Climate change: the biggest threat to economic recovery

After a year of pain and pessimism, we are starting to see signs of an economic recovery. Green shoots are sprouting. Governments' bold economic and financial actions of over the past year are beginning to take effect.

But we are not out of the woods yet. We now need to make sure that recovery is sustained, and for that bold action on climate change will be needed. As world leaders prepare for the UN climate change talks in Copenhagen this December, one of their top priorities must be to move their economies towards a low-carbon future.

Business as usual is not an option if the economic recovery is to be sustained. If we carry on  increasing greenhouse gas emissions, the resulting climate change will lead to massive upheavals: floods and droughts, more violent storms, more intense heat waves, escalating conflicts over food and water and resources. Shocking signs are already visible of what may lie in store.

The Arctic ice-cap is melting, posing threats that were almost inconceivable a few years ago. Less ice means more sea water. A threatened rise in global sea levels could flood many coastal cities worldwide and expose 150 million people to coastal flooding risks by 2070. As the permafrost thaws, the release into the atmosphere of huge stores of frozen methane and carbon dioxide would accelerate global warming even more.

Faced with such risks, we need to act now to prevent worst-case scenarios from becoming reality. According to analysis from the OECD, IPCC, McKinsey and others, serious climate action will cost only a fraction of a percentage point of annual growth in world GDP. Doing nothing, by contrast, as the Stern Review on the Economics of Climate Change has warned us, could lead to radically larger losses.

Starting today, we need to change our lifestyles and our attitudes. We need to produce, transport, consume, regulate, govern and think differently. We need to go green. Some stimulus packages adopted by governments this year included investments in green infrastructure and jobs. That was a good start, but a deeper structural shift is needed.

The financial and economic crisis from which we are emerging provides a unique opportunity to achieve that. Last month's G20 agreement to eliminate fossil fuel subsidies by 2020 was a positive move - according to OECD analysis, removing fossil fuel subsidies in some of the developing countries alone could reduce global GHG emissions by 10% in 2050, while also increasing economic efficiency. But in addition, we must channel investment into clean-energy technologies, buildings and transport infrastructures that can be the foundation of a low-carbon economy.

In doing so, we will create huge opportunities in the form of new industries and new jobs, helping to offset recent job losses in other sectors. In China alone, the renewable energy sector already generates output worth US$ 17 billion and employs one million workers. That's only a small part of what could lie in store. The potential for "green technologies" in such areas as energy, water, buildings, transportation and industry is huge.

Between now and Copenhagen, we should stay focused on climate change and address a series of major sticking points in current international negotiations.

To keep a good chance of limiting the rise in global temperatures to 2 degrees Celsius above pre-industrial levels, global emissions of greenhouse gases must peak within the next 10 to 15 years and then start to decline. For that to be possible, every nation must play its part.

To start with, advanced economies must agree to make sharp cuts in their own greenhouse gas emissions while at the same time providing robust financing to support mitigation and adaptation in developing countries. But emerging economies must also contribute. In return for financing commitments from advanced economies, they must pledge to take appropriately ambitious action to counter the negative effects of increased energy use and deforestation.

One of the principal challenges will be to agree on concrete proposals for the financing mechanisms that will make global climate action possible. We need to pave the way for a flow of investment and finance from OECD countries to developing countries.

In 2007, bilateral Official Development Assistance (ODA) flows for low-carbon investments in developing countries were about US$ 4.3 billion, with multilateral financing contributing a similar amount. This will need to increase sharply and be complemented by private sector financing over the long-term.

Urgent action is needed. Climate change is the greatest challenge that humanity has ever faced collectively. We must respond to it now, for our own sake and for the sake of our children and grandchildren. We can make going green compatible with increased prosperity. Copenhagen must mark a turning point in our efforts.

Copyright: OECD & WWF

Economic data

GDP growth: -9.8% Q2/Q1 2020 2020
Consumer price inflation: 1.3% Sep 2020 annual
Trade (G20): -17.7% exp, -16.7% imp, Q2/Q1 2020
Unemployment: 7.3% Sep 2020
Last update: 10 Nov 2020

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