Manufacturing climate resilience and development

By Li Yong 07 December 2015

Factory workers at a locomotive assembly plant in Astana City, Kazakhstan. Policies that promote patterns of inclusive and sustainable industrialization is the solution for combating climate change. Photo by: Asian Development Bank / CC BY

Looking at each other in a big conference room on a December day in Paris, negotiators know that their arm wrestling may well be worthwhile this time. The opportunity at hand is immense. A new, binding agreement on climate change represents the last chance for a global concerted effort to prevent an environmental catastrophe, whose probability becomes closer to certainty as the years go by — just as the associated economic and social costs appear more and more evident.

Negotiators are well aware of it. But they are trained to hold the ground and get the best terms for their country in the agreement. And what are those terms? Often, it is those that minimize the short-term cost of mitigation, adaptation and the foregone revenue from “business as usual.”

The underlying notion is the hasty assumption that environmental regulation leads to reduced economic output. This assumption — however appealing from a single business entity’s perspective — needs to be dismissed for being short-sighted and imprecise, if not downright untrue. Arguments against it are mostly based on the true costing of externalities, and on more realistic considerations of time horizons.

Achieving climate resilient sustainable development  

Let me take a step back and address the issue from another angle. The fundamental question should be how we can ensure economic growth patterns that do not contribute to the global temperature rise beyond 2 degrees Celsius? Or, from a broader United Nations perspective, how we can progress towards sustainable development within the next generation?

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An attempt at answering this question was given by other negotiators earlier this year. The 2030 Agenda for Sustainable Development adopted in New York in September, along with its associated 17 Sustainable Development Goals, is the most ambitious international agreement to date for eradicating poverty worldwide and for achieving sustainability. It reunites — in a sole, integrated, universal and transformative agenda — efforts towards development cooperation. Its associated financing requirements, means of implementation, follow-up and review, take into account the various dimensions of economic growth, social equity and inclusiveness, climate change and environmental protection, human rights, peace and security, and humanitarian and other crosscutting issues, including gender equality and women’s empowerment.

Luckily, for those like me who believe in the actual implementation of this ambitious agenda, negotiators in New York did not forget their colleagues dealing with climate change, and made provisions for linking the outcome of COP21 to the SDGs framework.

Today, climate negotiators can make history by reaching an agreement that is binding and universal, and ties together global efforts for combating climate change with those aimed at eradicating poverty. Together, these efforts will answer the question of how to progress towards sustainable development within the next decades.

The role of climate-resilient industrialization

From my perspective, this solution eventually lies in policies that promote patterns of inclusive and sustainable industrialization. It is an evident and historically proven fact that economic growth, a necessary component of sustainable development, cannot be achieved in any country without a strong, modern, sustainable and inclusive industrial sector.

However, industry represents almost 30 percent of global greenhouse gas emissions, which makes it one of the largest emitters. This is mainly due to its large energy consumption. In turn, industry is heavily reliant on natural resources that are highly susceptible to the change in geo-physical and biological systems caused by climate change. In addition, larger human displacements and grievances due to climate change would have a direct effect on available human resources and skills. Hence, industry is highly vulnerable to climate change, which poses challenges to sustain its activities to support economic growth.

So, how can industry help? It is the primary engine of growth, but also one of the biggest drivers and victims of climate change.

The answer is the vast potential for industry to reduce its carbon footprints, by switching fuel from the current predominantly fossil fuels-based primary energy supply to renewable sources, and by improving inefficient energy consumption technologies and practices to “green” methods.

Increasingly, investing in climate-resilient technologies has become a business on its own: The savings potential of resource efficiency and cleaner production techniques often offer opportunities for considerable returns, even for large investments in technology retrofitting, let alone profitable and relatively small investments in, for instance, energy-efficient technologies.

Moreover, the market for green products and services is consistently expanding and offers considerable future markets for specialized industries.

Industry therefore can, and must, be transformed to become climate resilient. This implies de-coupling economic growth from resource consumption and resulting greenhouse gas emissions through the widespread application and scaling up of resource and energy efficient cleaner production technologies and practices.

Numerous opportunities for resource and energy efficient cleaner production measures have been identified and implemented, which have resulted in both emission reductions and significant cost savings in industrial operations. The replication of the deployment of such measures and remarkable results must be scaled up to support a transition to a climate resilient future along a low-emission development pathway.

Promoting climate-resilient industries allows countries to advance their contribution to economic growth and social prosperity, while simultaneously safeguarding the environment. This entails identifying the potential of reducing greenhouse gas emissions as well as anticipating and preparing for the impacts of climate change. This is best achieved by taking a holistic approach that considers the links between various measures in order to amplify benefits that may not have been achieved if addressed in isolation.

Nevertheless, countries and stakeholders have different capacities to address these challenges. Multiple barriers exist depending on the economic and technical capacity of a country or enterprise. Moreover, conventional development pathways are usually locked-in in socio-technical structures, investments, infrastructures and policies, for which environmental considerations were not a priority.

Financing the transition

The international community and partners, including the United Nations, have a strong role to play to overcome these barriers. Of course, significant results have already been achieved, but more needs to be done. And initiatives need to go to scale to have a visible impact. To make a real difference, private investors need to be fully in the picture — the required scale of investment can only be achieved if business interests are aligned with sustainable development efforts. Strong private sector involvement from the outset will not only allow investments into climate resilience to grow “from billions to trillions”. It is also only the private sector that can provide the necessary technologies and innovation required for any meaningful mitigation and development strategy.

To achieve that, the public sector and the United Nations must exert their fundamental normative, catalytic and partnership functions accordingly. Credible and enforceable environmental regulation and climate resilient industrial policies can create the appropriate economic incentives for the private sector to realign its investments and drive the required transformation of production processes. Internationally recognized expertise and protocols can provide a framework for preserving the global good.

When built around a conducive policy environment, multistakeholder partnerships — including U.N. entities, governments and nonstate actors — and related blended finance solutions can contribute to the realization of truly transformative action in mitigating climate change: Innovative financial instruments and structured investments in inclusive and sustainable industrialization can be made to effectively create a pull factor for further public and private investments.

In developing countries, official development assistance will continue to play a major catalytic role as international public investments. ODA will reach even higher levels of effectiveness and impact when channelled into blended investments, triggering private resources in the required infrastructures and technologies.

Such a structured approach to international public investment has the potential to ultimately raise the resources required for the implementation of the SDGs and the transformation of industry towards climate resilience — and to combat climate change without giving up hopes of economic growth. The opportunity was never so big for realizing this ambition. I am an optimist, and believe that negotiators will keep this in mind in that room in Paris.

Planet Worth is a global conversation in partnership with Abt Associates, Chemonics, HELVETAS, Tetra Tech, the U.N. Development Program and Zurich, exploring leading solutions in the fight against climate change, while highlighting the champions of climate adaptation amid emerging global challenges. Visit the campaign site and join the conversation using #PlanetWorth.

About the author

Oped liyong
Li Yong

Li Yong, director general of the United Nations Industrial Development Organization (UNIDO), has had an extensive career as a senior economic and financial policy-maker. As vice-minister of finance of the People’s Republic of China and member of the Monetary Policy Committee of the Central Bank for a decade, he was involved in setting and harmonizing fiscal, monetary and industrial policies, and in supporting sound economic growth in China. He pushed forward financial sector reform, and prompted major financial institutions to establish corporate governance, deal with toxic assets and strengthen risk management.


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