From crisis to opportunity

Eco-friendly investment, greater energy efficiency and pricing reform could all aid economic recovery

Vinod Thomas and Kenneth Chomitz
The Guardian, Monday 16 February 2009

Just as climate change was beginning to attain recognition as a critical challenge facing the human race, it has been eclipsed in popular attention by a crumbling global economy. It is tempting to shelve actions on global warming while turning the focus to shoring up the economy, but that would be a false choice. The downturn provides a last chance to switch tracks to a sustainable growth path, with green investments as an engine of recovery.
The emerging global response to the economic crisis provides a unique opportunity. The US, UK and other major economies are planning trillions of dollars in expenditures to stem the recession. There is also a degree of coordination among the world's policy leaders. This is a rare chance - not just to get the money out the door quickly, but to invest it in new and better ways.
To do so successfully, such an effort needs to recognise the upside of slack demand - the chance to shift people, equipment and money from dirty ruts to clean paths. Specifically, it should emphasise three interlocking elements: a green shift in investments, a push for efficiency and an overhaul of pricing.
First, countries ought to avoid mustering unemployed resources for jobs that lead to dead ends of low growth and high temperatures. If money is to be spent in the cause of stimulus, why not set idle drilling rigs and geologists to work looking for geothermal steam rather than oil? Investing in renewable energy today - when copper and engineers are cheap - is a good hedge against possible high energy prices tomorrow. Indeed, the futures markets already presage a return to more expensive oil.
The current economic lull is also a moment to protect precious natural resources. As agricultural prices decline, pressures to run down forests, wetlands, mangroves and floodplains can be better deflected, especially in resource-rich countries such as Brazil and Indonesia. Why not build rural roads in densely populated, poorly served areas - soaking up carbon in greener farms - rather than extend them to the forest frontier, provoking deforestation, or to floodplains, inducing precarious settlement.
Second, all countries can improve energy efficiency across the globe. Oil is running out. Current wells are going dry, and to replace them and keep up with demand requires new capacity six times that of Saudi Arabia between now and 2030, according to the International Energy Agency. As this is unlikely, prices will go up. Far greater energy efficiency has to be the answer.
Building codes, appliance standards and demand management can make a crucial difference. Russia could reduce energy use by a reported 45% through investments that would pay for themselves in a few years. Such savings would mean large economic payoffs and reductions in greenhouse gas emissions.
Globally, there are profitable, job-creating opportunities to increase energy efficiency by retrofitting old buildings with better insulation, old factories with modern equipment, old water pumping facilities with less leaky pipes. While construction is in a slump, industry could retool to build more energy efficient structures when demand resurges.
Third, now is the time to reform pricing policies to improve impact from spending and better protect poor people. Power and fuel subsidies - almost a third of a trillion dollars in 2007 worldwide, much of it in lower-income countries - accelerate climate change by encouraging wasteful uses of energy and by discouraging investments in benign alternatives to coal and oil.
Skewed towards better-off people, these funds hobble poor energy importers and could be devoted to investments that help poor people and promote growth. Now, with high energy prices fresh in mind but low prices prevalent in markets, we can remove subsidies and move towards more rational pricing.
The energy price spike of mid-2008 signalled how an energy tax or carbon charge could shift preferences to more efficient vehicles, greater use of mass transit and wind power. Taxes could help maintain a floor price of energy, giving investors assurance that clean investments pay off. Progressive use of tax revenues can make such a policy fair.
A crisis can often be turned into an opportunity. How we deal with the global recession will make all the difference to whether we avert the dangers of an even more ominous disaster: global warming.
• Vinod Thomas is senior vice-president at the World Bank; Kenneth Chomitz is senior adviser at the Independent Evaluation Group for the World Bank. They are writing in a personal capacity worldbank.org