In a new report prepared for the international climate talks in Vienna this month (see p 52 ), the UN estimates global investment and financial flows equivalent to 0.3-0.5% of GDP will be needed to tackle climate change by 2030. This would amount to $200-210 billion a year, or 1.1-1.7% of all global investment.
Large though this figure is, it is lower than the mitigation costs floated by Sir Nicholas Stern in his review of the economics of climate change last year. He calculated that about 1% of GDP – as much as $650 billion – would need to be spent annually (ENDS Report 382, pp 34-36 ). But his figures referred to the amount of spending in 2050 and he has consistently said the earlier action is taken, the cheaper it will be.
Most analyses predict emissions will need to peak in the next two decades and then begin to fall to keep global temperature rises below 2°C.
The UN report highlights that investment in capital stock – particularly in the energy sector – is set to triple over the next two decades, offering a unique opportunity to direct this investment towards low-carbon options. It points out that these investments typically last for 30 years so decisions today will influence global emissions for many years to come.
In the energy sector, the UN argues for a shift in the pattern of investments rather than an overall funding increase. It suggests that investment in energy supply could actually be $67 billion lower than projected in 2030, if its advice is followed.
It claims energy and transmission investments could be cut from $231 billion to $130 billion by using more distributed generation and greater energy efficiency. Meanwhile, investment in fossil fuel supply and coal-fired power stations would also fall.
But this should be offset by greater spending on renewable energy and carbon capture and storage (CCS). Under its scenarios, nearly $80 billion a year would be spent on renewables in 2030 and $63 billion on CCS.
The report suggests an extra $36 billion should be spent by industry. About half of this should go on energy efficiency measures, a third on CCS and the rest on abating powerful greenhouse gases like nitrous oxide.
About $51 billion more should be spent on making buildings more energy efficient and $88 billion on tackling transport emissions – with much of this going on biofuels.
Other activities to see increased investment would include agriculture ($35 billion), forestry ($21 billion) and research and development ($35-45 billion).
Just under half (46%) of this extra investment should be spent in developing countries, but this would deliver more than two thirds of the emissions reductions.
The Kyoto Protocol’s Clean Development Mechanism is projected to generate additional investment of $25 billion – a fraction of what would be needed in 2030 – and even under high demand scenarios it will generate only about $100 billion in 2030, so the necessary increase in investment will involve “new and additional sources of funds” the report says.
It says carbon markets and overseas development assistance will need to grow and new policy frameworks like feed-in tariffs and financial incentives will be required to make low-carbon options more attractive than conventional ones.
The report also presents some rough estimates for the costs of adapting to climate change. It says these are difficult to quantify because they will be widespread and mixed with other spending, but it says they will run to “several tens of billion dollars” a year.
About $11 billion a year will be needed to boost water supplies alone in 2030. And the same amount will need to be spent to protect coastal areas from flooding, while climate-proofing new infrastructure could cost as much as $130 billion.
Between $28 billion and $67 billion of this will be spent in developing countries, and again the UN warns that existing development aid will not be enough. It calculates that even under high-demand scenarios, the Kyoto Protocol’s adaptation fund will raise only $1 billion to $5 billion a year.
Launching the report, Yvo De Boer, UNFCCC executive secretary, said: “The study shows us that a conscious effort to shift away from traditional investment to more climate-friendly alternatives will require governments to adopt new policies and change the way they use their funds.”
He insisted that while the absolute amounts required are large, they are small in the context of global consumption. “The report clearly shows that energy efficiency can achieve real reductions at low cost,” he said.
Meanwhile, a top climate scientist has said there is little chance that global temperature rise can kept below 2°C.
Professor Martin Parry who co-chairs the IPCC’s climate impacts working group, told the BBC temperatures could be limited to between 2°C and 3°C. He called for more attention and resources to be directed towards helping areas adapt to the impacts of climate change.