The growth story of the 21st century : the economics and opportunity of climate action

Title page 1

Contents 5

List of figures and tables 9

Foreword 14

About the author 16

Preface 17

Acknowledgments 22

Acronym list 25

Introduction: if not us, who? If not now, when? 29

Part I. Foundations: a world re-drawn and an urgent agenda for action 42

1. How we got here, and where to now 43

1.1. Lessons from the two decades following the Stern Review 43

1.2. The new objective: from growth to sustainable development 47

1.3. Extraordinary advances and deep challenges 51

1.4. International agreements: the significance of Paris, COP21 54

1.5. Growth: received theories, change, and the new vision 60

1.6. Concluding remarks: towards sustainable development 67

2. Some fundamentals: science and nature 70

2.1. The forces and the dangers 71

2.2. Risks, urgency, overshooting, tipping points, and carbon budgets 80

2.3. Adaptation, hazards, vulnerability, and development 91

2.4. Nature: biodiversity and climate 97

2.5. Concluding remarks: the science is clear and sets the timetable 101

3. More fundamentals: politics, economics, ethics 105

3.1. Politics and its intersections with history and geography 106

3.2. Economics and ethics 116

3.3. Ways forward for constructive analysis in economics and the social sciences 126

3.4. Concluding remarks: to my fellow economists 132

4. A changing world: new opportunities and an agenda for action 136

4.1. Forces for change: public pressure and legal accountability 137

4.2. Technology, innovation, and the private sector 143

4.3. International action in a changing world 155

4.4. A new geopolitics 170

Notes 178

Part II. The new growth story: investment, innovation, and fundamental structural change 182

5. Rising to the challenges: the key elements of a new growth story 183

5.1. The drivers of growth 185

5.2. Economy-wide integrated action 200

5.3. Errors in common counterarguments 214

5.4. Investment across sectors and geographies 222

5.5. Development, poverty reduction, and climate action 231

5.6. Concluding remarks: the new growth and development story 234

6. Perspectives, policies, institutions: actions for rapid structural transformation and sustainable growth 238

6.1. Concepts and perspectives: technologies and systems 239

6.2. Fostering investment: strategies, systems, and platforms 248

6.3. Incentive structures for the new economy: tackling market failures 255

6.4. Financial structures for the new economy 263

6.5. Distribution and a just transition 271

6.6. Macroeconomic challenges 276

6.7. Concluding remarks: opportunities, choices, trade-offs, and commitment 278

7. The role of the state in a changing world 284

7.1. The confusions, failures, and dangers of market fundamentalism 285

7.2. The role of the state in driving change: crisis, urgency, and systemic transformation 288

7.3. Global public goods and internationalism 290

7.4. Institutions, rights, and behaviours 292

7.5. Political economy 295

7.6. Concluding remarks: recasting the role of the state 296

Part III. International action 299

8. Transformation of the international economy: interdependencies, new structures and geographies, and differences across nations 300

8.1. An interdependent world 301

8.2. A new global economic geography 307

8.3. New opportunities: new resources, new players, competition 313

8.4. Natural capital: investment and impact 324

8.5. Differences between nations: EMDCs' energy potential and infrastructure needs 325

8.6. Concluding remarks: opportunity, international cooperation, and a new economic geography 330

9. International action for sustainable development: investment, finance, and collaboration 334

9.1. Future foundations: restoring trust and building new leadership 335

9.2. The investment imperative: what is needed where 338

9.3. Mobilising finance: international collaboration 345

9.4. Technology, industrial policy, trade, and innovation 360

9.5. Aligning global climate and biodiversity action 368

9.6. Overshooting, negative emissions, geoengineering 373

9.7. Concluding remarks: a global response to a global challenge 377

Part IV. Galvanising action 384

10. Fallacies and confusions; obstacles and the risk of failure 385

10.1. Fallacies from advocates of weak or delayed action 386

10.2. Confusion and misdirection 393

10.3. Obstacles, action to tackle them, and the research agenda 403

10.4. Crucial issues that get too little attention: adaptation and biodiversity 415

10.5. Concluding remarks: dispelling fallacies and overcoming obstacles to action 418

11. Prospects for success: opportunity, urgency, and multilateralism 423

11.1. Retrospect: developments since the Stern Review 424

11.2. Prospect: fostering action and an agenda for economics and the social sciences 426

11.3. Multilateralism 436

11.4. Concluding remarks: 'Yes, we can'; success is possible 438

Reference list 441

Index 530

Tables 12

Table 1.1. Characteristics of the Paris Agreement, 2015 (COP21) 58

Table 1.2. Projected rankings of most populous countries in 2024, 2054, and 2100 64

