What price a structural shift from a financial services to low-carbon economy

The largest industrial transformation in history must take place in the next five years if we are to avoid runaway climate change, secure jobs in new industries and improve the quality of life. A ‘small but rapidly closing window of opportunity remains’ to prevent triggering runaway climate change, the report says, beyond which a ‘war-footing’ may be the only option available.

In an analysis of the world’s ability to shift to a low-carbon economy, analysts Climate Risk mark 2014 as the point of no return. Between now and then world governments must establish ‘fully operational, low-carbon industries’, a feat that will require annual growth of around 29% to have more than a 50% chance of avoiding 2C of global warming.

Currently only three out of 20 low-carbon industries are moving fast enough, the report warns. With the right policy, however, the level of transformation is not impossible. Incentives to make low-carbon industries attractive and the right regulatory environment will speed up their development.

Climate Risk warns against the exclusive use of carbon trading, which, it says, supports the development of least-cost industries first.

Since the Kyoto protocol some 50% of new power capacity added in the EU was renewable energy but global carbon-dioxide emissions have risen by 20% while apparent lowering in some industrialised nations has been achieved by exporting dirty industries and importing more high carbon products. Nuclear power is more expensive than coal of gas without considering externalities but cheaper than most renewables which have been heavily subsidised directly or through carbon pricing and trading systems.

According to New Energy Finance, onshore wind needs a carbon price of $38, offshore $136 and solar cells $196, and much marine and tidal technology is at the experimental stage. Europe’s target for generating 20% of its energy from renewables looks pricey and reaching critical mass for manufacturing has proved impossible in the UK so far despite the abundance of natural resources for wind and marine.

And if the price is high, who should pay and when? The geography and inter-generational dimensions of both need and opportunity are very different. But this is where new jobs and technologies will arise so smart and effective policies at international, national and regional levels are required to maximise benefits from the huge investments and subsidies, but the market alone will not be sufficient.

Low carbon re-industrialisation: www.climaterisk.net

Special Report on the Carbon Economy, The Economist 5 December 2009