Foreword
“It is in the long-term self-interest
of the EBRD countries to be
part of the energy-industrial
revolution, adapt their economies
and avoid being left behind.”
The2010summersawforestfiresandpoorharvests,thethreat
ofameltingtaigaandconflictsoverdiminishingwaterresourcesin
theEBRDregion.Theseservedasawakeupcall;untilthen,the
regionhadthelowestlevelsofpublicawarenessofclimate
changeintheworld.Thiswasalegacy,nodoubt,ofitshistory
ofcentralplanning,withitscheapenergyandchronic
environmentalneglect.
Butdespitethelimitedattentionpreviouslypaidtoclimate
change,noworldregionhasreduceditsoutputofgreenhouse
gasesmoreradicallyoverthelasttwodecadesthanthecountries
intransition.Since1990regionalgreenhousegasemissionsfrom
fuelcombustionhavefallenby28percent.
Erik Berglöf
ChiefEconomist,
EBRD
Nicholas Stern
Chairman,
GranthamResearchInstitute
onClimateChangeandthe
Environment
Thedeepfallinemissionsistoalargeextenttheresultofan
abysmalstartingpoint.Atthebeginningoftransition,energy
andcarbonintensitiesweresubstantiallyhigherthananywhere
elseintheworld.Emissionsfellasaby-productoftransition,
aseconomicrestructuring,priceandregulatoryreforms,pursuit
ofeconomicefficiencyandgreaterrespectfortheenvironment
begantotakeeffect.Somecountriesswitchedfromcoalto
naturalgas,acleanerandmoreefficientfuel.Allthiswas,
however,motivatedbyeconomicandairpollutionconsiderations;
climatechangewasnothighontheagendainthefirstdecade
oftransition.
Chapter1ofthisreportdocumentstheregion’sconsiderable
achievements.Whileregionalgreenhousegasemissionsbegan
risingagainafter2000,therateofincreasehasbeenmuchlower
thaneconomicgrowth.Thecarbonperformanceoftheleading
countriesintheregion–Hungary,LatviaandLithuania–hasnow
caughtupwiththeadvancedeconomiesoftheEU-15.This
demonstratesthatastrongcarbonperformanceisfeasiblewith
adequatereformsandgoodpolicies.
YetthecarbonperformanceoftheEBRDregionasawhole
remainsmixed.Kazakhstan,Russia,Turkmenistan,Ukraine,and
Uzbekistanareamongthemostcarbon-intensivecountriesinthe
world.Inthesecountries,thepollutinglegacyofcentralplanning
isstillpervasive.
Overthecomingdecades,transitioncountrieswillhavetoreduce
emissionsevenfurther.Globalemissionreductionsonthescale
requiredwillbeimpossibleunlessallmajorregionsareinvolved.
Asmembersoftheinternationalcommunity,EBRDcountrieswill
beexpectedtoplaytheirpart.
However,theinterestoftransitioncountriesinfightingclimate
changegoesbeyondinternationalsolidarity;theyhavemuchat
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Special Report on Climate Change
stakethemselves.Whileotherworldregions–low-income
countriesinparticular–maybeworsehitbyclimatechange,the
transitioncountrieswillalsosufferfromthenegativeeffectsof
climatechange.
Onecannotknowforcertainwhetherrecentextremeweather
eventsweretheresultofnaturalclimatevariabilityorhumaninducedclimatechange;theclimateprocessinvolvesbothnatural
fluctuationsandanthropogenictrends.Buttheseevents
demonstratethattheregionisvulnerabletothesortofcalamities
thatclimatechangeislikelytobring.Further–andheretheregion
maybeparticularlyvulnerable–unmanagedclimatechange
wouldbelikelytoleadtomajoranddisruptivemovementsof
population,withintheregionandprobablyintotheregion.
Theworldisembarkingonanewenergy-industrialrevolution
thatwillseewholesalechangesineconomicactivity,fromwhat
weconsumetothewaysinwhichweproduceourgoods.
Establishedandemergingmarketsalikeseenewbusiness
opportunitiesincleanenergy,low-carbontransportandcarbonefficientmanufacturing.
Theindustrialrevolutioncanandwillhappeneverywhere,including
agricultureandbuildings.Itisinthelong-termself-interestof
theEBRDcountriestobepartofthisrevolution,adapttheir
economiesandavoidbeingleftbehind.Theriskisnotjustfalling
behindtechnologically,butalsoinadecadeorsoofbeingshut
outofmarketsifproductsareseenas“dirty”bycountriesand
regionstakingstrongaction.
Chapter2discussesthefuturedecarbonisationchallengesforthe
region.Thereisnodenyingthatreducingemissionsincountries
withextensivefossil-fuelreservesandanenergy-intensive
industrybasewillbemorecostlyintheshorttermthaninalready
well-diversifiedeconomies.However,transitioncountrieshavethe
resourcestotransformtheiroldandincreasinglyobsolete
high-carboncapitalintothelow-carboncapitalandhumancapital
thatwilldrivetheneweconomies.Economicdiversificationin
theenergy-richtransitioneconomiesoverthenexttwodecades
wouldlowerthecostsofreducingemissions.
