Core Principles and Foundations for Building a Long-term Country Strategy for Tackling Climate Change
1. What is a strategy?
1.1 Definition and foundations
A strategy is a plan or programme to achieve or promote medium or long-term objectives that describes the key elements for action, and recognises and takes account of relevant circumstances which are anticipated or may arise. It should not attempt to describe each action in detail but should set out principles which will guide decisions as circumstances develop.
In this case, the overall collective objective is clear: it is the delivery of the Paris Agreement and, in particular, holding global temperature increase to well-below 2°C. For a country strategy, the country in question will have to define its own role in the collective agreement, taking into account the plan it has already articulated for 2030 at COP21, the need to ramp-up overall ambitions, and its own special circumstances.
The core elements of the relevant circumstances are: the opportunities and constraints of the particular country; the likely development and availability of new technologies and methods and that country’s possible role in those; how other countries will behave and collaborate; possible external finance, both public and private; and the country’s resources and its potential growth and development.
The geography and natural endowments of different countries vary. For example, for power generation, some places will be better for solar, others for wind. For some, heating is a major challenge, and for others the urgency is staying cool. Countries have different histories in terms of urbanisation and industrialisation. Latin America is much more urbanised than South Asia. Some countries have built industries and power almost entirely on coal. Some countries are much more advanced in technologies and skills than others. All of these effect strategy. The strategy is one of transition, and starting points are crucial. New routes and technologies are available, which were not available for countries starting earlier, and lessons, about polluted and congested cities and damage to ecosystems, for example, have been learned. The politics and social capital for the management of strong and rapid change will vary. The transition will have to be swift and radical but it should be just.
The strategy of any country requires investment and that requires finance. Domestic resources are of the first importance but international financial flows, public and private, will play an important role. So too the sharing of technologies. And the country’s long-term strategy must take careful account of all these things and allow for different possibilities around collaboration. The international community should work strongly on collaboration; there are tremendous mutual benefits, and there is a moral duty. However, most of the necessary change is in a country’s self-interest, and it may be unwise to make too much conditional on external finance.
All of these considerations should be set in the context of the two fundamental understandings which were at the core of the Paris discussions and decision-making. The first of these was an ever-deepening recognition of the immense risks of climate change, an understanding that we could see changes over the course of a century which could make the environment so hostile that development would be derailed and reversed over much of the planet, and hundreds of millions of people might have to move with a severe risk of major and extended conflict. The second was an ever-growing understanding that the transition to the low- and zero-carbon economy is the growth story of the future. At its core is sustainable infrastructure. Strong investment here boosts demand and sharpens the efficiency of supply in the short to medium term. It unleashes a Schumpeterian wave of technological progress, innovation, investment, and growth for the medium term. And it is the only growth story available in the long run. An attempt at high-carbon growth self-destructs in the hostile environment it creates.
There are two further crucial elements which must guide us in pursuing the overall global objectives and the necessary action which must shape the strategy of each country.
The first of these is urgency and scale. The size of the world economy will roughly double in the next 20 years or so and infrastructure will more than double. In that period, the world must cut overall emissions by around 20 percent or more to give us a reasonable chance of holding temperature rise to well below 2°C. And within 50 years or so, overall emissions must be net zero.
The second is that Paris COP21 of December 2015 was set in the context of the agreement of the Sustainable Development Goals (SDGs) for 2030 at the United Nations in September 2015. Together, these accords constitute a coherent and mutually-reinforcing global agenda. Here was agreement by more than 190 countries in both cases and both agreements and apply to all countries. Action to implement the Paris Agreement is part of the implementation of this overall global agenda. It is the story of sustainable growth and development; sustainable infrastructure is at the core of the SDGs and Paris COP21. The global objectives were described at the G20 in Hamburg in May 2017 as “strong, sustainable, balanced and inclusive growth” and alignment with the 2030 agenda (i.e., the SDGs). The 2015 agenda (the SDGs plus the Paris Agreement) was a long time in the making and has been reaffirmed many times by countries around the world. Implementation of the Paris Agreement is part and parcel of this overall agenda.
The twin understandings underpinning the Paris Agreement and the recognition of urgency/scale and the global agenda should be fundamental to the strategy of each country.
1.2 The key elements of a strategy
A strategy must specify key areas for action in pursuit of the objectives articulated and take careful account of the relevant circumstances along the dimensions described. It should not be rigid or over-detailed but must specify the most important areas for action. These include principally: investments; geographies; technologies; policies and institutions. I will comment on each briefly.
If the Paris goals are to be achieved, the vast majority of infrastructure investments must be low- or zero-carbon from now on. The main elements are energy, transport and water. Most routes to low-carbon and sustainability carry great benefits beyond the basic services provided. For example, reducing carbon emissions is generally complementary to and intertwined with reducing congestion and pollution in cities; and well-planned protection of forests and rehabilitation of land not only reduce emissions but also sustain or create strong and valuable ecosystems and enhance resilience.
It should be clear that much of this infrastructure will be fostered and delivered by public and private collaboration, around policies, institutions, delivery and finance. Of course, sustainable investment runs way beyond infrastructure, to industry, services, transport, buildings, and so on. Confidence for investment requires good policies and appropriate finance. Managing risk and bringing down the cost of capital are critical.
