Economic Growth, Climate Change and the G20: A View from Civil Society


This article was co-authored with Dr Stefanie Celine Roth and Griffith University alumni Elsbeth Fahrner, Christopher Hill, and Brittany Laidlaw.

Introduction

The Group of Twenty (G20) is a forum for the governments and central bank governors from 20 of the world’s major economies that, collectively, account for about 90% of the world’s gross domestic product, 80% of international trade, and approximately two-thirds of world population. These same countries also account for around 80% of CO2 emissions, although this statistic does not figure quite as prominently in official publications, least of all those that have been prepared for the 2014 G20 Summit to be held in Brisbane in November.

Herein lies the motivation for the publication of this document, which draws on discussions between a broad cross section of the community at a conference staged by the Asia Pacific for Sustainable Enterprise (APCSE) at Griffith University. This conference, Economic Growth, Climate Change and the G20, was convened because, despite the clear message sent by the Civil Society 20 (C20) in the communiqué following its June meeting in Melbourne, climate change was deliberately left off the official G20 Summit agenda by the Australian government, Prime Minister Abbott arguing that it would “clutter up” the agenda when the focus needs to be on economic growth.

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Climate change was certainly not considered ‘clutter’ by the delegates at the C20 Summit, but an ‘urgent priority’ that must be a ‘stand-alone issue’ on the G20 agenda. This point was emphasised by Professor Jeffrey Sachs, Director of the Earth Institute at Columbia University, the opening keynote speaker at the conference, who singled out climate change as the largest threat to the economy. Indeed, this is a viewpoint that would likely be accepted by all G20 leaders attending the Brisbane G20 Summit, with the possible exception of Canadian Prime Minister, Stephen Harper. The US and the EU have continued to lobby hard for its inclusion, but the Australian government has continued with its dogmatic stance.

The critical issue at hand is that the pursuit of economic growth ‘twentieth-century style’ is no longer possible. We now live in a ‘full world’ and policy makers need to find a safe operating space within planetary boundaries. Failure to do so could lead to potentially catastrophic consequences for future generations. To this end, there needs to be a reconceptualization of economic growth in order that there be explicit valuation of natural capital, and a redefinition of well-being beyond raw GDP figures. This was the focus of the APCSE conference within four broad themes. Each theme was addressed through interactive panel discussions that addressed the following questions:

· What will future generations say about the economic growth strategies of the G20 in the early 21st century?

· What sort of economic growth is permissible in a climate-constrained world?

· How do capital markets address ‘unburnable’ carbon, stranded assets and a decarbonised shift in our energy mix?

· What opportunities exist for sustainable enterprise in terms of climate adaptation and building resilience?

Welcome to country from Songwoman Maroochy Barambah of the Turrbal-Gubbi Gubbi people

What will future generations say about the economic growth strategies of the G20 in the early 21st century?

Any discussion about the impact of climate change is inevitably a discussion about morality and ethics as well as economics. Equity is a key element in global climate negotiations, and the conversation usually centres upon both intra-generational and inter-generational equity.

Intra-generational equity is being fair to the current generation. It is common to point to this as justification for economic growth, and how developing economies need to grow in order for large numbers of people to be lifted out of poverty. An implicit assumption here is that this would be an inclusive form of economic growth benefiting a society broadly and not a small elite group. A further assumption would be that this growth would not exacerbate the impact of climate change already being experienced acutely by the developing world in the form of droughts, heavy flooding and cyclones.

Inter-generational equity is being fair to future generations. It is central to the concept of sustainable development that current generations should not compromise the ability of future generations to meet their needs and enjoy a happy and healthy life. In essence, it installs a sense of obligation upon the current generation to conserve the Earth and its natural resources so that future generations can inherit a world worth living in with access to the same opportunities.

