Guest post by Simon Baptist, principal at Vivid Economics
Editor’s note: A lot has changed for Europe since 2008. The dramatic early days of the financial crisis were followed by lingering recessions and the recent and violent tumult in the Eurozone. Meanwhile, a nuclear disaster on the other side of the world – at Fukushima in Japan – rocked not just east Asian energy policies, but those of Europe’s largest nations. It’s fair to say Europe’s leaders have a lot to think about, and that battling climate change is not always the top of their agenda. It’s an interesting moment, then, to reflect on how well European players were doing in this area back at the beginning of the crisis and to remember the benefits of pursuing that advantage.
Vivid Economics recently released the latest update for its Low Carbon Competitiveness Index (LCCI), which tracks how well countries are doing at positioning themselves for a prosperous but low-carbon future. The project has a very long lead-in time and so this data relates to 2008. Back then, and for the 12 years before it, five nations topped the table, three from Europe – France, the UK and Germany – and two from east Asia – Japan and South Korea. It will be a while before the LCCI shows us the impact of the crisis years on this running order, not to mention unravelling plans for new nuclear. How will Japan fare post Fukushima? Will France keep its top table position with less nuclear? We wait to find out… In the meantime, Simon Baptist from Vivid Economics gives us the lowdown on the situation in the very different world of 2008.
Much of the world is still struggling with the ongoing effects of the economic crisis and it’s easy to see why climate change has slipped down the priority list. Some governments may feel that there are more pressing short-term issues to address and that a long-term matter like climate change can be dealt with later if at all.
But the reality of climate change means that now may be an opportune time to build climate resilience into the economic agenda: making growth climate-friendly today is likely to be cheaper than reversing direction in the future. Those countries that are able to generate more wealth with fewer emissions will be the winners of the low-carbon economic race.
The Low Carbon Competitiveness Index (LCCI), created by Vivid Economics for Australian think-tank The Climate Institute and multinational corporation GE, combines a range of indicators into a single performance index, providing a snapshot of how well countries are placed to be competitive in a low-carbon future.
The index comprises a total of 19 variables, and its structure is determined by statistical analysis rather than qualitative selection. The LCCI includes such indicators as industrial efficiency, financial flows into renewable energy, clean-energy production, carbon intensity of trade, investment in education and natural-capital depletion.
The 2012 update of the LCCI provides a snapshot of the situation in 2008. France again leads the table, followed by Japan, the United Kingdom, South Korea and Germany. These five countries have been at the top of the index since 1995, the earliest year for which it was calculated. These countries perform consistently well, and their position at the top of the index is not due to a single factor, such as use of nuclear power. All of these countries have seen the link between low-carbon competitiveness and future prosperity in a carbon-constrained world.
China is ranked seventh in the latest version of the index, a fall of one place from its previous ranking. Since 1995, China has seen a large improvement on the index. But, while it climbed from ninth to sixth place between 2000 and 2005, the improvement from 2005 to 2008 is more modest. China performs well on some criteria, such as per-person energy consumption in the transport sector and having a large share of high-technology exports, and poorly on others, such as clean-energy production and industrial energy efficiency.
China’s rapid growth means that these variables are changing rapidly. This will be accentuated by the impact of the government’s 11th Five-Year Plan (2006 to 2010) and the current and 12th Five-Year Plan, the country’s greenest blueprint to date.
China, along with other large, rapidly growing major economies has a substantial opportunity now to prepare for prosperity in a low-carbon future. Achieving growth that is less carbon intensive in the first place is generally cheaper than altering the structure of the economy further down the line.
Australia is a case in point. It was ranked 12th in the LCCI in 1995, but has since fallen to 16th place. Carbon-intensive sectors of the country’s economy have grown rapidly without investment in sectors such as clean energy to balance this high-carbon growth. Australia now faces an ever greater challenge to remain competitive in a low-carbon future.
Fortunately, the Australian government has recognised this challenge and is now implementing a carbon price, along with other policies to encourage clean energy and reduce land-sector emissions. In the coming years, as both public and private investment responds to these policies, it is likely that Australia’s position will improve.
The economics of climate change is not just about costs and opportunities. In order to give the world a reasonable chance of avoiding dangerous climate change, there will need to be constraints on emissions in the future. The longer serious action is delayed, the harsher and more sudden these limits will be. A carbon constrained future will alter the economic position of every country, producing both winners and losers.
Our future world will be one in which the right to produce emissions will become a scarce and valuable resource, just like minerals, fertile soil, water, financial capital and skilled workers. Countries with higher levels of carbon productivity will be better-placed to provide material prosperity to their residents.
How each nation adapts to a carbon constrained world will, to an extent, determine its future economic competitiveness and ability to create prosperity for its residents. Economies that can generate more wealth with less carbon will be the low-carbon winners. The LCCI provides a quantitative way of tracking both relative and absolute progress towards these goals. It shows that, in 2008, it was countries in Europe and East Asia that were winning this race.
This article is translated and published here as part of our Green Growth project, a collaboration between chinadialogue and The Energy Foundation.