Price Tag To 2° Celsius Target: $800 bln Additional Annual Global Investment Needed
By Countercurrents
03 July, 2014
Countercurrents.org
To limit climate change to 2° Celsius, low-carbon energy options will need additional investments of about US $800 billion a year globally from now to mid-century, finds a new study published in the journal Climate Change Economics. [1]
However, much of that required investment could come from shifting subsidies and investments away from fossil fuels and associated technologies. Fossil subsidies worldwide currently amount to around $500 billion per year.
The study finds that the greatest investments will be needed in rapidly developing countries in Asia, Latin America, and Sub-Saharan Africa.
The researchers examined future scenarios for energy investment based on a variety of factors including technology progress, efficiency potential, economics, regional socio-economic development, and climate policy.
The study, part of a larger EU research project examining the implications and implementation needs of climate policies consistent with the internationally agreed 2° C target, compared the results from six separate global energy-economic models, each with regional- and country-level detail.
Investments in clean energy currently total around $200 to 250 billion per year, and reference scenarios show that with climate policies currently on the books, this is likely to grow to around $400 billion. However, the amount needed to limit climate change to the 2° target amounts to around $1200 billion, the study finds.
The energy investments needed to address climate change continue to be an area of large uncertainty. By comparing the results from multiple models, the scientists were able to better define the costs of addressing climate change.
"We know that if we want to avoid the worst impact of climate change, we need to drastically transform our energy system," says IIASA researcher David McCollum, who led the study. "This is a comprehensive analysis to show how much investment capital is needed to successfully make that transition."
"Many countries say that they're on board with the target of 2° Celsius global mean temperature stabilization by 2100; some have even made commitments to reduce their greenhouse gas emissions. But until now, it hasn't been very clear how to get to that point, at least from an investment point of view. It's high time we think about how much capital is needed for new power plants, biofuel refineries, efficient vehicles, and other technologies -- and where those dollars need to flow -- so that we get the emissions reductions we want," says McCollum.
IIASA Energy Program Director Keywan Riahi, another researcher with the study and project leader, says, "Given that energy-supply technologies and infrastructure are characterized by long lifetimes of 30 to 60 years or more, there's a considerable amount of technological inertia in the system that could impede a rapid transformation. That's why the energy investment decisions of the next several years are so important: because they will shape the direction of the energy transition path for many years to come."
"Energy investment in these countries is poised to increase substantially anyway. But if we're serious about addressing climate change, we must find ways to direct more investment to these key regions. Clever policy designs, including carbon pricing mechanisms, can help" says Massimo Tavoni, researcher at the Fondazione Eni Enrico Mattei, a climate research center in Italy, and overall coordinator of the LIMITS project, of which the new study is a part.
The scientists note that their analysis of future investment costs does not attempt to quantify the potentially major fuel savings from switching from fossil fuels to renewable sources, such as wind and solar energy. As shown in the IIASA-led Global Energy Assessment, such savings could offset a considerable share of increased investment on a global scale.
Climate crisis costs massively underestimated
Citing a paper by Nicholas Stern and Simon Dietz of the Grantham Research Institute on Climate Change and the Environment, which has been recently published in The Economic Journal James Ayre writes [2]:
“The myriad costs of future climate change are being greatly underestimated”.
The research report warns that previous estimates on the potential costs of climate crisis are likely to be very far off the approaching reality. Largely, it’s the result of outdated economic models, and ineffective carbon-trading programs that undercharge polluters for their emissions.
Ayre writes:
“The new paper critiques a model developed in the early ’90s — the Dynamic Integrated model of Climate and the Economy, or DICE model – and a related paper, “To slow or not to slow,” by Yale economist William Nordhaus. Both represented historic efforts to evaluate the economic costs of climate change, demonstrating that delaying climate action would increase its costs. But DICE was a basic model by modern standards, and Nordhaus himself emphasized its limitations. Yet it continues to be cited by leading researchers and groups, including the Intergovernmental Panel on Climate Change, with the absurd effect of substantially reducing the seriousness with which global warming’s economic impacts are being viewed.”
Stern and Deitz write: “This modeling framework has had a lasting influence on the field and indeed several elements of it still constitute the ‘industry standard’ today.
“While it was very much the purpose of ‘To slow or not to slow’ to cast climate-change mitigation as a dynamic, investment problem, in which abatement costs could be paid up front, so that climate change could be avoided several decades into the future, the model dynamics were unsatisfactory.”
Ayre writes:
“To address these issues, the researchers ran the DICE numbers themselves, this time taking into account a potentially greater effect from climate change on economic growth and output — via the incorporation of a great quantity of new research exploring the subject.
“The original DICE model results in a recommended carbon price of between ‘$40 and $50 per tonne of carbon dioxide emissions next year. But by incorporating Stern and Deitz’s more contemporary assumptions, that price could rise to more than $200 per tonne.’
“That’s a significant difference. Considering the importance of the subject, even more so.”
Stern concludes:
“It is extremely important to understand the severe limitations of standard economic models, such as those cited in the IPCC report. I hope our paper will prompt other economists to strive for much better models.”
Note:
[1] Story Source:
The story is based on materials provided by International Institute for Applied Systems Analysis.
Journal Reference:
DAVID McCOLLUM, YU NAGAI, KEYWAN RIAHI, GIACOMO MARANGONI, KATHERINE CALVIN, ROBERT PIETZCKER, JASPER VAN VLIET, BOB VAN DER ZWAAN. ENERGY INVESTMENTS UNDER CLIMATE POLICY: A COMPARISON OF GLOBAL MODELS. Climate Change Economics, 2013; 04 (04): 1340010 DOI: 10.1142/S2010007813400101
Source:
International Institute for Applied Systems Analysis. "Putting a price tag on the 2 degree Celsius climate target." ScienceDaily. ScienceDaily, 2 July 2014. <www.sciencedaily.com/releases/2014/07/140702111003.htm>.
[2] “Costs of climate change being massively underestimated, researchers state”, July 2, 2014
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