The Low Carbon Transition

Towards a low carbon future

The green industrial revolution is coming. Countries in the EBRD region that embrace it will reap important economic benefits, while those that ignore the winds of change risk being shut out of global markets altogether.

That was the stark message contained in The Low Carbon Transition, a report launched at the EBRD's London headquarters on Wednesday 6 April that aims to show governments in the region how to address climate change through their policies.

The joint report by the EBRD and the Grantham Research Institute on Climate Change compares the transition to a low-carbon growth model to the market-based economic transition undertaken in the region over the last 20 years.

But if anything, the stakes are even higher this time.

Huge dangers

“It’s very important that we all understand the huge dangers from climate change,” Lord Nicholas Stern, Director of the Grantham Research Institute, said at the report launch. “If we go on as we are, we’re heading for 5°C above middle of the 19th-century temperatures in 100 years or so.

“We would have enormous problems dealing with that. Indeed hundreds of millions, probably billions, of people would have to move and that is likely to involve extended, severe global conflict,” he added. “So we’ve got to realise the stakes we’re all playing for. That’s a starting point for any discussion.”

Switching to a low-carbon economic model consistent with global warming of no more than 2°C will involve major change, particularly for those countries in the EBRD region that rely heavily on fossil fuel exports.

Such change, however, is already underway across much of the globe. Over the next 10 to 15 years, countries that buck the trend and continue to follow a high-carbon growth path face being shunned by international trading partners committed to a low-carbon agenda, the report warns.

No free rides

“Our region has been largely absent from the international climate debate and risks being left behind in the green industrial revolution,” Chief Economist Erik Berglof said at the launch event. “It will not be allowed to be a free rider and there will be massive pressures on it, so let’s start the low-carbon transition now.”

A key feature of what Lord Stern called the “new energy industrial revolution” will be mechanisms for pricing carbon such as cap-and-trade schemes – exemplified by the EU Emissions Trading System.

“Not pricing carbon is to essentially subsidize a deeply damaging activity," Lord Stern said. "I think most countries round the world will see that that is a profound economic mistake. And of course those which are revenue strapped will see the advantages in terms of the revenue as well.”

Although the report is aimed at policy makers in the region, its authors stressed the importance of harnessing private enterprise to mitigate climate change. Indeed, they suggest that transition to a market economy and transition to a low-carbon economy are deeply complementary.

“The EBRD is about facilitating transition to a well-functioning market economy,” added Lord Stern, a former Chief Economist at the Bank. “Greenhouse gas emissions are a market failure. The policies (in this report) are not anti-market, they correct market failures.”

By Michael McDonough 

Read the presentation on the Low Carbon Transition of the EBRD region by EBRD Chief Economist Erik Berglof (3MB - PDF)

Last updated 8 April 2011