Putting the green economy into practice

11 March 2014

An important announcement was made at this year's World Economic Forum Davos global gathering, namely that 14 WTO members [Ref 1] committed to negotiating a trade liberalising agreement on environmental goods. A gradual liberalisation and market opening in the area of environmental goods would be positive step towards incentivising the transition to low-carbon economic development. Furthermore, the move is particularly important given the ongoing negotiations to achieve an international climate agreement next year in Paris, France.

Indeed, the Davos initiative could be considered as part of a growing international pressure to achieve a meaningful climate agreement. This includes a series of key milestones set at the last UN Framework Convention on Climate Change's (UNFCCC) Conference of the Parties (COP) in Warsaw, Poland. For example, elements of a draft negotiating text are to be delivered by May 2014, a draft negotiating text secured by Lima in December 2014, and information on quantified mitigation contributions given by the Parties by May 2015, as well as a process for the regular submission of developed countries climate finance provisions.

A series of parallel events designed to boost momentum are also lined up over the coming year. As part of its Fifth Assessment Report (AR5), the Intergovernmental Panel on Climate Change (IPCC) will soon release two more chapters, as well as a summary report in October 2014. And this September, UN Secretary-General Ban Ki-moon will gather heads of state along with business, finance, civil society, and local leaders at a special UN climate summit. One stated aim of the event is to catalyse substantial, scalable, and replicable actions that will help the world shift towards a low-carbon economy.

Business has a strong interest in a global climate agreement that would enable the private sector to deliver solutions to climate change as part of a green economy. The World Business Council for Sustainable Development (WBCSD), as a progressive, globally influential, and cross-sectoral business organisation has an important role to play in delivering these solutions and its Action2020 project is designed as a springboard for addressing climate change.

Solutions to help tackle climate change
Action2020 is a platform for private sector efforts on sustainable development towards the decade's end and beyond. It builds on the results of Vision 2050, a wide-reaching report on priorities for business in relation to sustainability challenges. Vision 2050 sees a sustainable world in 2050 as "nine billion people living well, within the limits of the planet," a definition aligned with UN Environment Programme's Green Economy Initiative, as well as the perspectives of other international groups. [Ref 2] And while Vision 2050's takes a long-term perspective, Action2020 is designed to focus on strategic solutions to meet important targets over the next few years - a timeline that resonates with both business and political leaders alike.

After an extensive consultation with scientists on their understanding of the critical environmental and social threats the world is facing, Action2020 outlined nine "Priority Areas." Central to these are a set of "Societal Must-Haves," which are targets we need to meet if our planet's systems are to be put back on a sustainable track in the coming decades. In the case of the Climate Change Priority Area, the Societal Must-Have states: "With the goal of limiting global temperature rise to 2°C above pre-industrial levels, the world must, by 2020, have energy, industry, agriculture and forestry systems that, simultaneously: meet societal development needs; are undergoing the necessary structural transformation to ensure that cumulative net emissions do not exceed one trillion tonnes of carbon. [Ref 3] Peaking global emissions by 2020 keeps this goal in a feasible range; and are becoming resilient to expected changes in climate."

The Climate Change Priority Area has received strong engagement from WBCSD member companies, leading to the development of five business solutions that contribute to one or several of the elements described in the Societal Must-Have: forests as carbon sinks, carbon capture and storage, (CCS), electrifying cities towards zero emissions, low-carbon electrification of remote areas, and climate resilience across interconnected supply chains. A solution around integrating more renewables into the grid is also currently under discussion. In addition to these new projects, WBCSD has long standing programmes that contribute both to meeting development needs and to limiting greenhouse gas (GHG) emissions, including "Energy Efficiency in Buildings" (EEB), the "Sustainable Mobility Project" (SMP), and the "Cement Sustainability Initiative" (CSI).

The targets of each of these solutions are measurable, scalable, replicable, and seek to go beyond business-as-usual. The success, however, of some will depend not only on business but also on enabling factors, such as policies, technology, and finance. Tariff and non-tariff trade barriers are indeed an issue to be tackled if we want to achieve worldwide scalability. In Table 1 we outline three Action2020 solutions that relate to mitigation needs in the energy sector.

