Speakers:

Marianne Fay - Co-director of World Development Report and Chief Economist, Sustainable Development Network

Kirk Hamilton -  Lead Economist, Sustainable Development Network and co-author of the World Development Report

Discussant:

Prof. Lord Anthony Giddens - Former Director of LSE, member of the House of Lords and author of 'The Politics of Climate Change'

Simon Maxwell - Senior Research Associate, ODI

Chair:

Will Day - Chair of the UK Sustainable Development Commission

This meeting saw Marianne Fay and Kirk Hamilton present the World Bank’s World Development Report 2010. Prof Lord Anthony Giddens and ODI Senior Research Associate (and ex-ODI Director) Simon Maxwell acted as discussants. The meeting was chaired by Will Day, Chair of the UK Sustainable Development Commission.

Development and Climate Change: The World Development Report 2010

The World Bank recognises that climate change is a serious and immediate threat to development, particularly in developing countries.  Hence the focus of the 2010 World Development Report is on development and climate.  The report has a three pronged message: acting now; acting together; acting differently.  The first two help to frame the debate, the last focuses on the how question and what needs to change.

Theme 1.  Acting now

Climatechange demands urgent action.  New resources and instruments are required to meet the challenge of keeping within the threshold of a 2 degree global temperature rise.  However, different countries have different levels of responsibility for climate change: high income countries are responsible for 64 percent of historical cumulative carbon emissions.  Yet developing countries will bear up to 80 percent of the damages brought about by climate change.  Agricultural yields will suffer, undermining food security for the poorest.  Hence achieving development that is ‘climate-smart’ is the major challenge facing the international development community.  Defining what such development will look like is complex.

One starting point is the energy sector.  The need to act now on developing new energy technologies is a pressing concern in a sector where the level of research and development investments remain very low.  $13 Billion of public funds has been spent to-date on energy R&D.  Although the private sector has spent a lot more ($40-60 Billion) the energy sector remains one that has not taken on board the level of innovation that is now necessary.

The economics of climate change are clear.  Even relying on the work of the more conservative analysts, those who think we should not spend too much on mitigation because we have so many other needs, we find that the difference between their optimum temperature and staying close to 2 degrees is about 1/3 of a percentage point of global GDP.  That is because what we do not spend on mitigation now will have to spent on adaptation, or in the losses due to the impact of CC.  So, the cost of caution is 1/3 of a percentage point of GDP – a relatively small amount. 

Theme 2.  Acting together

High income countries must take the lead in addressing climate change.  Unless this happens, the necessary investments in new and innovative technologies needed to get the scale-up in demand to lower the costs of green technologies will not come about. 

According to the McKinsey mitigation cost curve, every country in the world has a combination of both expensive and cheap mitigation actions. If one country – or one group of countries do not take action, the global price of mitigation will go up.

Cooperation will be needed for adaptation. With climate change, there will be increased reliance on the global food trade. But at present this trade is an incredibly thin market – only a few countries have substantially higher food exports than imports (North America, Russia, and Australia provide the majority of cereal exports). And if there is drought in one of the producer/exporting countries, this means a lower supply and higher prices for importing countries.

The global response to climate change is first and foremost an equity issue, which requires developed countries supporting action in developing countries.  Acting together also means that there needs to be recognition of a separation between where climate change actions need to happen and who will pay for these actions.

Theme 3.  Act differently

The starting point is that growth as we know it is not a sustainable option.  We need to transform energy systems completely.  This will require the use of a mix of energy sources including fossil fuels, nuclear, biomass, and non-biomass renewables.  But a mix of energy sources will not be enough.  Equally important will be improved energy efficiency, which will assist the transition to low carbon growth under a de-carbonising economy.

There is also need to change the decision-making paradigm: to move away from a sole focus on optimisation to robustness as the main criterion for investment decisions.  However, what a ‘robust strategy’ for sector investments will look like is not yet clear. 

One of the main messages of the report is that huge levels of additional funding are required to help developing countries respond to climate change.  However, the WDR does not prescribe solutions of how this money will be raised.  Whatever solutions are found must lead to effective policies that are efficient and equitable.  This demands a flow of finance from North to South.  There are a number of ways that the finance gap can be filled: through, for example, the reform of existing carbon markets, and the taxing of the untaxed (either through a global carbon tax; and the auctioning of country assigned amount units).

Finally, in terms of acting differently, there are new pressures for action on climate change.  Increasing public awareness about the severity of the issue – and what can be done - is critical. Communication, education and changing social norms are important. Citizens need to be empowered in order to turn inaction into action.

Simon Maxwell, ODI

With the 2010 WDR report, the World Bank has produced an authoritative review of the subject, which is enormously useful.  However, WDR reports are products of the World Bank, so the reader must expect a certain narrative.  The report does not say that the West should reduce consumption – it is a market friendly report that is intended to support the delivery of change. 

However, there is a ‘post-crisis narrative’ to consider – including the thinking that has come out of the G20 over the summer.  There is growing recognition that the world has become economically less resilient through globalisation.  This is leading some to think differently about the role of the state, with a more optimistic view of what states can do.

Consider the numbers about the money required to tackle climate change: the report estimates that approximately $500 Billion will be necessary to assist developing countries respond to climate change. However the GDP of sub-Saharan Africa is only about $750 Billion, which raises the question of how this transfer will be absorbed in receiving countries. This is an extraordinary challenge, and raises major questions on how states will manage this transformation.

There are multiple choices to make in tackling climate change.  As has been expressed by Lord Giddens elsewhere (in his book the Politics of Climate Change), it is critically important to achieve a cross-party consensus; however, holding this consensus together will be a difficult endeavour.

To view Simon Maxwell's contribution to the ODI blog, where he discusses the World Development Report 2010, please click here.

Anthony Giddens, LSE

The World Bank has produced an authoritative report, which emphasises the need for large-scale funding to be raised by the developed world.  This will likely require an effective replacement for the Clean Development Mechanism at Copenhagen or immediately afterwards. 

The rest of the world should put the spotlight on the actions of developed countries.  There is need to shrink emissions in industrialised countries.  Much remains to be done; across industrial countries those that have been successful in reducing their emissions have done so not as a consequence of national climate change policies, but rather as a response to the impact of the first energy crisis.

How can things change?  We need to develop a politics of the long-term.  This is new.  This will involve a greater role for the state to guide the functioning of markets over the long-term.  But markets will continue to be important, with, for example, insurance playing a major role in adaptation.  But, a new long-term regulatory framework will be required.  There is also need to address the left versus right political divide to achieve a cross-party consensus around the response to climate change.  In most industrial countries climate change remains politically polarised, with the most serious divisions is the USA. 

Finally, there is danger with any narrative that is focused on catastrophe will not engage with the general public.  Clearly much remains to be done, with forty percent of population in developed countries remaining climate sceptics. A positive motivating vision has yet to emerge.