Business

ABB Group CEO: Taming global climate change

By Joe Hogan (China Daily)
Updated: 2010-12-02 07:56

Securing a global climate treaty this year in Cancun, Mexico, seems no more likely than it was last year in Copenhagen.

Most countries see aggressive measures to reduce carbon emissions as a threat to their national economic development.

Emerging markets feel the main burden of reducing emissions should fall upon the chief culprits - mature economies - who in turn argue they will be at a competitive disadvantage if binding agreements to reduce future emissions are not universal.

Both have valid arguments, but an inability to compromise on either side is leading to paralysis.

The good news is that investment in emissions-free renewable energy is taking off anyway.

In 2009, 62 percent of newly installed power capacity in the European Union was renewable, as was more than half the new capacity deployed in the United States, while China installed a huge 37 gigawatts (GW) of renewable capacity, the most of any country.

Last year, nearly 80 GW of renewable power capacity was installed globally, providing the equivalent power needs of 43 million European households.

As encouraging as this sounds, in reality it simply isn't enough.

Wind, solar, hydro and other non-combustible renewable energy sources still account for just 4 percent of the world's energy supply, while 80 percent comes from burning fossil fuels, the main source of carbon emissions.

Even at current rates of investment and with existing policies to promote renewable energy, the predicted growth in total energy demand by 2050 dictates, according to the International Energy Agency (IEA), a continued dependency on fossil fuels.

Under this scenario, CO2 emissions would increase to two-and-a-half times current levels.

Faced with the urgency of climate change, our best hope of significantly reducing emissions is to use energy more efficiently.

Projections by the IEA show that using energy more efficiently has more potential to curb CO2 emissions over the next 20 years than all other options put together.

What's more, research by McKinsey shows that a number of existing technologies could save so much energy that they would pay for themselves within two-and-a-half years.

These include building insulation, new types of lighting, and energy efficient motor and drive systems.

Economies taking advantage of this low-hanging fruit can achieve three major goals all at once.

They can make more energy available without additional infrastructure, reduce emissions and save money.

So what is preventing the widespread use of these technologies?

Major barriers

One major barrier is the cost of energy. Energy leaders and professionals, in a survey commissioned by ABB, say energy is too cheap to make energy efficiency an attractive alternative.

A further barrier, which generally affects mature economies more than emerging ones, is a reluctance to absorb the upfront cost of retrofitting equipment or installing new technology before older technology has reached the end of its productive life cycle.

The world's most energy-efficient economy, Japan, can give us some clues on how to overcome such barriers.

Above all, the Japanese example shows that the role of the government is crucial.

A combination of standards, incentives, taxes, labels and mandatory targets pursued systematically since the 1970s have made energy productivity twice as high in Japan as it is in the US.

For the same amount of energy used, Japan gets $2 of GDP for every $1 generated in the US. This efficiency is essential given Japan's lack of domestic energy sources.

A key to Japan's success has been the cooperation of government and businesses to define efficiency measures. Working together, they have created a framework that provides the long-term predictability that businesses need to estimate a return on their investment.

Japan's "Top Runner" program is one good example.

Under this scheme, the most efficient product on the market becomes the new benchmark.

Other products in the same category must then attain similar efficiencies within a fixed time frame, or face putting the company's brand image at risk when it fails to meet the target.

While a global climate treaty is clearly desirable, a failure in Cancun won't be the end of the world.

Governments can and should do a lot more to seize opportunities to lower both costs and emissions, and to enhance the competitiveness of their economies in the process.

No one said climbing this mountain would be easy, but if a common view doesn't emerge at the summit, alternative paths to our destination must be found.

The author is the CEO of ABB Group