The Business Case for a Low-Carbon Economy

While the scientific consensus points to increasing climate change risk, the evidence on the feasibility and economic benefits of addressing it grows more positive.

First, the costs of transition to a low-carbon economy are potentially less than 1% of GDP per year – provided that the right policies are put in place. Second, there is a good case, across economies at different stages of development, that reducing carbon emissions does not necessarily translate into lower growth since in many cases these "costs" are investments in new, lower-carbon, more efficient infrastructure and value chains. Moreover, like any other investment-led stimulus, carbon-reducing measures can actually promote growth if they are financed over time. Third, there are clear societal benefits in terms of increased energy security.

For businesses, the transition to a low-carbon economy will be challenging – and there will be winners and losers. Profits will be allocated in a different way than in the high-carbon economy, and safety nets may be needed. But we have seen no compelling evidence that the transition must be lower-growth or employment-reducing for society as a whole, and we can point to many attractive opportunities for which businesses can compete with the right policies in place. Strong adaptive companies typically show their class in response to stretching, measurable targets – whether these targets are market-driven, operational, or environmental.

Low-carbon growth economies can thrive

There could be a big prize from building a low-carbon economy: increased overall resource productivity, new high-value-add jobs, and faster technology development. As happened during the Industrial Revolution or the high-tech boom, a global shift to improved carbon productivity will coincide with a period of high-risk, high-return business opportunities.

Much of the public focus has been on renewable power technologies and large industrial emitters (such as steel or cement), but these value chains are not the only ones that will be fundamentally restructured. Greater energy efficiency in commercial and residential buildings, cleaner transport, shifts in agricultural and forestry activity, and many other changes will create new markets. To cite two examples out of many:

• The opportunities in energy efficient transport and buildings are equivalent to approximately 10% of global energy demand.² This is economically comparable to a € 0.7 trillion market, with hundreds of business opportunities at every stage in manufacturing, maintenance, and servicing value chains. Leading retailers are already going after the opportunity to reduce their end to – end carbon footprint – generating significant efficiency and profit improvements for all participants in their global supply chains.
• Reducing emissions from deforestation and forest degradation (REDD) and afforestation/reforestation (A/R) in developing countries presents ample opportunity for the private sector to engage all along a €50-100 billion value chain. Provided adequate land rights governance structures are put in place, investors from developed nations could provide funding and play an important role in actually delivering the carbon abatement. Companies in forest management, pulp and paper, or construction could build new businesses around carbon abatement and "enabler" services such as satellite support for forestry-specific measurement, reporting, and verification.

Today's evidence shows that while no developed countries nor even many developing countries have achieved greenhouse gas emissions at a long term, sustainable 2 tonnes per capita, economies are able to dramatically increase carbon productivity as they grow.³ For example, California, with per capita emissions of 13.7 tonnes of CO₂e in 2004 has stabilized energy consumption over the past 30 years while nearly doubling its GDP.

By contrast, the U.S. as a whole, which grew less quickly, increased its energy consumption more than 40% over the same period and emitted in 2005 on average 23.9 tonnes of CO₂e per capita. Denmark offers another example of low-carbon prosperity (12.7 tonnes of CO₂e per capita in 2005). Its economic activity increased by more than 45% between 1990 and 2007, while its CO₂ emissions fell by more than 13%.⁴