G20 fuel a dirty global recovery as carbon emissions exceed economic growth

South Africa is among many countries worldwide that are taking steps to reduce their carbon emissions in relation to economic activity, according to a report issued today by Professional Services Firm, PwC.

The carbon intensity of  South Africa has dropped by 1,2 percent in 2010 compared with the previous year, according to the Third Edition of PwC’s Low Carbon Economy Index 2011, which measures the needed amount of decarbonisation annually until 2050.

Jayne Mammatt, Associate Director in the Sustainability Division of Risk Advisory, PwC South Africa, says: “South Africa has realised the potential for low-carbon growth and the associated economic risks in falling behind the international race on climate change.”

“However, the overall results of the PwC Low Carbon Economy Index 2011 are bleak,” says Mammatt. “For the first time since 2000 no improvement has being made in reducing the carbon intensity of the Group of 20 Nations (G20), despite signs of a recovery from the global economic recession,” she says.

The results of the PwC report call into question the likelihood of global decarbonisation ever happening rapidly enough to limit global warming to two (2) degrees Celsius. With only three weeks to the 17th Conference of the Parties (COP 17) in Durban, the study also highlights the scale of the low carbon financing challenge yet to be resolved.

The PwC Low Carbon Economy Index assesses the G20 based on their carbon intensity, or relation of emissions to gross domestic product, against a fixed carbon budget estimated to stabilise greenhouse gas emissions.

Mammatt says that expectations from businesses are high on the agenda of governments and policymakers on reaching an international agreement at this year’s COP 17 Summit.  “Since COP 16 held in Cancun last year, there has been an increasing focus on the cost of governments meeting the low carbon challenge and raising the capital required to finance it,” she says. A number of outstanding issues still remain to be addressed at COP 17, she says. These include matters such as the future of the Kyoto Protocol and concerns on the economic effect of international and local climate policies.

At Cancun, governments worldwide agreed to limit global warming to 2 degrees Celsius. However, the PwC Index states that in the last ten years, most countries have reduced the carbon intensity of their economies too slowly (at an average 0,7% per year). In 2010 this decarbonisation trend went into reverse.

In addition to global emissions reaching their highest level, the carbon intensity of the global economy increased by 0,6 percent, with emissions rising faster than gross domestic product (GDP) coming out of the 2008 – 2009 economic recession (5,8% versus 5,1%).

The PwC Index uses “carbon intensity” as the preferred metric for analysing countries’ movements towards a low carbon economy, as it accounts for expected economic growth, and can generate comparable targets. This year’s Low Carbon Index focuses on the global financing gap, the reforms that may help to fill it, and the increased efforts by countries such as the UK and South Africa to meet the low carbon challenge.

Globally, carbon intensity needs to reduce by 4,8 percent a year, over twice the rate required in 2000. The PwC report warns that unless the tie between economic and emissions growth is severed, the prospect of achieving the 2 degrees Celsius goal, appears remote.

Mammatt says: “The G20 economies have moved from travelling to slowly in the right direction, to travelling in the wrong direction.”
In SA, the government has outlined its ambition to hit a target of 17,8GW of renewable capacity by 2025. This will represent nine percent of total generation (its current share of renewable is 0,2%). In a bid to encourage renewable generation the government has introduced a subsidy regime of Feed-in Tariffs (ReFiT).

However, the extra cost of generating renewable energy is significant, with the government expected to pay over five times the current electricity retail price to incentivise solar photovoltaic generation. Even the cheapest technology, biomass, will be subsidised at twice the current retail price.