A new energy-industrial revolution and global agreement on climate change Nicholas Stern Chair of the Grantham Research Institute on Climate Change and the Environment, IG Patel Professor of Economics & Government, London School of Economics and Political Science Low Carbon Prosperity Summit Brussels, 9 February 2011

A new energy-industrial revolution We are at a crossroads: much to gain from action, much to lose from inaction. Evidence on planet, risks and emissions points to ever greater urgency. A transition to low-carbon growth would likely be one of the most dynamic periods in economic history. A new era of progress and prosperity; could bring decades of innovative and creative growth across the economy, especially for businesses, and large and growing investment and markets for the pioneers. Will require good public policy, strong investment and some dislocation. Will not happen on its own, it is not for free and will involve changing prices, taxes, infrastructure, and regulations. Important to overcome market failures around R&D and finance, e.g., support for research institutions, RD&D tax/price incentives, risk sharing to encourage private investment. Funding from green taxes/permit auctions. 2

Waves of innovation 3 1 ST WAVE Industrial ( ) 2 ND WAVE Steam & Railways ( ) 3 RD WAVE Steel, Electricity & Heavy ( ) 4 TH WAVE Oil, Automobiles & Mass Production ( ) 5 TH WAVE Information & Telecom (1971-) INNOVATION Cleantech & Biotech (2009-) 6 TH WAVE Source: Merrill Lynch (2008) & Perez (2002)

Place: Syria and Israel Source: Google images Drip irrigation and low- or no-till agriculture

Place: UK Source: Google images Cavity wall and loft insulation

Place: USA and Germany Source: Google images Biofuels from algae

Place: Germany Source: Google images Electric vehicles

Place: USA and Japan Source: Google images Solar thin film and nanotechnology

Source: IEA World Energy Outlook (2010); IEA, OPEC, and The World Bank (2010), Analysis of the Scope of Energy Subsidies and Suggestions for the G-20 Initiative. Available at: Promoting technological innovation (I) *IEA estimates are based on the price-gap method with a sample size of 37 counties, which the IEA state represent 95% of global subsidised fossil-fuel consumption. All but 2 of the 37 countries are non-OECD. IEA estimates of fossil-fuel consumption subsidies in 2009, by type of fuel* Total US$ 312 billion Total production subsidies could be in the order of US$ 100 billion p.a., although there are no current analyses of production subsidies that systemically examine a wide range of countries.

Source: World Bank, World Development Report 2010, Ch 7. Promoting technological innovation (II)

COP16 in Cancun was more constructive than Copenhagen, both in atmosphere and outcome. Modest but significant advances: –Broad acceptance of the principles outlined in the Copenhagen Accord; –Embodiment of Accord submissions on emissions; takes us, for 2020, 60-70% of the way between BAU and a 2°C path; –Recognition there must be progress on the key building blocks of finance, forests, technology and measurement; mechanisms were set out. China, India and Brazil are recognising their leadership role. Any agreement should be based on an inclusive understanding and mutual confidence: –Will involve careful study and appreciation of the plans of others, including China's 12th 5-year plan. –These key foundations can be constructed via various commitment arrangements. Cancun to Durban

Top down (regional/international) Bottom up (firms/households/cities/nations)  Top down and bottom up support each other  Mutual confidence is fundamental to accelerating progress  There is no artificial horse race between the two Source: Google images