Climate change: Its fallout on economy
Amid the ongoing widespread global financial meltdown, this week, I wanted to turn to one of the few topics, which has been covered even more extensively than sub-prime, bank bailouts and the prospects for recession or depression. While the world economy is likely to take several years to recover from the current financial crisis, the prospects for global warming over coming decades risks an environmental crisis that could potentially have much longer-term consequences for the economy.
Tackling climate change will undoubtedly be the major challenge of both our lifetimes and that of future generations. Global climate change, driven largely by the combustion of fossil fuels and by rapid deforestation, is a growing threat to populations in developing and industrialised nations alike. Significant harm from climate change is already occurring, and a further negative impact on the planet is a certainty. Given the frequency of floods, cyclones and storm surges in Bangladesh, coupled with low elevation, clearly it is one of the world's most vulnerable countries to the impact of climate change. The challenge now is to keep climate change from becoming a catastrophe.
Thomas Friedman, one of the leading thinkers on globalisation, has followed up his 2005 bestseller, “The World is Flat”, with his 2008 book on climate change and population growth entitled “Hot, Flat and Crowded.” In it he notes, “The era we are entering will be one of enormous social, political and economic change driven in large part from above, from the sky, from Mother Nature”.
Clearly globally, we need to use energy more efficiently. As the CEO of an oil company has put it, if you look at the energy consumption in the world each day and convert it into oil equivalent, we are consuming ten million barrels per hour -- 420 million gallons per hour. To really make a difference there are three issues: There is the scale of demand, the scale of investment needed to produce alternatives, and the scale of time it takes to produce alternatives. Many alternatives are just at the embryonic phase.
Management consultancy firm McKinsey and Co suggested that one hundred and seventy billion dollars a year invested in efforts to boost energy efficiency from now until 2020 could halve the projected growth in global energy demand. What's more, these investments could also deliver up to half of the emission abatement required to cap the long-term concentration of atmospheric greenhouse gases at 450 parts per million, the level experts suggest will be needed to prevent the global mean temperature from rising by more than two degrees centigrade.
The Government of Bangladesh (GOB) with the support of the major donor agencies, has outlined a comprehensive strategy on tackling climate change that culminated in a conference sponsored by DFID in the UK in September 2008 along with a detailed report “Bangladesh Climate Change Strategy and Action Plan” (BCCSAP 2008). A climate change cell, set up within the Ministry of Environment and Forests, has spearheaded the effort.
But the greater involvement of the private sector is also critical if Bangladesh is to prepare itself for both the challenges and opportunities of climate change. Relatively few companies in Bangladesh have yet considered both the impact of climate change on their existing activities, and perhaps as importantly, the new commercial opportunities that will emerge both domestically and globally. Lois Quam, MD of Alternative Investments at US fund management house Piper Jaffrey, summed up the opportunities most effectively suggesting that “The Green Economy is poised to become the mother of all markets, the economic opportunity of a lifetime, because it has become so fundamental. The challenge of global warming presents us with the greatest opportunity for return on investment and growth that any of us will ever see. To find any equivalent economic transformation, you have to go back to the Industrial Revolution. And in the industrial revolution there was a very clear before and after. The “after” everything was different: industries had come and gone, civic society changed, new social institutions were born, and every aspect of work and daily life had been changed. With that came the emergence of new global powers. This (clean technology transformation) will be an equivalent moment in history.”
There has also been a rapidly growing volume of research on the private sector implications of climate change, most notably by management consultancy firm McKinsey and Co, as well as a number of global investment banks. AT Capital also published an 80 page report this week “Climate Change: Challenges and Opportunities” focusing in part on the broader issues of alternative energy, abatement (reducing greenhouse gas emissions) and adaptation (coping with the near-term fallout from climate change).
In addition, our goal was to encourage greater focus from Bangladeshi companies and indeed foreign investment firms on the commercial opportunities as a result of the battle against climate change.
There has been significant progress in Bangladesh on solar energy with Grameen Shakti and Rahimafrooz taking the lead. It is critical that the private sector engage more fully and see the battle against climate change not as a burden or a form of taxation, but rather as the major economic opportunity of our generation. We need a mindset shift in the corporate sector to understand that those companies that adapt to the profound impact of climate change will gain major competitive advantage versus those that do not. New export markets will also open that currently do not exist as a result of the battle against global warming.
Public-Private Partnerships (PPPs) has become a new buzz phrase with respect to tacking Bangladesh's infrastructure crisis but we also need to ensure more PPPs in tacking climate change. The growth in Cleantech funds has been rapid but this is clearly just the beginning. Over coming years, tens, but more likely hundreds of billions of dollars of investment funds will be focused on the “ Green Revolution “. How can Bangladesh attract such funding given the particular vulnerability of its economy to climate change? Clearly greater awareness in terms of energy conservation in the household sector is important.
Thomas Friedman summed it up best by stating, “My favourite renewable energy is an ecosystem for energy innovation…That's what we need above everything else an intelligently designed system of policies, tax incentives and disincentives, and regulations that will get every promising source of clean electrons and energy efficiency we already have down the learning curve faster and will move every new idea for generating clean electrons out the lab door quicker.”
A greater focus on understanding the challenges and opportunities of climate change is likely to have a more profound impact on the future of Bangladesh's economy and society than many of us appreciate. It is time we all become alternative energy warriors.
The writer is the managing partner of Asian Tiger Capital Partners. He welcomes feedback at [email protected]
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