Members of the panel in this first session of the conference expressed their grave concern about the future that today’s young people will inherit given current policy settings in Australia at least. Ina Tessnow-von Wysocki, a 22-year old Griffith Honours College student, brought insights from her home country of Germany, a world leader in renewable energy technologies. In stark contrast to Australia’s target of a 5% reduction in greenhouse gas emissions by 2020, Germany has already managed to reduce its emissions by 25.5% between 2008–2012. Ina also highlighted the need for Australia to cultivate conscious values within the country’s education system where environmental care and advocacy are deemed a priority. Such a mindset is common in Europe and Scandinavian countries. “In Germany, it’s just what we do”, said Ina, “its what we grow up with so it just becomes normal”. Other members of the panel bemoaned the absence of a similar culture in Australia, and the poor prospect of one emerging when the political leadership of the country shows such antipathy towards climate change and fails to attend important world negotiations on the issue.

Professor Ian Lowe, Emeritus Professor in the School of Science at Griffith University observed that a by-product of such inertia on the part of the Australian government was that it does nothing to encourage the development of young eco-entrepreneurs precisely when they were needed most. Highlighting statistics from the Living Planet Report 2014, Ian pointed out that our current ecological footprint is already 1.5 times the Earth’s capacity, putting us in ‘ecological deficit’. “It seems that our current politicians are sleepwalking into disaster,” said Professor Lowe, lamenting that he wished the Australian government was as concerned about this deficit as it is about the current federal budget deficit.

The panel expressed regret that business-as-usual policies with an emphasis on fossil fuel exports as a driver for growth were enormously short sighted. Australian Greens Senator for Queensland and Griffith alumna, Larissa Waters, made the point that the economy is a wholly owned subsidiary of the environment, and not the other way around; a point seemingly lost on the current government as it seeks to promote the development of coal seam gas and new coal mines even if it puts delicate ecosystems at risk, including the iconic Great Barrier Reef.

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This rather limited perspective on economic growth is very out-dated according to panellist Rod Welford, Executive Chairman of the Ensight Group and former Minister for Environment and Heritage in Queensland. “It reminds me of old black and white news reels”, said Welford, a lot of rhetoric about growth and development, but all viewed rather uncritically. If there is to be growth, we need to ask of what and for whom. Is it about increased quality of life (value) or increased churn to make people wealthier (volume)? Current government thinking would seem to indicate that it favours the latter. The push to expand coal production, for example, and the relegation of climate change as a major issue is frequently couched in terms of job creation. As Rod Welford indicated, however, coal mining employs less than half of 1% of the Australian workforce. In addition – somewhat ironically – revenues from coal production add more to the GDP of countries other than Australia because 83% of the industry is foreign-owned.

A more strategic approach would be to transition out of fossil fuel production – rather than ramp it up – and invest in infrastructure for the new low carbon economy. As Senator Waters commented, doing so would alleviate the risk of sudden shocks to the system. Importantly, this would generate long-term job opportunities for young people and allow innovative businesses to thrive.

“Could the panel come up with a better term than ‘economic growth’?”

A question from the audience centred on the term ‘economic growth’ itself, and whether the panel could come up with a better term. The word ‘prosperity’ was a popular choice in that it focuses on people’s wellbeing rather than just increased wealth. This view aligns with the very foundation of sustainable development where the ability of future generations to meet their needs is not compromised by the actions of the present generation. ‘Equitable development’ was the term favoured by Professor Lowe, because this implies prosperity for the broader community now and into the future rather than a select few in the present.

In summary, the panel and audience were of the view that it is highly unlikely future generations will be complimentary about the economic growth strategies currently pursued by the G20 unless there is a dramatic turnaround in events. Left unchecked, climate change is predicted to spiral out of control leading to dire consequences for all living things on the planet. The conventional wisdom throughout much of the 20th century was that economic growth would make future generations better off. This truism no longer applies. To ignore this fact in the face of such compelling evidence presented by the likes of the Intergovernmental Panel on Climate Change (IPCC) is highly unethical.

