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How to stay ahead in a low-carbon global economy

​ODI analysis suggests that over the next 10 years, global trade patterns will be transformed by natural-resource scarcity, climate change and international mitigation policies, resulting in an inevitable shift to a low-carbon global economy. This is already beginning to happen: we are seeing higher oil prices and increased competition for land and water; carbon taxes, carbon footprinting and new  green certification schemes being developed by both government and business; and climate change is already affecting agricultural production and hydropower potential.

ODI analysed how these drivers might affect economic prospects in low-income countries (LICs), and asked how – in this changing context – they might achieve ‘low-carbon competitiveness’ i.e. how they can remain or become competitive in a future, low-carbon global economy.  ODI has reviewed the opportunities and risks faced by three low-income countries in particular: Kenya, Cambodia and Nepal.  Based on this, we identified 10 key measures that can help to promote low-carbon competitiveness.

1. Develop a green-energy sector. LICs can capitalise on their relatively early stage of energy development, to create a green-energy sector, giving them a competitive advantage in a future low-carbon global economy. Competitiveness benefits will be even greater as fossil-fuel prices are generally expected to rise while renewable-energy costs are expected to fall as technologies mature. This would avoid the need for any future costly mitigation measures, and could be supported through new sources of climate finance.

2. Use fossil-fuel reserves wisely.  Countries with fossil-fuel reserves, such as Kenya and Cambodia, must take strategic decisions to use them in ways that support the development of renewable energy e.g. by exporting them and investing the revenues in renewables. It is also important to specify a clear direction for energy policy, to minimise the uncertainty which undermines incentives for private investment in renewables.

3.Take advantage of firms’ innovation to generate their own green electricity. There are impressive examples from Kenya of manufacturing and agribusiness firms investing in their own mini-hydro power plants, geothermal plants, cogeneration from sugar production, solar panels, and waste-to-energy installations. Some firms are also establishing their own tree plantations, to create a sustainable supply of fuelwood and avoid depleting forests. An appropriate policy framework, including feed-in tariffs, the establishment of mini-grid frameworks, and net metering mechanisms for example, can encourage further investment in these alternative energy solutions, to improve competitiveness and increase the energy supply.

4. Promote energy-efficiency measures. Some firms are already investing in energy efficiency, generating impressive cost savings and reduced carbon emissions.  For example, a garment company in Cambodia which invested £100,000 in energy-efficiency measures enjoyed cost savings of nearly £400,000 per year, and reduced greenhouse-gas emissions by a third. Introducing mandatory energy audits, as in Kenya, will encourage this strategy, which could contribute to significant competitive advantage over time.

5. Remove fossil-fuel subsidies.Subsidising fossil fuels encourages inefficient energy use, undermines competitiveness and incentives for development of renewables, and imposes a heavy financial burden.. For example, the Nepal Oil Corporation has accumulated subsidy-related losses of around US$315 million, which is undermining its ability to ensure supplies and invest in distribution infrastructure to meet growing demand, which is in turn undermining wider industrial development. 

6. Take advantage of the growing market for biofuels, with global demand expected to more than double over the period 2010-2020, and with higher income potential than for traditional crops.  Tere could be merit in promoting dual crops which can be used for both food and biofuel, such as sugar, cassava, sweet sorghum, or castor. This could raise incomes and enable farmers to diversify their livelihoods, helping to promote both food and energy security, if a domestic market for biofuels can also be established.

7. Implement environmental regulation, standards or certification in the manufacturing sector, to keep pace as environmental standards or certification increasingly become requirements to access international markets. For example, the Cambodia Chamber of Commerce recognises that Cambodia needs to take account of environmental concerns in its manufacturing sector through an environmental-accreditation programme, if it is to continue exporting successfully in future.

8. Support farmers in the transition to sustainable agricultural practices and carbon footprinting, to meet future certification requirements, enhance yields, ensure long-term sustainability of production, and capitalise on projected rising global food prices. There are big differences in uptake of these practices across countries. A report from the Food and Agriculture Organization (FAO) states that 400,000 small farmers are involved in conservation agriculture in Ghana, while only 5,000 are in Kenya, with potentially significant implications for the competitiveness of the Kenyan agriculture sector.

9. Develop economic sectors that capitalise on forest resources and encourage sustainable forest management, such as wildlife tourism, or non-timber forest products such as medicinal and aromatic plants (MAPS). This will encourage conservation of forest assets, which should also increase in value over time as carbon market mechanisms develop. Given its abundance of endemic species, Nepal has a strong potential competitive advantage in the market for MAPS, which is estimated to be growing by 8-10% a year globally – although Nepal’s production and export capability need to be developed to take advantage of this. Ecotourism is growing even faster, at around 20% per year, and some countries are much better than others at capitalising on their wildlife and nature. Both sectors need regulation to ensure they are managed sustainably.

10. Establish green credentials for the country’s tourism sector. Increasing international emphasis on environmental responsibility will reward those tourism destinations that are perceived as relatively green, and early converts to sustainable tourism will make market gains. Therefore, establishing a brand as a green tourism destination will be important to creating a competitive advantage for the future. It will also help ensure the sustainability of the industry. Tourism has been growing at a rate of 20-30% per year for over a decade in Cambodia, but faces big challenges now due to environmental pressures which could jeopardise its future growth. For example, there are concerns that the water shortage in areas surrounding Angkor Wat, exacerbated by illegal water pumps constructed by hotels, could create instability, causing the ancient monuments to crack or crumble.

Low-income countries face big opportunities and risks as global trading patterns change. But there is much to be gained if policy-makers and businesses start thinking now about how to manage the risks and capitalise on the opportunities, positioning themselves for success in a low-carbon global economy.