Low-carbon investments in developing countries
In trade negotiations, as in the climate change talks, advances are sometimes made more rapidly at the regional level. The announcement in Davos, for example, builds on the Asia-Pacific Economic Cooperation (APEC) group's agreement to liberalise applied tariffs on environmental goods categorised under a list of 54 products. This list features goods related to renewable energy, environmental monitoring analysis and assessment, as well as environmental protection, according to the various subheadings to which the products belong. [Ref 4]

Reducing the transaction cost of these technologies is especially important in developing countries, where tariffs are often higher than in developed economies. With the right domestic regulations and policy frameworks in place, developing countries could attract business investment that would trigger job creation and economic development. Furthermore, the International Energy Agency underlines the strong future growth of non-OECD countries' energy demand, hence the importance of providing sustainable business solutions. Adopting green growth strategies in developing countries could provide clear benefits from leapfrogging to new low-carbon technologies to being at the vanguard of energy transformation.

In its report on "Enabling frameworks for technology diffusion" WBCSD member companies agreed on cross-cutting enablers that would strengthen the case for investments in and sales of low-carbon technologies in developing countries. These included, among others, strong signals from governments towards low-carbon growth nationally and internationally, adequate institutional frameworks that provide stable and transparent policies, appropriate absorptive capacity, and incentives to bridge the gap between low-carbon solutions and their commercial viability.

What is clear for business is that open markets, fair trade, and competition rules are a must. Low-carbon investments could further be facilitated by removing non-technological barriers, such as legal requirements that prevent or limit foreign investment, as well as trade tariffs or taxes on imports that slow and diminish access to some low-carbon technology by local business. Ensuring protection of intellectual property rights is also essential for technology development and deployment in any market.

The description of the barriers and enablers of business solutions presented in Table 1 will be refined in the coming months as the projects evolve and move towards implementation. In most cases, the development of enabling frameworks and supportive policies will be a fundamental part of their eventual success. For example, CCS is capital intensive, particularly in early projects where core infrastructure must be included, and carries ongoing costs to deliver reductions - including an energy penalty due to the fact that CCS reduces the efficiency of the plant. Investment decisions in CCS therefore require absolute belief that a long-term policy framework will be in place to cover both investment and operational costs.

The reduction of tariffs on environmental products, especially in wind and solar technologies, will be particularly important for the low-carbon electrification of remote areas. The latter could be accelerated by the formulation of "solution packages" designed to meet needs ranging from access to light or charging electronic devices in single households, to grid-equivalent electricity supply for sizable communities or production locations. The reduction of tariffs might provide a competitive advantage to renewable solutions vis-à-vis other more carbon intensive forms of electricity production.

Towards a 2020 climate agreement
The Davos announcement has shown that agreements within a smaller common interest group may spur action alongside multilateral negotiations. Similar ongoing efforts within the Clean Energy Ministerial (CEM) or the G20 can provide the impetus for a positive outcome in the climate change negotiations. The private sector is ready to play a leading role in limiting the planet's temperature rise below 2 degree Celsius and will bring innovative low-carbon solutions to the market. In many cases, however, governments will need to create adequate frameworks for investment, including specific regulations tailoured to particular technologies and their stage of maturity. Reducing costs at the border for environmental products is good news, especially for the deployment of renewable energies in developing countries and fostering economic growth. Moving forward, participating countries should consider bringing other economies into the trade discussions in order to achieve a more global environmental goods agreement.

More generally, WBCSD members support a post-2020 agreement that addresses climate change according to the urgency and scale demanded by the IPCC AR5 report. The climate agreement should: commit all countries to deliver emissions cuts consistent with limiting global temperature rise to 2 degrees Celsius while respecting their national circumstances; induce actions recognising "bottom-up" as well as "top-down" action, starting now rather than waiting for 2020; and deliver a stable, predictable, simple, and transparent framework that supports innovation and investment, including market signals and coherent, harmonised regulations.

This paper benefited from input by Barbara Black (WBCSD) and Lara Birkes (WBCSD).

[Ref 1] Countries participating in the Joint Statement Regarding Trade in Environmental Goods (24 January 2014) include, Australia; Canada; China; Costa Rica; the European Union; Hong Kong, China; Japan; Korea; New Zealand; Norway; Singapore; Switzerland; Chinese Taipei; and the United States.

[Ref 2] As part of the Green Economy Initiative, UNEP defines the green economy as "one that results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities. It is low carbon, resource efficient, and socially inclusive" (UNEP, 2011). Similarly, the Green Economy Coalition defines it as "a resilient economy that provides a better quality of life for all within the ecological limits of the planet."

[Ref 3] Anthropogenic CO2 Emissions from preindustrial levels as outlined in the IPCC Working Group I Fifth Assessment Report. One trillion tonnes carbon = 3.67 trillion tonnes CO2.

[Ref 4] Sugathan, Mahesh, (2014), "Davos announcement shakes up trade scene," Bridges Trade BioRes, Vol. 8 No. 2.

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