Remarks by Angel Gurría, OECD Secretary-General, delivered at the OECD Round Table on Sustainable Development.
Reframing Climate & Competitiveness
Tuesday 3rd February, 2015 – 09.00
Ministers, Ladies and Gentlemen
It is an honour to welcome such a distinguished group to the OECD for this 31st Round Table on Sustainable Development. Today we have gathered to discuss issues of international co-ordination in climate policy.
As usual, we’ve picked a tough topic. But, it is a topic which is crying out for our attention this year! The COP is under scrutiny again – we all hope that this time we can clinch a historic agreement between all countries to take strong and decisive action on climate change.
To COP21 and beyond
When we started along the path towards a climate agreement in the 1990s, stakeholders seemed to act as if we had plenty of time. On the basis that roughly 1 trillion tonnes of carbon could be emitted without crossing the 2 degree boundary, we had by the mid-1990s filled a little over a third of the atmospheric space since the industrial revolution.
By the time of the 5th IPCC Assessment Report this year, we found that we have filled 52% of that budget, and at the current rate we will have filled it completely by 2045.
Not only are we rushing faster and faster, but the economic costs of delaying action are also piling up. Recent results from the OECD’s CIRCLE [Costs of Inaction and Resource Scarcity: Consequences for Long-term Economic Growth] project highlights that unabated climate change could dampen world GDP in 2060 by around 1 to 3%.
Research also highlights the lack of international coordination and inconsistencies in tackling the problem! The effective price of carbon revealed by the policies ranges up to hundreds of euros per tonne of carbon abated. In the case of electricity generation, for example, the effective carbon price ranges from virtually nil to 800 EUR per tonne of CO2 equivalent abated.
To have any hope of even getting close to the 2 degree mark, we need to get out of the carbon entanglement in which we find ourselves. All countries need to roll out ambitious domestic policies and take a systemic approach to a low-carbon economy. We need to price carbon wherever we can. We need to encourage energy efficiency. We need to get the incentives right and let the market find the best solution at the least cost. And what we really don’t need are policies that prevent labour and capital from reallocating freely towards low-carbon modes.
The OECD is deeply engaged on these issues. In May 2014, Ministers gave us a mandate to examine how governments can better align their domestic policy frameworks to achieve the “transition to a low-carbon, climate-resilient economy”. Together with our sister organisations (the International Energy Agency, the Nuclear Energy Agency and the International Transport Forum), we have been looking at market regulations, taxation, financial rules and a myriad of other policy domains to find where there is misalignment with climate goals.
Preliminary work has revealed that there are many such misalignments. For instance, the new financial stability rules add hurdles to financing long-term infrastructure projects such as power generation, where decarbonisation is essential. We find that some of our support schemes for innovation benefit incumbents and leave out new entrants, when we need the latter to challenge the former. And we find that tax systems stack up incentives to guide choices towards more energy and fossil fuel uses, from energy taxes to company cars and property sales taxes. We’re going to be delivering policy guidance on this and many other issues in June this year, so watch this space.
Issues for the Roundtable
But the real issue for us here today is to look at the patchwork quilt of domestic climate policies and to ask: Will they carry us smoothly towards a low-carbon future, or will they put us on the road to trade frictions, fragmented markets and higher costs?
Our starting point is simple: some of the domestic policies to cut emissions spill over into global markets. They will encourage competition, and therefore reduce costs. But there may also be disruptions.
We’ve witnessed some disruptions already, such as the boom-and-bust cycle in solar photovoltaic manufacturing. And this was not just the result of ‘creative destruction’, but also the result of drastic policy adjustments. These markets are entirely vulnerable to government decision.
What we need is more transparency and a common understanding among climate policymakers on which policies could have international spill-overs. This would have two advantages: first, share information and best policy practice; and second, create more robust market expectations for the private sector.
The question is what kind of international co-operation on domestic policies could be helpful. It would be unrealistic to shoot for fully harmonised and co-ordinated domestic climate policies, but a more harmonious deployment of domestic policies is within reach, and has the potential to greatly benefit us all. So we have to structure a discussion to see which activities could lead to the greatest benefits, which forums already exist for such a discussion, and what should be the elements that public and private stakeholders wish to share, cooperate on, or even coordinate to move forward. This is a broad agenda, but the rewards in terms of climate action may be larger still.
Ministers, Ladies and Gentlemen:
Climate policy and competitiveness issues have created a new need for international co-ordination, beyond the scope of our current frameworks. There is no need to trade economic growth for environmental stringency. Environmentally stringent policies are an incentive for greater efficiencies which leading edge companies can easily achieve – as highlighted by our most recent work on productivity and environmental regulation. I ask each of you to share your thoughts, freely and frankly, so that we can begin to outline the path towards better international collaboration and more effective national climate policies.