The next four decades will likely see the population of towns and cities nearly double, from more than 3.5 billion people now to more than 6.5 billion (as world population grows from 7 billion to 9–10 billion, and the share that is urbanised from 50 percent to 70 percent). That near doubling is a one-off event and period in human history. If the investment in cities is designed well, and existing towns and cities are run better, the benefits in terms of productivity, growth, inclusion and health could be immense. Strategy must be explicit about how an issue of this magnitude is managed.
The management of land and forests will play a profound role also. These are areas where a reduction in emissions can be combined with great production and ecosystem benefits, for example via rehabilitation of soil and from usufruct of forests. They are major potential contributors to the creation of negative emissions activities and are necessary if we are to go to net-zero emissions within 50 years or so.
Almost all production and consumption activities must have zero or negative GHG emissions within half a century. Emissions must be cut by 20 percent in the next 20 years, a period when output will likely double. This requires radical change in technologies. Progress has already been very rapid in the power sector, with renewable power reducing in price very quickly; advances, particularly digital, in demand and supply management; better linked and managed grids; and advances in storage. There have been major advances outside the power sector too, but these have been less rapid, and it is important that there is focus on technical advance in these areas. This is likely to require a major element of carbon capture and storage or use.
Policies and institutions
There are immense opportunities for sustainable investment in a world where technological progress is rapid, growth in emerging markets and developing countries is likely to be strong, and the needs, as articulated for example in the SDGs, are immense. It will be well-designed policies and institutions that turn investment opportunities into real programmes. Sound, clear and credible signals are crucial if market structures are to work well and generate prices and opportunities for risk management that give the right incentives and the confidence necessary for investment (see below for a brief discussion). Finance of the right kind and scale and at the right time is crucial too, particularly if private finance on the scale needed is to emerge. There is likely to be a need for a combination of urban and regional planning, prices, taxes, regulation, functioning competition, and so on.
2. Principles guiding long-term strategy
The previous section provided a definition of a long-term country-level strategy for delivery of the Paris Agreement and its main elements. Making these elements specific should be founded on both a set of principles for policy design and the identification of priority areas and activities where the effects are likely to be the most powerful. I comment on these briefly, below, beginning with the latter. These principles can be summarised as follows:
- Focus on cross-cutting technologies or services and the “big-hitters” or major emitters in relation to both current structures and future growth.
- Keep attention on fostering the main drivers of sustainable growth. This is a growth story.
- Recognise that government-induced policy risk is a major deterrent. Policies and institutions must be credible, coherent and consistent over the medium and long term.
- Recognise that development, mitigation and adaptation are intertwined and mutually supportive. Do not try to pull apart and separate.
- Keep focused on the dynamics: learning is central; so too is the avoidance of lock-in of high-carbon infrastructure and capital.
- Pay close attention to both distribution and inclusion, as a matter of justice and strategy and in order to manage change.
- Tackle all six of the key market failures concerning (i) GHGs, (ii) R&D, (iii) capital markets, (iv) networks such as electricity grids, public transport or broadband, (v) information such as the labelling of consumer appliances or the availability of options in production, (vi) co-benefits (reduced pollution, etc.)
All of these seven principles will require investigation and development, and I do not have the space to examine them in detail here.
Let me illustrate, however, by saying a few words on just two of them, the fourth and the seventh. The intertwining of development, mitigation and adaptation can be illustrated by two examples. The system of root intensification (SRI) for rice involves changes in cultivation methods which include avoiding flooding the paddy fields and different approaches to transplanting. The avoidance of flooding saves water and energy and by reducing necessary resources is good for development. The avoidance of flooding of paddy fields implies less release of methane, thus mitigation. And the method is more robust to weather difficulties, thus adaptation. Sustainable, non-polluting, less congesting public transport promotes development, reduces emissions, and provides some protection when weather difficulties strike. There are examples throughout the economy.
There is a great deal of the economics of public policy in point seven above. The emission of greenhouse gases is a damaging externality which should be taxed or regulated, and clear principles for doing so are available in public economics. Capital markets experience many difficulties in handling long-term risk. Development banks can play a powerful role in managing and reducing risk and bringing down the cost of capital, thereby generating powerful multipliers for the private sector. For further discussion of the six policy areas in point seven, see Stern (2015) Why are We Waiting?, MIT Press.
3. Delivery and review
Good strategies should embody direct attention to methods of delivery and review. Both should be transparent, carry accountability, and avoid excessive bureaucracy. Since most of the relevant investment will come from the private sector, clear, consistent and credible signals based on explicit principles (as above, Section 2) are vital.
Sound institutional methods within government and industry will be critical. One example, not the only one, is the UK Climate Change Legislation of 2008, established with cross-party support and embodying clear and binding targets for emissions reductions as well as a Climate Change Committee to monitor, advise and issue recommendations. Action is necessary across the economy and society and all economic ministries should be involved.
This will be a strongly dynamic process involving radical changes. There will be a great deal of learning and policy revision along the way. This learning and policy revision must be designed into the system so that methods or revision are sound and predictable. In other words, it is important to be “predictably flexible.” That is an important general strategic principle and critical in this case.
Above all, this should be approached in a spirit that recognises that this is the only real growth story that can be sustained, that there is a great urgency for action on scale, and that change can and must be both radical and measured. That is indeed possible on the basis of the above principles. This is a new growth story that is both feasible and very attractive.
Stern, Nicholas. 2015. Why Are We Waiting? The Logic, Urgency, and Promise of Tackling Climate Change. Cambridge, MA: MIT Press.