Investing in Climate, Investing in Growth

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Author(s):
OECD
23 May 2017
Pages:
312
ISBN:
9789264273528 (PDF) ;9789264273511(print)
http://dx.doi.org/10.1787/9789264273528-en

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This report provides an assessment of how governments can generate inclusive economic growth in the short term, while making progress towards climate goals to secure sustainable long-term growth. It describes the development pathways required to meet the Paris Agreement objectives and underlines the value of well-aligned policy packages in mobilising investment and social support for the transition while enhancing growth. The report also sets out the structural, financial and political changes needed to enable the transition.

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  • Foreword and acknowledgements

    Governments around the world are striving to re-ignite growth in their economies while reducing widening inequalities. At the same time, they are working hard to implement the climate goals agreed by the global community under the Paris Agreement. These challenges are not mutually exclusive. We have a unique window of opportunity to bring the climate and economic growth agendas together and to generate inclusive economic growth in the short term, while ensuring that we meet the climate challenge in the longer term.

  • Executive summary

    Achieving a growth path that is resilient, inclusive and sustainable is one of the top policy priorities of our time. Governments around the world are facing the triple imperatives of re-invigorating growth while improving livelihoods and urgently tackling climate change, in line with the goals of the Paris Agreement. This report argues that boosting economic growth, improving productivity and reducing inequalities need not come at the expense of locking the world into a high-emissions future. It is the quality of growth that matters.

  • A decisive transition for growth and climate

    Governments around the world are facing the triple imperatives of re-invigorating growth while improving livelihoods and urgently tackling climate change. This chapter contains an extended synthesis of the report, showing how acting on climate change can also be good for growth, provided the right policies and structural reforms are put in place. After setting the scene for combined action on climate and growth, the synthesis presents results on the macro-economic implications of a “decisive transition” to a lowemission, high-growth and resilient future. The synthesis then lays out development pathways compatible with the Paris Agreement and how they vary across country types, as well as the need to scale and shift infrastructure investment. Turning to policy, the synthesis also presents the mix of structural and targeted climate policies required, the implications of the transition for exposed businesses and workers and how governments can address them, and changes needed to the financial system. It concludes with the main policy messages arising from the report.

  • Pathways from Paris

    Human interference with the climate system is rapidly taking us into uncharted territory, with the potential for severe and irreversible impacts and making it harder to achieve the Sustainable Development Goals (SDGs). The Paris Agreement aims to limit average global warming to well below 2°C, a political judgement based on scientific evidence. The stringency of this mitigation goal means that countries need to strengthen mitigation action without delay. After setting out the case for urgent action and the carbon budget consistent with the goal of well below 2°C, this chapter examines the characteristics of low-emission pathways and how country diversity may impact the scale, phasing and priorities for mitigation action across countries. It then summarises projected impacts, emphasising the need for flexible, forward-looking approaches to decision-making that reflect the diversity of climate vulnerabilities and confidence levels about local and regional change. Finally, the chapter looks at how countries can get to where they need to be, supported by the mechanisms of the Paris Agreement.

  • Infrastructure for climate and growth

    Infrastructure investment is vital to underpin economic growth and development, but current levels of investment are inadequate. Meeting the Paris Agreement’s mitigation and adaptation objectives will also require a radical shift in the world’s infrastructure base. This chapter considers the current gap in infrastructure investment, the infrastructure and technology transformations needed to shift onto low-emission, climate-resilient pathways, and the incremental capital costs involved. It then looks at the energy sector as an indicative assessment of progress in aligning infrastructure investment plans for the transition, before exploring how governments might better align short-term investment strategies with long-term decarbonisation and resilience goals.

  • Growth implications of climate action

    The current global economic environment provides governments with an opportunity to boost economic growth while also addressing the challenges of climate change. Ensuring that growth is low-emission, resilient and inclusive can help to meet the Paris Agreement goals while also delivering on the Sustainable Development Goals. While the synergies between climate and growth policies are substantial, capitalising on them requires fiscal initiatives to scale up public and private investment in the right technologies and infrastructure, combined with a well-designed structural reform package. This chapter shows how these pro-growth reform policies can support ambitious policy action on climate change to create a “decisive transition” to a lowemission, high-growth future. It presents model simulations that combine climate action with pro-growth policies including the impacts of delaying action.

  • Policies for scaling up low-emission and resilient investment

    Triggering the investment needed for low-emission and resilient economic growth requires a co-ordinated constellation of policies, spanning structural pro-growth reforms, climate policies and the broader investment environment. This chapter first considers how structural reforms can kick-start growth while also supporting the low-carbon transition. It then focuses on climate-change policies, including carbon pricing. Next, the chapter examines how policies making up the broader investment environment may be misaligned with climate objectives. If investment conditions are not conducive to low-carbon investments, even the best-designed climate policy is unlikely to be effective. Finally, the chapter considers how policy can be used to better orient public infrastructure planning and implementation towards low-carbon options, both at national and sub-national levels.

  • Towards an inclusive transition

    The significant structural change implied by the transition of whole economies to balance greenhouse gas emissions and carbon sinks will inevitably create tensions among those affected – from central and local governments, to the private sector, the labour force and citizens. This chapter examines the social and economic factors that affect the ability of governments to envision and implement the long-term policy choices needed to stabilise the global climate. It considers how governments might draw on experience with industrial restructuring; the potential impacts of climate policy on households; and case studies that illustrate the need for a just transition for workers and communities. The chapter concludes by exploring how best to take political economy dimensions into account in preparing robust, long-term, low-emission development strategies.

  • Mobilising financing for the transition

    Meeting the objectives of the Paris Agreement will require reallocation of investment away from carbon-intensive assets and rapid scale-up of private investment in lowemission, climate-resilient infrastructure and technologies. This chapter describes major trends in private financing for infrastructure and the roles of different private actors and sources of finance. It then explores what is needed to mobilise private finance for the transition, including how to address factors hindering private investment, and the types of instruments and transaction enablers governments have at their disposal. It considers the role of specialised development banks and development finance institutions, and how greater transparency and signaling in the global financial system might improve its capacity to respond to opportunities arising from the transition, while strengthening resilience to climate risks.

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