Inparallel,anadequateglobalcollaborationarrangementwould
incentivisetransitioneconomiestotakepartinglobalclimate
changemitigationefforts,improvetheiraccesstoclean
technologiesandfacilitatetheirparticipationinemission-trading
schemesthatcanfurtherreducethecostsofdecarbonisation.
Chapter3showsthatwiththoughtfulpoliciesitispossibleto
makeemissionreductionsfinanciallyattractiveandturnlowcarbontechnologyintoanopportunityfordomesticand
internationalinvestment.Manyofthereformsthatareneededare
alreadyonthepolicyagenda–andhavebeenforyears–andnot
allofthemarespecifictoclimatechange.Implementingwhatis
requiredincludesbroadereconomicreformssuchascostreflectiveenergypricing,abetterbusinessenvironmentand
reducedtransactioncostsforinvestmentsinenergyefficiency.
Improvedgeneralmanagementandcorporategovernancehave
alsoproventobepowerfuldriversofenergyefficiency.Ultimately,
themostimportantcontributiontoclimatechangemitigationwill
comefromtheeconomy-widechangestheEBRDwasconceived
tofoster.
Themostbasicclimatechangepolicyisputtingapriceoncarbon.
Emissionstradingandcarbonpricingarepowerfulmeasures,
notjusttoencourageemissionreductionsbuttoturnemission
reductionintoanengineforcleanenergyinnovation.Businesses
inthenewEuropeanUnion(EU)memberstatesarealready
becomingaccustomedtocarbonpricingasmembersofthe
EUEmissionsTradingScheme(ETS).Elsewhereintheregion,
emissionsavingscanbemonetisedbysellingemissionoffsetson
theinternationalcarbonmarket,throughschemessuchasJoint
Implementation(JI)andtheCleanDevelopmentMechanism
(CDM).Theregionhasyettotakefulladvantageofthe
opportunitiesthesemechanismsprovide.
Intheabsenceofwell-functioningglobalcarbonmarketsatthe
presenttime,aninternationalcarbonfinancingarchitectureis
neededtoencouragecountriestostartundertakingthenecessary
investments.TheinternationalfinancialinstitutionsliketheEBRD
willplayanimportantroleinimplementingtheseschemesand
ensuringthatthemoneyiswellspent.Butthepoliticalfeasibility
ofclimateinvestmentrelatedgrantsfromhightomiddle-income
countriesislimitedand,aslargeasthesegrantfundsmayseem
today,theyarejustadropintheoceaniftheEBRDregionisto
achievemitigationobjectivesconsistentwithlimitingglobal
temperatureincreasesto2°C.Withoutfunctioningcarbonmarkets
orothermechanismstogeneratepredictableglobalpricesfor
carbonemissionsanddramaticallyimprovedpoliciestheregion
willinevitablyfallshort.
Whilstthesecarbonmarketsandassociatedpoliciesmaybeweak
today,itwouldbeunwiseandriskytomakeinvestmentswith10
or20-yearhorizonsontheassumptionthatpolicystructureswill
staylikethis.Indeeditismorelikelythannotthatoverthenext
decadecarbonmarketsandregulationswillstrengthenand
tightenacrosstheworld,anddirtyproducersmayfindthemselves
shutoutofmarkets.Botheconomicallyandenvironmentally,high
carbonisariskyroutetofollow.”
Goodpolicytomakemarketsworkwellmust,however,goway
beyondcarbonpricing.Therearefundamentalmarketfailures,
whichgoodpolicycancorrect,includingonresearchand
development,networksandinfrastructure,capitalmarketsand
risk,propertymarketsandinformation.
Politicaleconomychallengescanmakesomeofthenecessary
reformsdifficulttoachieve.Inparticular,therearestrongvested
interestsamongincumbentindustries.Theshort-termsocialcosts
ofreformandeconomicadjustmentcostsduetohigherenergy
pricescanalsobesignificantintheabsenceofwell-functioning
socialsupport.Itisimportanttorecognisetheseproblems,as
theywillrequirestrongpoliticalleadershiptoovercome.We
exploretheseinChapter4.
Thepublicdebateaboutclimatechangeinthetransitionregionis
stillatarelativelyearlystage.Therearemanymisconceptionsand
thelow-carbonagendabringsbackmemoriesofthepainfulearly
yearsofeconomictransition.Theglobaldebateisprogressing
muchfaster.Othercountries,bothestablishedandemerging
economies,arerapidlypositioningthemselvesinthecoming
low-carbonworld.ButtheEBRDregionhasthegreatadvantage
ofunderstanding,throughdirectexperience,thechallengeand
opportunityofatransitionandthedeepsocialandeconomic
changeitbrings.
WehopethatthisSpecialReportonClimateChange–produced
jointlybytheEBRD’sOfficeoftheChiefEconomistandthe
GranthamResearchInstituteattheLondonSchoolofEconomics
–willfurtherincreaseawarenessofthechallengesofclimate
changeandhelptostimulateandadvancethedebateabout
low-carbonprosperityinthetransitionregion.
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