these countries should experience continuing increases in carbon productivity, due to a combination of carbon efficient growth and lower emission reduction targets by virtue of being non-Annex I countries. China, South Africa and Germany are close to being on track. Other countries need to improve their rate of carbon productivity growth. The largest turnarounds in carbon productivity are required by Australia, Turkey, Russia and Saudi Arabia.

The large number of rapidly industrialising nations at the top of this index shows that some countries are growing fast and are doing so in a way consistent with the projections for emissions underpinning these IPCC scenarios. Annex I countries generally have more work to do than non-Annex I countries, mainly due to the tougher presumed emissions targets. However this pattern is not universal. Some Annex I countries, Germany and the UK, are close to making sufficient progress. Conversely, despite less strict emissions targets, some non-Annex I countries, such as Saudi Arabia, require major changes of direction.

This report shows that there is a wide range of performance amongst the G20 countries when it comes to low carbon competitiveness. These performances reflect different starting points and levels of national ambition, but show that there is potential for all countries to improve and move towards low carbon best practice.

Improvements in carbon productivity need not be at the expense of economic growth. This is true in both developed and industrialising economies. Countries as diverse as Germany, South Africa and Mexico have all shown an ability in the recent past to decouple economic growth from carbon emissions. They demonstrate what is possible for other G20 countries and provide confidence that a global deal to reduce emissions is achievable without compromising on growth and covering developed and industrialising nations.

However, much remains to be done. Only two G20 countries are currently on a trajectory consistent with stabilisation of atmospheric emissions of CO2e at 450 ppm. While a number of other countries, including China, need only reasonably modest changes to rectify this, many other countries remain well off the pace required if dangerous climate change is to be avoided. The longer these countries take to achieve these turnarounds, the more costly the eventual transition will be.

The full report, G20 low carbon competitiveness, can be downloaded here

Homepage image: David L Lawrence Convention Center in Pittsburgh