Road to Copenhagen: Re-Tooling Industry

In case we need more evidence that an urgent economic transformation is required to avoid catastrophic climate change, it can be found in a new study commissioned by World Wildlife Fund International.

Conducted by Climate Risk Pty. Ltd. of Great Britain and Australia, the study concludes:

"Runaway climate change is almost inevitable without specific action to implement low-carbon re-industrialization over the next five years.

"World governments have a window that will close between now and 2014. In that time they must establish fully operational, low-carbon industrial architecture. This must drive a low-carbon re-industrialization that will be faster than any previous economic and industry transformation.

"Today, only three out of 20 industries are moving sufficiently fast enough."

By “low carbon re-industrialization”, the authors mean energy efficiency and clean generation technologies, low-carbon agriculture, and sustainable forestry. They have identified 24 critical resources and industries the world will need to develop quickly to avoid climate catastrophe. Among their conclusions:

Start Tackling All Solutions Immediately

By itself, emissions trading will not be enough to cause the necessary re-industrialization of the world economy. We will need massive private investments; tens of trillions of dollars from the investment community; and more aggressive government action to create a stable long-term investment environment.

“Starting with the least-cost mitigation solutions and working our way forward to higher-cost solutions as carbon prices rise — that approach will take too long,” says Sean Kidney, Climate Risk’s manager in Europe. “We need to tackle all solutions at the same time.”

Delays Cost Money

To achieve an 80 percent reduction of greenhouse gas emissions by mid-century, the world will have to invest $400 billion annually in green industries by 2025. Every year the economic transformation is delayed will increase its costs and the rate of low-carbon industrial growth required for de-carbonizing industry.

By 2050, Renewables Won’t Need a Carbon Price

Due to the large economies of scale created in the transition, the average production costs of renewable energy technologies will become less than energy produced from fossil fuels. The cost “cross-over” will start as early as 2013 and all renewable industries will be independently viable by 2050, even without a price on carbon. This will deliver energy savings of $47 trillion by 2050.

“We can harvest these enormous future savings now to create an income stream that funds the capital expenditures we need,” Kidney says.

How? Kidney and his colleagues are working on a number of ideas for new bonding mechanisms designed specifically to finance low-carbon investments.

What Is Government’s Role?

The Presidential Climate Action Project has submitted several re-industrialization proposals to the Obama Administration and Congress. Among them:

* Stabilize federal incentives for the development of green markets and industries. The federal government’s on-again/off-again incentives for solar and wind development are an example of disruptive rather than constructive government intervention. Uncertainty about the stability of those incentives in recent years put renewable energy companies on a roller-coaster ride rather than a stable up-ramp for development.

* Make aggressive commitments at the federal and state levels to decarbonize government supply chains. At last count, the federal government had more than 500,000 buildings, 600,000 vehicles and $18 billion in energy expenditures each year. Establishing low-carbon requirements for the companies that supply those products will help produce the economies of manufacturing scale that drive down costs for the rest of society.

* Update and revitalize the Department of Energy’s (DOE) Industries of the Future program. That Clinton-era initiative helped America’s most energy-intensive industries create technology roadmaps to a future of much greater energy efficiency and much less pollution. The roadmaps guided federal R&D and industry investment. In its new incarnation, the program should be expanded to all of our most carbon-intensive industries and to define each of their paths to a low-carbon future.

* Expand DOE’s Industrial Assessment Center program and include carbon audits. In this program, graduate engineering students and faculty at participating universities conduct free energy audits for small and medium industries. If carbon audits were added, students would learn some of the engineering skills they’ll need in a low-carbon economy, while providing small manufacturing companies with the technical help they need to thrive in a carbon-constrained market.

* Dedicate a significant portion of cap-and-trade revenues to the reinvention of American industry, including tax credits for businesses that install, manufacture or service the products necessary to reduce the nation’s greenhouse gas emissions. Include transition incentives for small businesses — our largest source of new jobs and innovations.

* Regularly update the Federal Trade Commission’s Green Guides — a set of guidelines first issued in 1992 to discourage corporate greenwashing. In the wide-wide world of sustainability, consumers already face a daunting array of green labels: the recycled-content logo, various forest-certification systems, Green-E certification for renewable energy, LEED for buildings, the Green Press Initiative logo, the Ancient Forest Friendly initiative, Green Seal, USDA’s National Organic certification, EPA’s Energy Star label. Canada has an EgoLogo program, the EU has the EcoFlower label, Germany has the Blue Angel label and five Nordic countries use the Nordic Swan label. As green products increase in popularity, we can expect more of these programs. We may not come up with a universal green label, but government can establish the standards by which green labels are judged.

* Support the United Nations’ Global Green New Deal initiative, which is working to quantify and promote the potential of green industries to alleviate poverty, reduce environmental damage and create new jobs worldwide. The World Bank has just estimated that developing economies will need as much as $100 billion annually until mid-century — double current foreign aid from developed nations – just to adapt to climate change. That means new demand for the products and services of companies that can help nations cut their greenhouse gases and cope with the climate changes already on the way.

We will not avoid climate catastrophe merely by tinkering around the edges of industrial society or by counting on a slow evolution of technologies and markets. As businessman and environmentalist Paul Hawken puts it,

“There isn’t one single thing that we make that doesn’t require a complete remake.”

Can we reinvent world industry in only five years? The rapid redirection of U.S. industry during World War II suggests that it may be possible — but not without intense collaboration between governments and industries. There must be a third party in the deal, too: the citizen-consumer. In my next post, I’ll suggest how government, industry and consumers can collaborate in a new social contract for economic transformation.

See also:

Road to Copenhagen: Doing the Climate Shuffle

Road to Copenhagen: Managing Risk