International Conference: Investing in Climate, Investing in Growth
Introductory Remarks by Angel Gurría,
Berlin, 23 May 2017
(As prepared for delivery)
Ministers, distinguished guests, ladies and gentlemen,
This morning I was pleased to hand over to Chancellor Merkel the major OECD report, Investing in Climate, Investing in Growth. I took the opportunity to congratulate the Chancellor for putting the issue of climate squarely on the G20 agenda and for ensuring that they make the critical nexus between the growth and the climate agendas for the sakes of both current and future generations.
This is because Governments around the world are striving to re-ignite growth in a world of declining productivity and increasing inequality. At the same time, we are faced with the threat of dangerous climate change and are seeking development pathways that minimise that threat. In a nutshell: how to build a future that is both sustainable and resilient.
This integrated approach to growth and climate is right at the heart of our report and it makes the economic case for such an approach for both advanced and emerging economies. This afternoon, we’re here to dive in more detail into the outcomes of the report, learn from our panellists how this approach is being applied and how we can scale up good policies and practices.
Our analysis recognises that climate policy is not happening in a vacuum; countries are rolling out other policies to revive their economic growth. So we looked for synergies. Our work shows that a climate-compatible policy package – what we call a “decisive transition” – to get to below 2ºC can increase long-run output by up to 2.8% on average across the G20 by 2050, relative to the baseline, which assumes a continuation of current policies. If the positive impacts of avoiding climate damage, such as from increased flooding, storms, droughts and extreme weather events, are also taken into account, the net effect on output rises to nearly 5% by 2050. Beyond 2050, unchecked climate change could lead to catastrophic losses. But you don’t need me to tell you that the stakes are very high.
Importantly, acting now can be good for growth in the near-term too. Our modelling work indicates a net growth effect of around 1% for G20 economies as early as 2021. On the other hand, our results show that doing nothing in the short-term would lead to average losses of 2% of GDP, so there is an economic incentive for taking decisive action now. Waiting will mean that even more stringent climate policies will need to be introduced with a greater sense of urgency, even of emergency. Losses would be particularly marked in net fossil fuel exporters, with a significant potential of additional stranded assets.
The room for manoeuvre is tight, to say the least, particularly when it comes to decisions on infrastructure over the next decade. Infrastructure generally has suffered from chronic underinvestment for decades. The report shows that around USD 6.3 trillion a year of investment in infrastructure is required, on average, between 2016 and 2030 to meet development needs globally – that’s without taking climate into account. The good news is that making these investments climate compatible will only cost an additional USD 0.6 trillion a year over the same period. This is a relatively modest increase, less than 10% considering the short and long-term gains in terms of growth, productivity and well-being that both advanced and developing economies alike stand to gain. For example, such incremental costs could be amply offset by fuel savings of up to USD 1.7 trillion per year through 2030, producing a net saving of over one trillion dollars per year.
It comes down to the type of foundations we want to lay for future growth. I won’t take you through the policy priorities that arise from our 300 page report in meticulous detail.
I will just focus on a few things that are particularly noteworthy.
One, structural reforms that support climate action are critical for both growth and resilience. Reducing barriers to innovation, trade and investment are key to enabling the development and penetration of low-carbon options, along with increased R&D to help drive growth in productivity. Improving access to education and skills to support a re-focused workforce, along with measures to facilitate the exit of fossil-intensive firms and the entry of climate-friendly innovators is the other part of this “pincer” movement.
Two, boosting investment in modern, smart and clean infrastructure. I’ve already mentioned the kind of numbers we’re talking about – and current infrastructure spending is only around 60% of the needed level. Low interest rates have increased fiscal space in many countries, and governments should capitalise on that. And there are also opportunities to improve the tax and spending mix to align stronger economic growth with low-emission, resilient development, and to attract private sector investment.
Three, finance will be a key factor. The whole finance system needs to be geared for the transition. That means financial institutions tuned towards climate-friendly investment; mechanisms to mitigate risk and mobilise capital from both private sources as well as public; and a correct valuation of climate-related risk. Development banks also have a role to play – not only to use their balance sheets to amplify available resources, but also to develop green finance in partner countries, including through policy and capacity building.
Four, countries need to push forward with their climate policies: notably to broaden carbon pricing and eliminate inefficient fossil-fuel subsidies. Making greater use of public procurement to invest in low-emissions infrastructure can also trigger industrial and business model innovation. Beyond energy, developments in agriculture, forestry and other land-use sectors will be critical in determining the scale and pace of the transformation needed elsewhere in the economy, such as the protection of current stocks of carbon in tropical forests and improving agricultural yields and crop resilience. Equally important is how we balance competing goals of food security, poverty reduction, improved water management, energy access and growth.
Finally, we need proactive policies to facilitate a “fair transition” for affected businesses and households, particularly in vulnerable regions and communities. This means identifying the most exposed activities, labour forces, communities and regions, assessing local capabilities, and developing appropriate response measures such as retraining and reskilling. Early planning for the transition is essential if societies are to avoid stranded assets in fossil-fuel-intensive industries, and to avoid stranded communities alongside them.
I would like to thank the German government for entrusting the OECD with this important work. There is good reason for governments to place the climate imperative at the heart of their national growth and development strategies. I wish you excellent discussions this afternoon on how governments might best do so.
Press Release: Taking action on climate change will boost economic growth