Table 2.1. Examples of climate change impacts in the world's largest cities at 1.5℃ vs 3℃ 83

Table 4.1. Private sector-oriented initiatives 154

Table 4.2. The agenda for the growth and development story of the 21st century 177

Table 5.1. AI's potential contribution to the climate transition and growth 211

Table 5.2. Climate action versus growth 215

Table 5.3. Market failures related to climate and sustainable development 217

Table 6.1. Tackling market failures: policy options for action on climate and promotion of sustainable development 257

Table 8.1. Upstream and midstream dominance: China's role in the mining and refining of main transition-critical minerals (TCMs) for energy generation... 316

Table 9.1. Key climate investment needs by 2030 342

Table 9.2. International action on climate and biodiversity since 1987 370

Table 10.1. Flawed arguments for delaying climate action, contrasted with reality 388

Table 10.2. Confusion and misdirection in tackling climate change, with clarifications 394

Table 10.3. Key obstacles and barriers to action 406

Table 10.4. Key challenges and actions related to adaptation and natural capital 418

Table 11.1. Research agenda: the structure of the challenges and opportunities 430

Table 11.2. Research agenda: rising to the challenges and taking the opportunities 434

Figures 9

Figure I.1. The potential generational impacts of climate change 36

Figure 1.1. Timeline of key events, discussions, and concepts around growth and development 47

Figure 1.2. The SDGs 50

Figure 1.3. Global advances since the Second World War 52

Figure 1.4. Moment of approval of the Paris Agreement 55

Figure 1.5. Standing ovation for adoption of the Paris Agreement at COP21, 2015 55

Figure 1.6. The critical need for decreased emissions over the next three decades 65

Figure 2.1. Climate change science timeline 72

Figure 2.2. Annual CO₂ territorial emissions from fossil fuels and industry since 1850 74

Figure 2.3. The rise in CO₂ concentrations in the last 800,000 years 75

Figure 2.4. Extreme event examples: massive fires 76

Figure 2.5. Climate-related flooding examples from 2024 77

Figure 2.6. The complex interconnections of climate change impacts 78

Figure 2.7. Projected temperature increases up to 2100 81

Figure 2.8. Expansion of extremely hot regions in a high-emissions scenario 84

Figure 2.9. Recent fires and expected recurrence of associated conditions in the Brazilian Pantanal 85

Figure 2.10. Climate tipping elements and their sensitivity to global warming 86

Figure 2.11. What are carbon budgets? 89

Figure 2.12. CO₂ emissions from 1850 to 2022 90

Figure 2.13. Behind mangroves surge is decreased, alleviating floods 94

Figure 2.14. Current flood risk and annual expected benefits from mangroves for flood risk reduction in Jamaica: avoided property damages 94

Figure 2.15. Averting, minimising, and tackling losses and damages 97

Figure 2.16. Common indirect and direct drivers of climate change and biodiversity loss 100

Figure 2.17. Mutual reinforcement between climate change and biodiversity loss 100

Figure 3.1. Timeline of major global crises and disruptive events (2008-2024) 106

Figure 3.2. Global anthropogenic CO₂ emissions 109

Figure 3.3. GHG emissions per capita in 2021 for key countries (left) and trends since 2000 (right) 110

Figure 3.4. Countries classified by income per capita and GHG emissions per capita 111

Figure 3.5. Countries with largest cumulative GHG emissions (GtCO₂e) 1850-2021 112

Figure 3.6. The evolution of GHG emissions (CO₂e) from 1945 to 2021 113

Figure 3.7. Current contributions to climate change (% share by countries or regions) compared with population 113

Figure 3.8. The ethics and economics of discounting 123

Figure 4.1. Country-level means of (A) climate change belief and (B) policy support 138

Figure 4.2. Accelerating tipping points for climate technologies fast-tracks impacts 144

