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Low Carbon, ClimateResilient Growth

Trade off or Trade up?
Simon Lucas ADB/DFID capacity building on Climate Change Kathmandu June 2010


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 !!


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

Low Carbon Growth

Economic Growth
Climate Resilient Growth

Climate Change

Patterns of economic growth compatible with climate change

....complicated by second-round effects Neither transition will be costless

Urgency: CC is not just some future issue
1 Climate Change is happening now ‡ impact of CC already being felt 2 Global emissions need to peak within next decade if are to limit to 2OC 3

Developing countries are 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 3

We know the building blocks of Low Carbon Growth
This 535 Mt of abatement potential consists to different opportunties 1 Technology is likelyof 144take 3 main forms: GHG abatement cost curve for Mexico in 2030 Cost, US$/t CO2e
Degraded forest reforestation Smart grid Cogeneration in oil and gas Agronomy practices Solar PV On shore wind HDV* diesel package 4 Increased electric public transport

US$/t CO2e
100 LDV* gasoline package 2 80 60 40 20 0 -20 -40 -60 -80 -100 -120 -140 -160 -180 Electronics, residential New build lighting controls, commercial LEDs Appliances, residential 0 50 100 150

Biofuels 2nd generation

Cropland nutrient management Other industry Biofuels 1st Grassland Landfill gas generation management electricity Recycling waste generation Small hydro 200 250

Increased and more efficient bus transport

Forest management Off shore wind Solar CSP

CCS in oil and gas

But technology will not be enough ± also need structural change
Ranging from: ‡ urban design, incl. transport systems to ‡ structure of the economy



350 Nuclear


450 New build efficiency package, residential Reduced flaring in oil and gas



Organic soils Geothermal Livestock ± restoration Oil to gas antimethanogen vaccine shift in Reduced power deforestation LDV* gasoline package 4 LDV* gasoline package 3 Landfill gas direct use Tillage and residue management

Pastureland afforestation

Abatement potential, Mt CO2e/year

treatment Improving Preserving & Decarbonising ‡ 144 abatement expanding Energy Energy opportunities identified at a price below US$90/tCO e abated (excluding transaction and information costs) carbon is negative Efficiency the abatement potentialsinksor zero cost Sources ‡ 40 percent of



improvements in Underpinned byindustry appropriate business & consumer behaviour

‡ Weighted average abatement cost is about US$2/ tCO2e ‡ No silver bullet to emissions reduction exists ± action is required in all sectors ‡ Many abatement opportunities are fragmented, e.g., energy effici ency and process

* 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

«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


We have some idea of why developing country governments may choose to go low carbon
Because there is a degree of mitigation that is in their immediate self interest.. ‡ µNegative cost
measures Energy security Health benefits Co-benefits with adaptation

and which should be pro-economic growth ‡ improved
competitiveness macro-economic stability, forex savings improved human capital strengthening economy s resilience to climatic shocks

..and to avoid risk locking themselves into a high carbon future ‡ they may be expected to
live within a carbon budget in the lifetime of key investments they are now making concerns about longer-term competitiveness from an increasingly carbonconstrained 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

We have some idea of the building blocks of patterns of Climate-Resilient Growth
Reduce sensitivity to current climatic shocks Adapt to trend changes in the climate ?

Climate Variable


Reduce exposure  review econ structure Reduce Vulnerability  reduce sensitivity enhance resilience (speed of recovery post shock)

‡ proofing

‡ diversification (sectoral & geog) ‡ realise new comparative advantage

Both are subject to huge uncertainties

..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?

ome 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

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

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


Carbon price profile under 450 ppmv scenario


The carbon price starting from US$ 15 per ton CO2e (at constant 2005 prices) in 2010 and attaining US$ 41 per ton CO2e by 2030


Nepal Case: µCommercial¶ energy emissions locked in at 450ppm carbon price but not very large


Nepal large, affordable opportunity in Forestry
Mitigation Potential of eforestation in Nepal

17 19 21 23 24 25 27 18 20 22 26 09 11 13 10 12 14 15 20 20 20 20 20 16 20 20 20 20 20 20 20 20 20 20 20 20 20 20

06 08 10 12 13 14 17 18 19 21 23 25 27 28 05 07 09 11 15 16 20 22 24 26 29 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 30

Mitigation potential of Reducing Deforestation

28 29 05 06 07 20 20 08 20 20 20 20

-100 -200 -300

Baseline itigation




C emissions kt CO2-e kt CO2-e


-400 -500 -600 -700 -800

Seq kt

-900 -1,000

Cleaner tech/option

NPV2005 Investment required from 2005 to 2020 (US$)

Reforestation (plantation development in mangroves is increased by 100%) Forest protection (deforestation is reduced by 50%)

9,779,207 251,902,741

**marginal abatement cost was derived from levelized cost




Baseline Mitigation




Levelized (annual) cost (US$)

GHG Reduction in 2020 (tons CO2 eq)

Marginal abatement cost in 2020** (US$/tons CO2 eq)

1,246,849 32,117,592

79,430 7,861,598

15.70 4.09



Renewables ± best energy option?


Will it cost more? Not really

Could attract carbon revenue of approximately US$ 1,365 million

ignificant - regional abatement potential Driven - by a µfeasible¶ carbon price Different - sources depending on country


Mainstreaming CC into Growth requires us to find solutions to key issues Climate-Resilient Growth
why many countries underinvest 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

Low Carbon Growth
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

..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

Questions for discussion

‡ Is this a development agency driven agenda? I.e is it only attractive ‡ What incentives other


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