We are on the cusp of a new economic era: one where growth is driven by the interaction between rapid technological innovation, sustainable infrastructure investment, and increased resource productivity. This is the only growth story of the 21st century. It will result in efficient, liveable cities; low-carbon, smart and resilient infrastructure; and the restoration of degraded lands while protecting valuable forests. We can have growth that is strong, sustainable, balanced, and inclusive.
Over the last decade, we have seen amazing technological and market progress driving the shift to a new climate economy. We are seeing real results in terms of new jobs, economic savings, competitiveness and market opportunities, and improved wellbeing for people worldwide. And this progress in the real economy has been delivered on the back of often weak or even contradictory policies in countries. How much more could be achieved in the coming years with clear, consistent policy signals?
In 2014, the Global Commission on the Economy and Climate concluded that ambitious climate action does not need to cost much more than business-as-usual growth. The evidence today shows that climate action is even more attractive than we imagined then. This remarkable new growth opportunity is now hiding in plain sight.
Yet we are not making progress anywhere near fast enough. While many private sector players are stepping-up, policy-makers in most countries still have the hand-brake on. We are now at a fork in the road.
The next 10-15 years are a unique ‘use it or lose it’ moment in economic history. We expect to invest about US$90 trillion in infrastructure to 2030, more than the total current stock. Ensuring that this infrastructure is sustainable will be a critical determinant of future growth and prosperity. The next 10-15 years are also essential in terms of climate: unless we make a decisive shift, by 2030 we will pass the point by which we can keep global average temperature rise to well below 2oC.
We know that we are grossly under-estimating the benefits of this new growth story. Current economic models are deeply inadequate in capturing the opportunities of such a transformational shift, or the grave dangers of climate inaction. We need a new class of economic models that can capture the powerful dynamics at play, including technological advances, preservation of essential natural capital, and the full health benefits of cleaner air and a safer climate including the containment of pandemic diseases.
While recognising the shortcomings of current economic models, analysis produced for this Report found that bold action could yield a direct economic gain of US$26 trillion through to 2030 compared with business-as-usual. And this is likely to be a conservative estimate.
Making such a shift would also limit dangerous climate change. With each passing year, the risks of unabated climate change mount. The last 19 years included 18 of the warmest years on record, worsening food and water security risks and increasing the frequency and severity of hazards such as wildfires. Disasters triggered by weather- and climate-related hazards were responsible for thousands of deaths and US$320 billion in losses in 2017. Climate change will lead to more frequent and more extreme events like these, including floods, droughts, and heat waves. It is increasingly our ‘new normal’.
The challenge now is to accelerate the transition to a better, more inclusive, new climate economy in five key economic systems: energy, cities, food and land use, water, and industry.
We have a remarkable window of opportunity to do so now, given the major structural changes the world faces, notably rapid urbanisation, increasing globalisation, shifts to service-based economies, and increasing automation. The opportunities are great, but so too is the potential for stranded assets, stranded communities, and stranded workers. The transition to a low-carbon, resilient economy is just one part of this broader transformation, which – if managed well – has the potential to deliver more equitable and prosperous growth. Ensuring an inclusive transition is essential: women, for example, will play a critical role in delivering the promise of this new growth era.
Priorities for urgent action.
The next 2-3 years are a critical window when many of the policy and investment decisions that shape the next 10-15 years will be taken. Priorities for urgent action are:
Pricing carbon and moving toward mandatory disclosure of climate-related financial risks, as part of a broader policy package. Carbon pricing is now in place or planned in 70 countries or jurisdictions, but in most places the price levels are too low to drive transformational change. Deepening and widening carbon pricing is essential, as is implementing effective reform of distorting fossil fuel subsidies. Implementing the recommendations of the Task Force on Climate-Related Financial Disclosure (TCFD) on a broad scale will enable radical transparency for investors to better understand the risks of current investments and the opportunities of shifting toward low-carbon, resilient alternatives.
Accelerating investment in sustainable infrastructure, supported by clear national and sub-national strategies and programmes. This is a central driver of the new growth approach. It requires integrating climate action and sustainability at the heart of growth strategies, investment plans, and institutional structures to facilitate the flow of public and private finance. It includes investing in the natural infrastructure that underpins our economy, such as forests and wetlands. Multilateral development banks (MDBs) and other development finance institutions (DFIs) play a key role and should double their investment in infrastructure and ensure it is sustainable, coupled with better leveraging of private finance. Essential actions include making infrastructure an asset class and ensuring it incorporates sustainability criteria.
Harnessing the power of the private sector, including to unleash innovation and advance supply chain transparency. Many companies and investors are already demonstrating leadership, and others are ready to align this agenda with the right policy signals. Regulations and incentives that hamper the shift to a low-carbon and more circular economy should be reformed, such as subsidies, tax breaks, and regulations that encourage unsustainable activities. A big push on innovation, in particular through international partnerships and financing to tackle challenges beyond energy, is needed. For example, a combination of new monitoring techniques, strategic partnerships, the right incentives, and corporate leadership is helping to develop deforestation-free supply chains for key commodities.
Ensuring a people-centred approach, such that the gains are shared equitably and the transition is just. Active, targeted regeneration can support economic diversification and the delivery of quality jobs. In developing economies, the low-carbon transition provides an opportunity to leap-frog the inefficient and polluting models of the past, with falling costs of renewables and other technologies making it even cheaper. As a priority, all governments should establish zero-emission Energy Transition Plans, working with energy companies, trade unions, and civil society to ensure a just transition for workers and communities.
Accelerating action will require decisive leadership, strong collaboration, and finance. Finance ministers and DFIs play a critical role in guiding investments in the short-term to meet the long-term needs of society, and in setting the right policy and institutional conditions to unlock much-needed private capital at scale.
The train is fast leaving the station. Leaders are already seizing the exciting economic and market opportunities of the new growth approach. The laggards are not only missing out on these opportunities but are also putting us all at greater risk. Over US$26 trillion and a more sustainable planet are on offer, if we all get on board. The time to do so is now.