Low-oil prices opportunity to invest in better growth
Jan. 21, 2015, Davos - Plummeting oil prices and continuing low interest rates present a unique opportunity for world and business leaders to spur economic growth while tackling dangerous climate change, said members of the Global Commission on the Economy and Climate during the World Economic Forum.
According to the Commission, chaired by former President of Mexico Felipe Calderón and Lord Nicholas Stern, low oil prices make it easier to phase out fossil fuel subsidies without increasing the prices faced by households. These subsidies cost taxpayers some $600 billion a year. Additionally, a tax on carbon would now be more easily absorbed by businesses and households, driving greater economic efficiency and reducing emissions.
At the same time, low interest rates and low costs of capital in developed countries make this an ideal time to invest in low-carbon infrastructure. This includes creating more efficient energy systems and building new urban transport networks that would reduce pollution and generate savings of $3 trillion over the next 15 years, as the Commission found in its recent report Better Growth, Better Climate.
According to Lord Nicholas Stern, Co-Chair of the Global Commission, “Reduced oil prices combined with continuing low interest rates in rich countries represent an ideal opportunity: allowing investments in much-needed low-carbon infrastructure while making it easier to cut costly fossil fuel subsidies and introduce a tax on carbon that’s fuelling dangerous climate change.”
“This would also send a strong signal to businesses and investors about the direction of the global economy ahead of the crucial Paris talks later this year where a new climate deal is at stake, encouraging countries and businesses to invest in low-carbon alternatives and better economic growth.”
Renewable energy, which lies at the heart of low-carbon initiatives, does not suffer from volatile fuel prices. It can also play a crucial role in insulating economies against supply disruptions and long term uncertainty in the price of oil, especially because the fuel is free and the price of renewable components continues to drop.
Failing to take advantage of the historic combination of low oil prices and interest rates and huge technological advances in renewable energy sources would be a missed opportunity, warns the Commission. It would also needlessly perpetuate an economically and socially destructive high-carbon growth model.
“Climate change is very much on the agenda of economic decision-makers meeting in Davos. They must focus on ways to reduce climate risk while building more efficient, cleaner and lower-carbon economies, boosting growth at a time of growing economic uncertainty in many countries,” said former President of Mexico Felipe Calderón, who chairs the Global Commission.
“Around $90 trillion will be invested globally in cities, land use and energy infrastructure between now and 2030. Whether we invest that money in a low-carbon or high-carbon pathway will shape future growth.”
A high-carbon growth pathway is already imposing significant costs, according to the Commission. In the 15 countries with the highest greenhouse gas emissions, for example, the damage to health from poor air quality costs over 4% GDP on average, reaching 10% in China.
Dominic Waughray, Head of Public Private Partnerships and Member of the Management Committee of the World Economic Forum, said “The work of the Global Commission on the Economy and Climate is extremely important in creating a clear and positive link between addressing climate change and addressing our economic growth prospects. Discussions at Davos this year have been focused on how best we can bring the public and private sectors together to tackle some of the world’s most pressing public good challenges such as climate change, and the Commission’s work provides a vital and substantive economic backbone to these activities.”
The Global Commission on the Economy and Climate will launch a second major report in 2015 investigating the emissions reduction potential and the economic benefits and costs of international cooperative initiatives, in addition to continuing to engage with major economic and political decision-makers.
This new report will build upon the Better Growth, Better Climate report, which was presented to governments and business and finance leaders at the UN headquarters in New York last September. Better Growth, Better Climate provided evidence from around the world that governments and businesses can now improve economic growth and reduce their carbon emissions together.