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Low Carbon, Climate-

Resilient Growth

Trade off or Trade up?

Simon Lucas
ADB/DFID capacity building
on Climate Change
Kathmandu
June 2010

1
Low Carbon, Climate-Resilient Growth

What is the Challenge?

What do we know about LC-CR Growth

What are the implications for Development AND US !!

2
There is a two-way relationship between climate
change and economic growth…

Mitigation
Low
Carbon
Growth

Economic Climate
Growth Change
Climate
Resilient
Growth

Adaptation
Patterns of economic
growth
compatible with
....complicated by second-round effects
climate change Neither transition will be costless
3
Urgency: CC is not just some future issue
1 Climate Change is happening now 3
• impact of CC already being felt
Developing
2 Global emissions need to peak within countries are
next decade if are to limit to 2OC already making
decisions which:
• affect their exposure
to shocks and ability
to adapt

• will determine their

carbon footprint years
hence
Developing country emissions need to
be 15-30% below BAU levels by 2020
Source: DECC (2009) The Road to Copenhagen 4
 We know the building blocks of Low
Carbon Growth
1ThisTechnology is likely
535 Mt of abatement potential consists ofto
144 take 3 main forms:
different opportunties
2
GHG abatement cost curve for Mexico in 2030
Cost, US$/t CO2e Degraded
Increased
electric
But technology
will not be enough
HDV* public
forest transport
reforestation diesel
package 4
Smart grid Forest
US$/t CO2e management
100
80
LDV* gasoline package 2
Cogeneration in
oil and gas
Biofuels 2nd
generation
Agronomy
practices
Solar PV

On Solar
Off
shore
wind
CCS in oil
and gas – also need
structural change
Cropland nutrient management shore
Increased and CSP
60 Other wind
industry Biofuels 1st Grassland more efficient
40 Landfill gas generation bus transport
electricity Recycling management
20 generation waste
Small hydro
0 Ranging from:
0 50 100 150 200 250 300 350 400 450 500 550
-20
-40 Livestock –
Geothermal Organic soils
restoration Oil to gas Nuclear
New build
efficiency Abatement
• urban design,
incl. transport systems
antimethanogen vaccine Reduced shift in
-60 deforestation power Pastureland
package, potential,
LDV* gasoline package 4 residential
LDV* gasoline package 3
afforestation Mt CO2e/year
-80
Landfill gas direct use Reduced flaring
-100 in oil and gas
Tillage and residue management
-120
Wastewater to
-140 Appliances, residential Improving Preserving & Decarbonising treatment
-160
Electronics, residential Energy expanding
• 144 abatement opportunities Energy
identified at a price below US$90/tCO e abated
• structure of the
2

economy
-180
(excluding transaction and information costs)
New build lighting controls, commercial Efficiency carbon
• 40 percent of the abatement sinks Sources
potential is negative or zero cost
LEDs
• Weighted average abatement cost is about US$2/ tCO2e
• No silver bullet to emissions reduction exists – action is required in all sectors
3 Underpinned
• Many abatement opportunities are fragmented, e.g., energy efficiency and process
by appropriate business & consumer behaviour
improvements in industry
* LDVs = light duty vehicles; HDVs = heavy duty vehicles
Note: The cost estimate for the light-colored bars is approximate
Source: McKinsey GHG abatement cost curve v2.0; McKinsey analysis

Abatement opportunities exist across all sectors - no single solution

Source: Project Catalyst & McKinsey 2008 5
…and many of the policy levers for LCG

• Putting a stable and predictable price on carbon

• Regulations and standards
• Support for innovation
• Information
• Halting deforestation
• Stimulating private sector flows
• Local access to finance and technology

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We have some idea of why developing country
governments may choose to go low carbon
Because there is a …and which should ..and to avoid risk locking
degree of be pro-economic themselves into a high
mitigation that is in growth carbon future
their immediate
• improved • they may be expected to
self interest.. competitiveness live within a carbon budget in
• ‘Negative cost’ • macro-economic the lifetime of key
measures stability, investments they are now
• Energy security forex savings making
• improved human capital •concerns about longer-term
• Health benefits • strengthening economy’s competitiveness from an
• Co-benefits with resilience to climatic increasingly carbon-
adaptation shocks constrained global economy