If there is any doubt about this, one simply has to ask one of the hundreds of thousands of young people in Australia who are distressed about the government’s climate inaction including those in organisations such as the Australian Youth Climate Coalition, 350.org, GetUp! and other grassroots groups. Such organisations have led various campaigns in support of renewable energy expansion, greenhouse gas emission reductions, and the protection of the Great Barrier Reef from coal ports, demanding action by Government to protect their future.

Image source: AYCC Facebook Timeline photos

Public policy rolled out because “it is good for the economy” is not good politics as far as these groups are concerned. They vote, and harnessing the power of social media, they are becoming an increasingly effective lobbying force. It is a constituency that the Abbott government can ignore at its peril.


What sort of economic growth is permissible in a climate-constrained world?

The second session of the conference challenged the panellists to critique the concept of economic growth within the context of planetary boundaries and to discuss the type of economic growth acceptable if there is to be economic growth at all.

This session commenced with a virtual keynote presentation from Professor Leena Srinivastava, Vice-Chancellor of TERI University in India who presented an emerging economy perspective. Extoling the virtues of a no growth economy when more than 250 million people in India live in poverty is a difficult task, but it certainly helps to frame the debate about the principles for our shared responsibilities. Trying for a solution that meets the needs of us all highlights the inequities and injustices within the current economic paradigm.

Professor Leena Srivastava

The transfer of appropriate technology from the developed world to build capacity in the developing world is frequently cited as an important measure to redress these imbalances and do so in an ecologically responsible fashion. As Professor Srinivastava pointed out, however, there is a large gap between what is currently available and what is in use. Until such a time when low carbon solutions become widely available in developing countries, it will be difficult for these nations to be enthusiastic about any multilateral agreements to limit carbon emissions.

Professor Jean Palutikof, Director of the National Climate Change Adaptation Research Facility (NCCARF), started off the panel discussion by sharing her experiences working for the IPCC. She spoke about the enormous amount of data that is gathered over several years and analysed by hundreds of scientists in order to produce each climate assessment report. The Fifth Assessment Report (AR5) was released in four parts between September 2013 and November 2014, and involved more than 830 authors and review editors from over 80 countries, selected from around 3600 nominated individuals. It is the most comprehensive assessment of climate science since 2007 when the Fourth Assessment Report (AR4) was released.

Professor Jean Palutikof talking about IPCC AR5

The dire warnings in AR5 about the potential disruption from climate change need to take into account two other factors about IPCC and the way it operates. First, scientists – by their very nature – are very conservative and not prone to wild speculation and hyperbole. Second, as these assessment exercises take a number of years to complete, it is inevitable that the data being used will be a little out-of-date. The implication, therefore, is that any predictions to emerge will likely understate the true extent of the challenges we face. This is why it is so critical world leaders sign a new climate agreement at the Paris meeting of the United Nations Framework Convention on Climate Change (UNFCCC) Conference of the Parties (COP21) in December 2015.

Significantly, if climate change were on the agenda at the G20 Summit, the ensuing discussion could act as a springboard for the some serious debate among world leaders in the run up to the Paris meeting.

Professor Clive Hamilton is one of Australia’s best-known public intellectuals and, among other things, currently serves as a member of the Climate Change Authority (CCA). It was in this capacity, that he spoke about ‘carbon budgets’ and what this means in a ‘growing world’. A lot of material has been published over the last few years by the Carbon Tracker Initiative, a London-based not-for-profit organisation that has calculated how much of the world’s fossil fuels can be burned if global warming is to stay within 2 degrees centigrade. Hamilton noted that to have a 67% chance of limiting warming to 2°C global emissions cannot exceed 1,700 billion tonnes CO2 over 2000–2050. Australia’s share of this (2013–2050) is 10.1 billion tonnes. On this basis, the CCA estimates that, by 2020, emissions must be reduced by 19% (on 2000 levels), and by 40–60% in 2030, with the goal of zero net emissions in 2045.

