Stopping the climate crunch, by Aled Jones

25 Feb 10
ALED JONES | Government should use its purchasing power to help businesses develop successful low-carbon technologies

Government should use its purchasing power to help businesses develop successful low-carbon technologies

Copenhagen, or ‘Hopenhagen’ as it was dubbed, demonstrated that it really is difficult to negotiate an international agreement with almost 200 voices that need to be heard.

The United Nations summit in December 2009 was intended to be the pinnacle of 20 years of international diplomacy. But although some progress has been made during this time, a lack of momentum on climate change has created scepticism around the science. In turn, governments and business leaders have stalled on the transformational changes required, which must include many aspects of the global economy and business practice.

An integrated systems approach is also needed. For example, climate risk must be embedded into decision-making processes and a global value needs to be developed for carbon. At the same time, increased investment and innovation in low-carbon technologies and sharing of these technologies between developed and developing countries are vital.

Finally, we must create new service businesses, in areas such as energy efficiency, and the costs of adaptation must be shared globally. In particular, there has to be a shift from short-term decision making to long-term sustainability in solving the climate problem.

The global financial market crash has shown that we are not good at measuring and understanding systemic risk to the economy. We have an incredibly complex financial system, but this does not mean that the ‘credit crunch’ was wholly unpredictable. We cannot be allowed to make similar mistakes over different risks and we must try to prevent the ‘climate crunch’.

Tackling climate change must be seen as a long-term economic strategy. By 2020, global energy demand should have been reduced through carbon markets and government standards. By 2050, global energy intensity (the amount of carbon emitted per unit of energy) should have been reduced through the increased use of renewables, carbon capture and storage technology and a moderate interim increase in nuclear power in developed countries. By 2100, the global economy should be based on a fully electrified and renewable system.

To enable these changes, governments must use all their powers to provide the necessary technology and encourage behaviour changes. They should also work closely with business to ensure that the changes can be achieved rapidly.

An important part of the decision-making process within businesses associated with investing in new technology areas is whether there will be market demand for that new product. One of the government’s best weapons is not direct regulation, but purchasing power. Governments in most countries form a substantial part of financial activity. By using their buying power, they can demonstrate a commitment to the market to purchase a particular standard of technology, and thereby create the market pull that can help certain technologies overcome the ‘valley of death’.

Forward procurement commitments, where a government gives an indication to the market that it will purchase a particular product only if it meets certain standards in the future, gives this type of reassurance to business. For example, governments could commit to a certain standard of efficiency in their vehicle fleet over the next three years. They should also use the public sector infrastructure to stimulate the creation of energy service companies.

There is no single ‘silver bullet’ technology and there is no one ‘silver marksman’ in either government or business – we all need to do this together if we are to have a chance in achieving a low-climate risk economy. We require the biggest public–private partnership ever seen.

Aled Jones is deputy director of the Cambridge Programme for Sustainability Leadership. CPSL is running its Climate Leadership Programme in June. A discount is available for Public Finance readers if you quote CIPFACLP when applying

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