How can we make the transition to a low carbon economy?

This article is published in collaboration with Project Syndicate.

When it comes to climate change, the world has reached a point of no return. That may sound ominous, but it is precisely where we need to be: unable to continue retreading old ground, we must resolutely set our future path.

An important first step will come at the United Nations Climate Change Conference (COP 21) in Paris in November and December, where world leaders will agree on the most important international agreement on climate governance in more than 20 years. Yet important decisions remain to be made in charting a course toward a new and dynamic low-carbon economy, one capable of supporting a fast-growing and increasingly prosperous global population in the long term.

With citizens, business, and governments worldwide finally recognizing the universal nature of climate change, the outlook for this year’s conference is substantially more positive than it was prior to the last attempt to reach a comprehensive global agreement, at the 2009 Copenhagen summit (COP 15). To be sure, the challenge ahead is as broad as it is complex; but it is becoming increasingly clear that making the transition to a low-carbon economy will bring considerable economic benefits.

Consider urbanization. In the next 15 years, the world’s cities are set to grow dramatically, becoming home to 60% of the world’s 8.5 billion people. How those cities are designed will matter for both the environment and the economy.

The difference between Atlanta and Barcelona is a case in point. The two cities have a similar number of residents, but Atlanta’s transport-related carbon-dioxide emissions exceed Barcelona’s by a factor of six. A key reason for this is urban sprawl: with a built-up area nearly 12 times larger than Barcelona, Atlanta implicitly encourages widespread private-vehicle use, boosting emissions, congestion, and air pollution.

Compact, well-connected cities that feature efficient public transportation systems – cities like Barcelona – are healthier and more sustainable. Moreover, the Global Commission on the Economy and Climate estimates that such cities could reduce capital requirements for urban infrastructure by more than $3 trillion over the next 15 years.

These maps illustrate typical examples of sprawl and smart growth development (Campoli and MacLean 2002; Hartzell 2013)

Cutting-edge technological developments – in renewable energy and hybrid or electric vehicles, for example – will be indispensable in building these cities (and, more broadly, a clean and efficient economy). Although much research remains to be done, such technologies are increasingly accessible. In bringing about change, however, vested interests are a formidable sparring partner.

Upending the status quo will be no easy feat. As Bank of England Governor Mark Carney recently warned, when the world takes serious action to stop climate change – as it is expected to do this December – vast fossil-fuel assets will be left stranded. The fact that those assets are a key tranche of many investment portfolios is an unavoidable reality, not a reason to reconsider.

Fortunately, public awareness of the effects of fossil-fuel consumption is growing. On a macro level, the World Health Organization recently revised its estimate of the number of premature deaths due to air pollution to seven million annually. On a micro level, the masks commonly worn in heavily polluted cities, such as in China, are a visible sign of the need for change.

Another challenge stems from the global nature of climate change. It is a classic public-goods problem: in principle, it is in individual countries’ self-interest not to take action, while the rest of the world does. Compounding the challenge further is the fact that the benefits of actions taken today accrue in the distant future.

Here, too, changing perceptions of climate change offer renewed hope for progress. Spurred by increased public awareness and mounting evidence that national economies can reap net benefits from policies to mitigate climate change, governments worldwide are pledging to do so – and taking to multilateral forums to display those commitments.

So far, 155 countries – including large emitters – have submitted to the UN plans describing their “intended nationally determined contributions” (INDCs) to the fight against climate change. India, the world’s third-largest emitter, has pledged to reduce emissions intensity by 33-35% from 2005 levels, and generate 40% of its power from non-fossil-fuel sources, by 2030. Brazil promises that its greenhouse-gas emissions in 2025 will be 37% lower than in 2005, and 43% lower by 2030. And the European Union has committed to a minimum emissions reduction of 40% from 1990 levels.

Perhaps most important, the United States and China – the world’s top two emitters, which together account for more than one-third of global greenhouse-gas emissions – have finally stepped up, announcing concrete climate commitments in a joint statement last year. This injected significant momentum into global climate efforts. Last month, Chinese President Xi Jinping went a step further, pledging to establish by 2017 a national market to set prices for CO₂ emissions.

The document signed in Paris will be the first treaty of a new era. Its hybrid governance structure – which combines top-down elements (primarily in monitoring and verification) with bottom-up commitments (the voluntary INDCs) – is revolutionary, as it enables us to avoid the deadlock that often characterizes large-scale multilateral governance processes. Already, this new model has helped to encourage national participation and enhance transparency, with national policies being published openly on the UNFCCC website.

But one critical question remains unresolved: How can we ensure that these voluntary individual pledges add up to a collective solution to a global problem? Current calculations indicate that if the submitted INDCs, covering nearly 90% of global emissions, are implemented, global warming will probably still exceed 2° Celsius (3.6° Fahrenheit) – the threshold beyond which climate change’s most disastrous consequences would be triggered.

It is therefore vital that negotiators in Paris work together to determine how to boost policy ambition. At this point of no return, we must link national plans to global goals – and thereby ensure that we move in the right direction.

Publication does not imply endorsement of views by the World Economic Forum.

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Author: Javier Solana is currently President of the ESADE Center for Global Economy and Geopolitics, Distinguished Fellow at the Brookings Institution, and a member of the World Economic Forum’s Global Agenda Council on Europe.

Image: A view shows the headquarters of a French business in Courbevoie, outside Paris. REUTERS.