The problem is that the Australian government has committed to a reduction of only 5% by 2020; a target it considers ‘ambitious’. This, according to Hamilton, must mean that the rest of the world – including poor countries – will need to shoulders some of Australia’s burden, or impossibly steep cuts in emissions must occur in the 2030s and 2040s. Alternatively, the Government has abandoned the 2°C goal and committed Australia to living in a hot and dangerous world. Would a commitment of a 19% cut in emissions prove disastrous for the Australian economy? Not so according to the CCA, calculating that gross national income per head in 2020 would be $66,450 with a 5% cut and $66,350 with a 19% cut.

Ian Dunlop, a Director of Australia 21, a Member of the Club of Rome, a Fellow of the Centre for Policy Development, and a one-time Chair of the Australian Coal Association, made his contribution to the panel discussion by first highlighting the relative conservatism of the IPCC AR5 report. He then picked up where Clive Hamilton left off to talk in more detail about the kind of economic growth possible given the carbon budget constraint. His message was chilling but clear, and expressed in terms of how much risk we are prepared to accept. Drawing on data from the IPCC AR5 report he illustrated how – for there to be a 90% probability of not exceeding 2°C warming – there must be no more emissions right now. In other words, we have already utilised our carbon budget! Conventional economic growth, he argued, can therefore not be sustained without radical behavioural change. The high carbon growth model has over-extended and to avoid systemic breakdown there needs to be rapid, deep and early reductions in energy consumption, because low-carbon technologies will not deliver the necessary rate of emission reductions quickly enough. “We have to redefine how we look at growth”, said Dunlop, we have choices to make and we need to make them quickly.

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The Director of the Center for the Advancement of the Steady State Economy (CASSE), Dr Brian Czech, entered the discussion by saying that it would be very difficult to add any more to the feeling of doom and gloom in the room, but that he would do his best. This drew ripples of laughter from the audience, serving to lighten the mood a little. Czech then proceeded to work his way through some of the terminology being used in the context of the current debate surrounding economic growth including ‘green growth’, ‘de-growth’ and the ‘steady state’. Green growth, he said, might be something of an oxymoron, in that “we can’t get something for nothing”. If we want an increase in the production of goods and services, then our natural capital stocks must be able to continue to support this indefinitely. As this is physically impossible, stated Czech, it was inevitable the economy would reach some steady state where the throughput of raw materials would be constrained by their ability to renew, and there would be no increase in output as defined by GDP, unless it was through improved efficiency. Concurring – and extending his own analysis – Ian Dunlop suggested that extracting any additional economic growth from the world economy would prove difficult, and a steady state is inevitable, most likely after a period of de-growth.

Brian Czech: “It will be very difficult to add any more to the feeling of doom and gloom in the room, …but I will do my best”.

To summarise, this second session of the conference certainly focused the mind on the task that lies before us. The panellists’ analyses – drawing on the work of the IPCC – were highly critical of the notion that economic growth can continue on a business-as-usual basis, with dangerous climate change now a very real and imminent risk. Economic growth may be possible in the short term, but without a dramatic and fundamental change in behaviour, climate change is likely to escalate leading to a serious contraction and possible collapse of the economy.

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How do capital markets address ‘unburnable’ carbon, stranded assets and a decarbonised shift in our energy mix?

While the scientific evidence that elevated carbon emissions pose a significant risk to the wellbeing of the planet and its inhabitants has historically been the primary focus of the climate change debate, a relatively new twist has been the potential impact upon capital markets. This was the focus of attention for the third panel discussion of the day, specifically how one manages the financial risk associated with exposure to stranded assets if, as Carbon Tracker has documented, between 60–80% of fossil fuel reserves of publicly listed companies are ‘unburnable’ if the world is to have a chance of not exceeding global warming of 2°C.

A Carbon Canary

This post-lunch session opened with a clever and entertaining musical interlude by Jenny Fitzgibbon of the Carbon Canaries. This set the tone for a productive discussion on the challenges and prospects for the energy sector and the global economy. Moderated by Mara Bun of Green Cross Australia, the panel comprised a wealth of experience in the banking and financial services industries, both domestically and internationally, including Paul Peters of Global Venture Partners, Dr Stuart Palmer of Australian Ethical Investment, Tim Buckley of the Institute of Energy Economics and Financial Analysis, and Dr John Hewson of the Asset Owners Disclosure Project, and former leader of the federal Liberal Party.

