The Business Case for a Strong Global Deal

Increased energy security – like increased climate security – requires collective action. If all major economies increased their fuel economy standards, they would benefit from lower, more stable energy prices as well as from lower carbon emissions. If all major economies were to introduce similar policies around fuel economy – or around standards for biofuels or batteries – they could create a globally scalable market for transport fuel substitutes in years rather than decades.

All countries potentially stand to benefit from better energy demand management and more diversified supply. Because of the long lead time required to increase production, sudden increases in energy demand can translate into high prices in a non-linear way. In 2008 for example, spiking oil prices were the result not so much of the rising marginal cost of supply as of the demand reduction required to bring demand back in line with currently available production.

For oil-consuming countries, an oil price that ranged between $60 and $80 per barrel (€47-63) would keep international transfers lower than a world in which prices spike up to $150 (€118). It would also create a much more stable macro-economy, with less risk of current account deficits or inflationary pressures from rapid energy price increases. Oil-producing countries might also benefit from more stable demand, which would allow them to plan fiscal expenditures and avoid swinging from massive macro-economic surpluses into deficits every 3-7 years.

The technologies are known, the incremental costs manageable

Making the change to a low-carbon economy is a huge shift, given the high-carbon infrastructure in place in developed countries and the lifestyle it provides them with – a lifestyle to which developing countries legitimately aspire. If we hope to contain warming to 2°C, the world will need to limit its emissions to 44 Gt CO₂e in 2020 and 35 Gt CO₂e in 2030; a reduction of 17 Gt or 28% over our business-as-usual projections in 2020 and 35 Gt or 49% in 2030. This is a robust challenge, for certain, but one that we know how to meet.

Ninety percent of all mitigation actions – 17 Gt – are technically possible for under €60 per tonne of CO₂e abated. Existing technologies can supply over 70% of the global emissions reductions needed by 2020; technology costs are already rapidly declining, and new technologies will further reduce costs and increase effectiveness.

Work by Lord Stern, the IPCC, the Organisation for Economic Co-operation and Development (OECD), the International Energy Agency (IEA), McKinsey & Company, and numerous academics and private sector firms consistently shows that the upfront incremental capital investment of shifting to a low-carbon society are clearly manageable within the context of the global economy – generally less than 1% to 3% percent of GDP. This includes, for example, additional costs over and above business-as-usual activity in power generation, heavy-emitting industries, forestry, transport, and the built environment. At those relative levels, the immediate incremental costs will impact consumers less than pre-existing fluctuations in prices for goods such as food, fuel, and electricity.