Figure 4.3. Renewable power technologies: decreases in LCOE, 2013-2023 145

Figure 4.4. Global levelised cost of energy for renewables 146

Figure 4.5. Actual versus IEA's projected LCOE of solar PV, 1970-2040 147

Figure 4.6. Global investment in clean energy and in fossil fuels, 2015-2025e 148

Figure 4.7. Annual energy investment by selected country and region, 2015 and 2025e 149

Figure 4.8. Examples of AI applications that can help advance adaptation and mitigation action 150

Figure 4.9. Total emissions and potential emissions savings from AI in 2035 for the sectors in scope (power, meat and dairy, light road vehicles) 151

Figure 4.10. Net zero coverage 2020 to 2024 (by number) 152

Figure 4.11. Frameworks for sustainable finance 156

Figure 4.12. The projected effect of the election of Donald Trump as US president in 2024 - US GHG emissions 161

Figure 4.13. China is embracing a new approach to development under the principle of 'harmony between humans and nature' 164

Figure 4.14. Clean energy investment needs by economic regions for 2030 and 2035 169

Figure 4.15. Increase in annual clean energy investment in selected countries and regions, 2019-2023e, billion US$ (2022) 169

Figure 4.16. Renewable energy investments in developing and emerging markets, by top countries, 2013-2020 170

Figure 5.1. The 21st-century growth story: six interwoven, mutually reinforcing drivers 186

Figure 5.2. Illustrative overview of technological tipping points 190

Figure 5.3. Growth rate of total energy supply, GDP, and primary energy intensity at a regional level, 2010-2021 194

Figure 5.4. Denser cities produce much lower emissions 196

Figure 5.5. Cost of health damage from PM2.5 exposure in 2019 by region, per cent equivalent of GDP (purchasing power parity) 197

Figure 5.6. The poverty-environment trap can increase chronic poverty (illustrative example) 204

Figure 5.7. Places where development and climate action meet 205

Figure 5.8. Relationship between adaptation, mitigation, and development 206

Figure 5.9. Global carbon inequality (2019): group contribution to world emissions 221

Figure 6.1. Key systems (outer circles) and the four capitals (inner circles) 240

Figure 6.2. The sixth industrial revolution in a historical perspective 243

Figure 6.3. Representation of the unstable mid-transition period 246

Figure 6.4. Recommendations for creating investable NDCs 250

Figure 6.5. Blended finance 266

Figure 8.1. Top six emitters of consumption-based (dotted line) and territorial-based (solid line) CO₂ emissions, 1990-2018 304

Figure 8.2. The Global South's enormous renewable energy potential 310

Figure 8.3. Rsenewable market attractiveness 311

Figure 8.4. Installed manufacturing capacity by country/region, 2023 317

Figure 8.5. Levelised cost of energy (LCOE) in the USA before and after the implementation of the IRA6 318

Figure 8.6. Solar module manufacturing capacity in China versus sales, 2020-2028 320

Figure 8.7. Share of global population with access to electricity in 2021 326

Figure 8.8. Global progress toward SDG7 (affordable and clean energy) targets 327

Figure 8.9. Estimated energy investment by type in selected regions, 2024 328

Figure 8.10. Solar photovoltaic power potential map 329

Figure 8.11. Share of solar in electricity generation, 2010-2020 329

Figure 9.1. Total climate investment needs by economic regions for 2030 and 2035 340

Figure 9.2. Investment/spending requirements for climate and sustainable development in EMDCs other than China (US$ billion per year by 2030,... 344

Figure 9.3. Mobilising the necessary financing for EMDCs other than China (US$ billion per year by 2030, increment from current in parentheses) 347

Figure 9.4. Climate finance goals agreed at COPs 350

Figure 9.5. Carbon leakage and the EU's CBAM explained 365

Figure 9.6. Taxonomy of CDR methods 374

Figure 9.7. Differences between CDR and CCUS 376

Figure 11.1. An overarching research agenda for economics and the social sciences 427

Figure 11.2. Agenda for action to be pursued by politicians, public servants, the private sector, communities, and academics 433

Figure 11.3. Five forces that present a special opportunity to deliver climate action at scale 439

Boxes 92

Box 2.1. The economics of adaptation: a farming example 92

Box 2.2. The economics of adaptation: a mangrove example 93

Box 5.1. Decentralised solar in Africa: development, mitigation, and adaptation 208