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Special Report: SRI - Powering towards a low-carbon future
With the Copenhagen Climate Summit just around the corner, but the world's governments still very focused on economic recovery, many more policymakers are seeing the need to address economic and climate change challenges at the same time.
One of the best hopes for revitalising the global economy - in a way that does not risk future oil price spikes dragging us back into recession - is to undertake major investments in a low-carbon economy.
Science is now telling us the need to cut emissions is so great we may have less than 30 years to prevent potentially catastrophic climate change.
Clearly, the credit crunch and financial crisis were not directly linked to the climate problem, but parallels can be drawn between an economic system encouraging individuals into taking dangerous risks, which resulted in the financial meltdown, and the current fossil-fuel driven economy and potential climate crisis.
The aftermath of the financial crisis has broadened the policy debate on climate change and brought more attention to the vast amounts of investment that will be needed, nationally and globally, to make a transition to a low-carbon economy possible.
The initial response of governments around the world was to use the fiscal stimulus packages as a way of creating extra investment in the low-carbon economy, the so-called green new deal. A large number of G20 governments have earmarked a significant proportion of their stimulus packages for environmental projects and low-carbon infrastructure such as energy efficiency, renewables or public transport.
Lord Stern recommended at least 20 per cent of a country's stimulus package be low-carbon. Not many passed that threshold, but serious public investment has been pledged in China ($220bn/£137.7bn), the US ($100bn), Korea ($31bn) and Germany ($14bn), among others.
As the debate moves away from fiscal stimulus to managing public debt, it is clear policy instruments to stimulate low-carbon investments must concentrate even more on mobilising private capital. And this has to be done in the aftermath of the credit crunch, where some of the traditional sources of finance, particularly the banks, are still recovering and, in many cases, still part-owned by the taxpayer.
Before the crash, governments were relying almost entirely on demand-side policies to attract investment to the low-carbon sectors, such as the EU Emissions Trading Scheme, Carbon Reduction Commitment and a number of utility obligations to purchase renewable energy or install insulation. Those policies, on their own, were not attracting sufficient investment then, and as the recession has pushed the ETS carbon price even lower, there is clearly a major policy gap between the government's carbon targets and the levels of investment existing policies will stimulate.
Green Alliance and a growing number of other organisations in this field are exploring the supply-side policies that could be used to fill this gap. The government is already developing a low-carbon industrial policy to give direct support to this growing sector in the UK. Germany, the US and other competitor countries are also following this path.
