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Footprint for Finance

Statement on U.S.-China Climate Agreement

By | Ecological Limits, Footprint for Finance, Footprint for Government | No Comments

Statement by Mathis Wackernagel, President, Global Footprint Network

The landmark U.S.-China climate change agreement announced this week is a game changer for our energy future because it represents strong recognition of the need to wind down fossil fuel use to zero within a few decades. What had been a physical necessity but a political taboo is now being acknowledged by the two countries with the largest CO2 emissions.

Other countries have been waiting on the sidelines for the United States and China to act on climate change. So President Barack Obama and President Xi Jinping’s commitment to reduce greenhouse gas emissions and boost renewable energy adoption by 2025 and 2030 respectively—just 10 and 15 years away—sends a promising signal to the world community on the path to the Paris climate summit at the end of next year.

The new goals would keep the United States on the trajectory to achieve deep economy-wide carbon emission reductions on the order of 80 percent by 2050, according to the White House. China, meanwhile, has targeted total energy consumption coming from zero-emission sources to around 20 percent by 2030. Both actions will happen well within the lifetimes of many people today.

These targets represent a significant shift in political momentum and  suggest that moving out of fossil fuels may finally have won mainstream acceptance.

Of course, it will take significant investment for nations to transform their economies, and those costs are only likely to increase the longer nations delay in taking action. Consequently, it’s in the self-interest of every nation to act now to shift toward low-carbon policies as a way to “future proof” its economy.

Our analysis  shows that countries are unequally exposed in terms of the scale and impact of reforms required to move to low-carbon economies. The longer countries wait, the more their  carbon intensive assets will lose value  in a low-carbon future. This inaction may lead both to a loss of competitiveness and potentially even a higher credit default risk. We are working with the U.N. Environment Programme Finance Initiative (UNEP FI) and leading finance institutions to develop tools for the finance industry to better measure these economic risks when evaluating sovereign bonds.

To succeed, government leaders at all levels need better tools to make economically effective long-term decisions on everything from infrastructure to energy provision to buildings.  Consequently, we have worked with state leaders in the U.S. to enhance traditional net present value (NPV) tools that recognize the economic and resource context in which the investments will operate. Such assessments provide more realistic estimates of the future costs and benefits associated with particular investments and show that in many cases, the low-carbon options are already today the economically superior choice.

Indeed, the U.S.-China agreement announced Wednesday suggests we need an entirely new way to determine the value of fossil fuels and assets that could become stranded because of their overdependence on those fuels.

The details of how U.S. and China will achieve their ambitious goals remain to be seen, and the agreement may prove to be largely symbolic. But symbols can be powerful, and we believe the agreement portends a brighter outlook for action on climate change in 2015.

What do Switzerland and China Have in Common?

By | Ecological Limits, Footprint for Business, Footprint for Finance, Footprint for Government, Guizhou Initiative | No Comments

Did you know the Chinese province of Guizhou in southwest China bears some striking resemblance to Switzerland? I confess I didn’t, until I was invited to Guizhou last month to speak at Eco-Forum Global. Since 2009, this annual conference gathers participants from around the world to share knowledge about policies regarding green economic transformation and ecological security. This year I spoke on a finance panel led by the chief economist of Bank of China, Ma Jun, and a panel organized by the Sino-Swiss Dialogue.

Just like Switzerland, Guizhou is landlocked and boasts a mountainous landscape. It is one of two provinces in China that President Xi Jinping declared to be testing grounds for China’s new focus on “eco-civilization” and the “China dream.”

Hoping to learn more from Switzerland to build that dream, Chinese officials announced the Guizhou-Switzerland Agreement on Establishing Mountainous Economy and eco-civilization at Eco-Forum Global this year. With its rich landscape, including spectacular lakes and waterfalls, Guizhou is believed to be an ideal location to apply the innovative cleantech, eco-tourism and sustainable development strategies that have enabled Switzerland to preserve its stunning natural environment.

The Guizhou-Switzerland agreement builds on a larger bilateral free trade agreement between China and Switzerland that was signed last year and just took effect in July.

My Sino-Swiss Dialogue keynote talk at Eco-Forum Global delved into the similarities between China and Switzerland, where Global Footprint has worked with four ministries to analyze the country’s resource dependence and make Footprint and biocapacity part of the Swiss statistical information data published annually.

Like many countries, both China and Switzerland are ecological debtor countries using more biocapacity than their own ecosystems can provide. They make up the difference through trade with trading partners who are also in ecological deficit.

Switzerland’s Ecological Footprint is four times larger than what ecosystems within Switzerland can renew. Its biocapacity deficit per person hasn’t changed over the last half century, and its financial resources have allowed it to easily access resources from abroad. However, because the world as a whole is becoming more constrained, Switzerland’s biocapacity deficit will become economically more significant in the future.

Switzerland: Stable Biocapacity Deficit

China’s Ecological Footprint is two times larger than its ecosystems can renew. Its biocapacity deficit has grown substantially amid the country’s rapid development of the past decade.

China: Rapid Footprint Growth

On the bright side, however, both Switzerland and China have worked to preserve their natural resources, particularly forests. In Switzerland, forests were under severe pressure of overexploitation at the onset of industrialization in the middle of the 19th century. Soil erosion and avalanches prompted reform in forestry management and Swiss forests now cover 30 percent of the country’s territory. China’s forests were also under pressure until the Natural Forest Protection Project was launched in 1998. By the end of 2003, the Chinese government had injected about 50 billion Yuan (about 6 billion USD) into the program, putting some 95 million hectares of natural forest in conservation nationwide. The government has recently committed an additional 220 billion Yuan (36 billion USD) to the project and aims to add an additional 7,800 hectares of forest area.

China has been acutely aware of resource constraints for decades, as has Switzerland. Many Swiss still remember World War II when the country only had enough domestic food to feed its population (then half the current size) for seven months per year. This sense of resource fragility has been an important factor spurring Switzerland’s focus on energy, material and water efficiency, high-performance buildings, effective public transportation, land protection, urban containment and forest conservation.

However, the global context within which China is developing today is markedly different to that of Switzerland in the past century. Since World War II, the entire planet has gone into ecological overshoot, with humanity now using one and a half times more from nature every year than the planet can renew in the same timeframe. Today we are living in a far more resource-constrained era, making it more important than ever for all countries to track and manage their natural assets.

With China’s Ecological Footprint continuing to grow, Guizhou Province is clearly a region at a crossroads. On the cusp of rapid development, it has enormous opportunities to seize the moment and build new economic momentum. The question is whether it will set policies that enable it to thrive while at the same time avoiding the pollution and congestion that has plagued other regions in China. Gleaning valuable lessons from Switzerland is certainly one important step. Of course, we also believe Guizhou Province will need data-driven decision-making tools like the Ecological Footprint to succeed as well.