Tackling climate change without halting economic progress

By Andreas Charalambous and Omiros Pissarides

The issue of human influence on climate change has been at the centre of public debate since the late 1970s.

Amongst the majority of the scientific community, there is no doubt about the correlation between human activity and increases in greenhouse gas emissions and temperature changes. The annual increase of greenhouse gases in the atmosphere is estimated to stand at around 50 billion tonnes. Recent studies confirm that the rise in temperature, based on present data, will exceed 2.5 degrees Celsius before the end of the century, with catastrophic results for the planet.

In the absence of drastic corrective measures, the current trend is unlikely to be reversed, due to the continued world population growth, especially in underdeveloped countries, as well as increased consumption. World Bank studies indicate, without ambiguity, that energy consumption and the negative environmental footprint increase with income: in fact, 40 per cent of global gas emissions are produced by the richest 16 per cent of the population.

At the same time, climate change exerts particularly adverse effects on low-income earners. Specifically, the poorest one billion people, the vast majority of whom are self-sufficient farmers spread across Africa and Asia, will face more adverse effects from climate change. Based on EU studies, even a moderate increase in temperature is predicted to cause significant suffering, and up to a 28 per cent increase in migration flows from these two continents to developed economies.

According to Bill Gates, 31 per cent of global greenhouse gases originate from construction, 27 per cent from electricity generation/distribution, 19 per cent from agriculture (crops and livestock), 16 per cent from transportation, and 7 per cent from heating/cooling. Most of us are not aware of how our actions contribute to the emission of gases and how much environmental damage we are inadvertently causing. Taking the construction sector as an example, the production of one tonne of concrete adds one tonne of carbon dioxide to the atmosphere, while, in the case of steel, the ratio is even more detrimental at 1 tonne of steel causing 1.8 tonnes of carbon dioxide. Within such a context, it is easy to understand why, as an example, China’s economic development, which in the first sixteen years of the 21st century used more concrete than the US did throughout the entire 20th century, is not based on sustainable environmental standards.

The halt of economic progress should not, however, be the goal. On the contrary, although empirical evidence suggests that economic prosperity has a negative impact on the environment, the view that economic and environmental progress cannot be mutually compatible should not form the basis of our actions. Clearly and unmistakably, any attempt to limit the improvement of living standards, especially in less developed countries, is neither a desirable nor a realistic strategy.

Instead, the focus should be on promoting the combination of new technologies, scientific data and policy reforms, which aim to eliminate greenhouse gases without excessive reduction in energy consumption. Key elements in this effort are energy conservation, the promotion of renewable energy sources and the exploitation of new technologies (such as the nascent method of carbon capture). The political will to adopt this approach seems to be increasing, as indicated by a number of relevant international agreements.

Andreas Charalambous is an economist and former director at the Ministry of Finance. Omiros Pissarides is Managing Director of PricewaterhouseCoopers Investment Services