Other panel discussions during the day touched upon the impact of climate change on various elements of the Five Capitals Framework, namely natural capital, social capital, human capital, manufactured capital and financial capital; this session was clearly focussed on the latter with speculation that there could be a climate driven financial crisis that may eclipse the Global Financial Crisis (GFC) of 2007–08, the ‘dotcom’ bubble of 2000–01, and the Asian currency crisis of 1997–98.

Globally, there are high levels of investment in high carbon emitting industries, fossil fuel energy generation being the most obvious, but many of the top Australian Stock Exchange (ASX) listed firms are linked to the fossil fuel industry, with Australian banks and superannuation funds heavily invested in extraction and related businesses. Australian governments meanwhile – state and federal – are reliant on the revenue from the royalties and taxes of the extraction sector. There is also a significant amount of infrastructure (i.e. ports, transportation), technology and workforce geared to meet the needs of these businesses.

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It follows that if there are doubts about the future viability of the fossil fuel energy sector, economies that are heavily reliant upon this sector become exposed to risk. The panellists noted that in Australia, these risks are significant and growing. Businesses in the sector are facing increasing competition from the rapidly evolving renewable energy industry and there are signs that the divestment lobby led by the likes of 350.org and Market Forces is starting to gain traction, as superannuation funds and universities shift funds away from fossil fuels. As this trend gains momentum, the prospect of ‘stranded assets’ increases. Coal, oil and gas reserves are not consumed and lose value, as will the associated infrastructure and machinery. The financial implications arising from failed investments, bad loans, unemployment, depleted government revenues and so on are potentially devastating.

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Concurrently, the renewable energy sector provides a treasure chest of opportunity. Increased customer demand, significant drops in the costs of production, and reduced pay back periods are fuelling advances in these industries. Investors are increasingly realising it makes good commercial sense to invest in renewables and energy efficiency, and this is creating a new wave of ethical investment options (e.g. green bonds), that seek to align investment choices with the investor’s values. Importantly, these investors are able to do so without sacrificing their returns (cited examples included Tesla and NextEra). As these investment plans mature they are showing consistently healthy yields. Furthermore, as capital becomes more readily available to the renewable sector, the sector continues to expand and become more profitable. Thus, capital markets are becoming the catalysts for change to address the impacts of climate change.

There was some discussion among the panellist regarding barriers to change, and policy uncertainty was considered a major constraint. It was noted that foreign owned extraction companies seem to have the upper hand in influencing government policy, and that the short term outlook of government and energy industry incumbents was an obstacle to industry transformation. It is ironic, as John Hewson noted, that today’s political leaders are focussed on ensuring future generations of Australians are not saddled with the legacy of budget deficits, yet they appear to show little regard and an alarming lack of urgency for the environmental and social legacy resulting from climate change.

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In answer to questions from the audience about how these barriers might be dismantled, one recommendation was made that remuneration and key performance indicators (KPIs) of senior management need to reflect long-term goals and fiduciary responsibilities. It was also suggested that it would be helpful to have more diverse voices around the boardroom tables of the world.


What opportunities exist for sustainable enterprise in terms of climate adaptation and building resilience?

As non-executive director of Green Cross Australia, Mara Bun is committed to the development of community resilience. She considers partnership and collaboration as the way forward for achieving resilience and change. She introduced the formula: “Think plus Act plus Share equals Change” as the overriding theme for the fourth and final panel discussion of the conference.

Mark Baker-Jones, Special Counsel with law firm DLA Piper, presented how climate legal risks can influence adaptation planning. Making decisions in the area of planning and infrastructure or urban building, particularly in coastal areas, encompasses risk; e.g. building in flood prone areas or ensuring appropriate cyclone protective measures in building design. Failing to make the correct decision can lead to damage costs for the people impacted by the decision and/ or litigation costs for the decision maker who could be accused of negligence. While there is always uncertainty for decision makers in determining their liabilities on a day-to-day basis, climate change risk adds an additional layer of complexity.