The adoption and diffusion of new technologies that patterns of low carbon
(and climate-resilient) growth entails could themselves be a spur to growth
External finance could help offset any trade-off
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 We have some idea of the building blocks of
patterns of Climate-Resilient Growth
Reduce sensitivity Adapt to trend changes in the
to current climatic climate
shocks
Climate
Variable ?

time
Reduce exposure
 review econ structure
• proofing
Reduce Vulnerability • diversification (sectoral & geog)
 reduce sensitivity
• realise new comparative advantage
enhance resilience (speed
of recovery post shock)

Both are subject to huge uncertainties

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..and an understanding of how patterns of LC-CR
growth are likely to differ from conventional
Much will continue..
• Private sector led, same essential conditions for growth

But with some key differences

• Pace of change & degree of uncertainty
• Where growth takes place & sectoral composition
• Patterns trade
• More environmentally sustainable?
• Distributional implications
• What is expected of government?

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Some changes to our existing policies on
growth are fairly easily accommodated

Many things remain valid e.g.

• country-led approaches

• much of our existing work on economic growth

Other aspects require modifications to how we

implement elements of our policy or change
emphases within it
• requires that we take a longer-term perspective
& support the development of new institutions
• increases importance of political economy analyses
& regional solutions
10
 Nepal Case Study

Taken from Regional Economics of Climate

Change in South Asia

Draft ADB - RETA

Ram M. Shrestha, Rodel D. Lasco and Marie Habito

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Marginal Abatement Cost (MAC) Curve of Nepal for 2020
Energy supply only e.g no forestry

12
 Carbon price profile under 450 ppmv scenario

• The carbon price starting from US$ 15 per ton CO 2e (at constant 2005 prices) in 2010 and attaining US$ 41 per ton CO 2e by 2030

13
Nepal Case: ‘Commercial’ energy emissions
locked in at 450ppm carbon price but not very large

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 Nepal large, affordable opportunity in Forestry

Mitigation Potential of Reforestation in Nepal Mitigation potential of Reducing Deforestation

Option 1: REFORESTATION Option 2: REDUCED
In NepalDEFORESTATION
0
0 5 06 0 7 0 8 0 9 10 11 1 2 13 1 4 1 5 16 1 7 18 19 2 0 2 1 2 2 2 3 2 4 25 26 27 28 2 9 3 0
20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 0
-100

-200
Baseline -5,000
-300 Mitigation

C emissions kt CO2-e
C Seq kt CO2-e

-400 -10,000

kt CO2-e
-500
-15,000 Baseline
-600 Mitigation

-700 -20,000

-800

-25,000
-900

-1,000
-30,000

Marginal abatement cost in

NPV2005 Investment required Levelized (annual) cost GHG Reduction in 2020
Cleaner tech/option 2020**
from 2005 to 2020 (US$) (US$) (tons CO2 eq)
(US$/tons CO2 eq)

Reforestation (plantation development in 9,779,207 1,246,849 79,430 15.70

mangroves is increased by 100%)
Forest protection (deforestation is reduced 251,902,741 32,117,592 7,861,598 4.09
by 50%) 15
**marginal abatement cost was derived from levelized cost 15
Renewables – best energy option?

16
Will it cost more? Not really

Could attract carbon revenue of

approximately US$ 1,365 million
17
Significant - regional abatement potential
Driven - by a ‘feasible’ carbon price
Different - sources depending on country

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Mainstreaming CC into Growth requires
us to find solutions to key issues

Climate-Resilient Growth Low Carbon Growth

• why many countries under-
invest in DRR – political
economy?
• how most effectively to
encourage diversification –
what role of the state?
• how to optimise balance
min risk vs max returns in
growth strategies, and
implications of this for poor
• what amount of mitigation
is in a country’s self interest
• extent of inter-temporal
trade-off between growth &
mitigation
•distributional impact of LCG
• dynamic feedback loops
from impact of technological
innovation on growth rates
• institutional frameworks

But we know enough to make a start

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..but it also raises some more
fundamental challenges

• Growth policy needs to become concerned with the

composition of growth
• How to maximise synergies between ODA and climate
finance
• How to help developing countries provide clear, low
carbon price signals to the private sector
• How to value and price adaptation and other
environmental co-benefits
• The poor will bear the brunt of failure
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Questions for discussion

• Is this a development agency driven agenda?

I.e is it only attractive
• What incentives – other

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