In the US, for example, a farmers’ insurance company considered suing Local Government in Illinois for compensation suggesting that their losses could have been avoided if the local government climate change adaptation plans had been implemented. Another example is the move by the local council in the Whitsundays to request funding from the State government for climate change adaptation measures or, if this funding is not provided, to be indemnified by the state regarding potential litigation costs.

Given the abundance of information about climate change and its potential impacts such as increased flooding, droughts, and other severe weather events like heat waves and cyclones, and their associated secondary impacts like increased energy and water consumption, or rising health costs, decision makers can, of course, take precautionary steps to prepare for climate change adaptation. Greg Johnson, Environmental Sustainability Manager at Stockland, a company involved in extensive construction activity for shopping centres and large residential areas, explained that his company has conducted vulnerability assessments to develop adaptation measures and thus increase resilience for the company, but also for the communities in which they operate.

The Stockland vulnerability assessments consider the exposure to climate change taking into account climate and physical attributes that could be regionally different; e.g. sea level rise, the number of hot days, and exposure to cyclones. The company consequently has climate change adaptation plans in place that implement risk mitigation actions to reduce vulnerability and increase resilience, and they also have developed community resilience plans. Stockland is also involved in developing a tool for rating the climate change resilience for residential buildings as an add-on for the Green Star rating developed by the Green Building Council. In closing, Greg Johnson emphasised that they are learning-by-doing and there is still scope for improvement; an integral part, perhaps, of adaptation planning.

Lane Crockett, Executive General Manager for Pacific Hydro (Australia) provided a perspective from the renewable energy sector. On the one hand, it can influence climate change mitigation through the way it generates and distributes electricity and, on the other hand, it needs to ensure its infrastructure is resilient enough to cope with increases in heat waves, droughts, flooding, bushfires and storm and wind events. Heatwaves, for example, can reduce the capacity of poles and wires for transmitting electricity. Some distribution infrastructure might even turn itself off. However, at the same time there is increased pressure on the capacity of distribution systems through increased use of air conditioners and other electric devices. Increased droughts are obviously problematic for hydros but they also pose a risk to thermal energy generation regarding the need of cooling water. The disabling impact of flooding was experienced in recent years when a power station in Victoria was not able to produce because its conveyor belt and the mine were flooded, leading to increased electricity prices. Bushfires and strong wind events provide risks to transmission lines and conveyor belts as well.

A completely different view on climate change mitigation and adaptation was provided by Kate Van Homrigh who told the story of Pollinate Energy, a sustainable enterprise delivering solar lighting to the slums of India. Currently, most people living in slums are using kerosene lamps that are unreliable and a health risk. By providing solar lights in conjunction with training and a five week payment plan, an alternative is provided that is healthier, safer and cheaper than kerosene. A return on investment is usually achieved in six months. These solar lamps also enable people who produce products and services at home to work longer and thus generate higher incomes. Solar lights used in shops help attract customers, allowing the shop to stay open for longer and also providing a place for social interaction. In one case, a shop owner was able to generate double the income than before and moved from a tent to a house. Besides the health and environmental benefits, the lamps also provide educational benefits because children can study at night.

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The question and discussion session highlighted that all conference participants – panel and audience – agreed that there does not need to be a dichotomy between company and community interests in climate change mitigation and adaptation if they work together.

Summing up

The conference attracted a rich and diverse audience covering a broad spectrum of business, not-for-profits, academia, and civil society, and these groups were well represented in terms of their age, gender, ethnicity and political backgrounds.

With such a cross-section of delegates there is always a risk that the event will fall short of expectations. However, formal evaluations of the day suggested otherwise, justifying a broad, non-partisan, and trans-disciplinary approach to this thorniest problems.

It is also clear that this broad representation of civil society finds it problematic that G20 leaders would hold a summit focusing on economic growth and not want to discuss climate change.