The business case for a low-carbon economy

This post is part of a series of interviews on the impacts of climate change and the COP21 talks in Paris. The author is one of 78 signatories to an open letter from CEOs to world leaders urging climate action.

Why should business invest in a low-carbon economy?

There are many reasons to invest in a low-carbon economy. Not only does it make good business sense, it is also necessary for fighting climate change. This is a global challenge we cannot ignore:we are already receiving strong signals of how adverse weather conditions impact on national economies and communities at a scale unseen before. Failing to address climate change will most certainly have higher costs in comparison with the investments we can implement today.

Various sources claim that a scenario in which climate change targets are met (as opposed to business as usual) would require additional investments worth $40 trillion globally by 2050, of which $9 trillion would be in the electricity sector. Total investment volume would exceed $350 trillion, about 1% of the global GDP accumulated over the period. As we can see, tackling climate change is also the greatest opportunity we have to boost economic growth and prosperity for society in general. And unless we act, we will pay the price, as the Council of Economic Advisers warned the White House in a report last year.

By decoupling emissions from growth, mainly driven by fossil fuel consumption, and embracing a low-carbon economy, we have the chance to foster competitiveness, boost research and innovation, create new jobs, promote new values that are more respectful of others, and prioritize sustainable development.

The effects of climate change are already being felt, especially by the most vulnerable communities in developing countries. We, as businesses, have a duty to be profitable for our shareholders, but have also a responsibility to safeguard the environment for the benefit of everyone and to do all in our power to avoid harmful emissions.

What are the key contributions your industry can make (or is making) to accelerate climate change action?

The electricity sector has the capability to contribute to decarbonization in an effective and efficient manner, due to its technical and economical characteristics. In fact, complying with climate change targets will imply, in all credible scenarios, a deeper electrification of the economy.

And this is because we have renewable energy technologies that are capable of reducing emissions on a sustainable and efficient basis, such as hydroelectric, wind power and solar photovoltaic.

To foster decarbonization, the greatest challenge will be to have a robust global CO₂ price signal covering all sectors of the economy, on the basis of the “polluter pays” principle, and providing technology-neutral incentives to encourage the development of the most efficient energy sources. This will enable governments and businesses to raise funds that can then be allocated towards measures designed to combat global warming.

Iberdrola constitutes a perfect example of the potential of the electricity sector. We’re world leaders in renewable energies, with an installed capacity of 25 GW that represents almost 60% of our mix and €28 billion in assets. On the contrary, coal generation accounts for only 2% of the installed capacity mix. As a result, our emissions are 30% lower than the average of the European electricity sector. But we know we can do more and, therefore, we have set the target of reducing our CO₂ emission intensity by at least 50% by 2030, and, furthermore, to become carbon neutral by 2050. To achieve these goals, we will reinforce our investment effort in renewables, focused on hydroelectric, wind power and solar photovoltaic, with €1.6 billion each year in the coming years.

What are the greatest challenges for businesses in your sector to overcome in tackling climate change?

Limiting the increase in temperature worldwide to a maximum of 2^oC at the end of the century will require a major technological and infrastructure roll-out at every stage of the electricity sector value chain and a significant technological and managerial capacity.

Utilities have the know-how and the technological and investment capacity to face these challenges on a competitive basis. But this will require long-term stable and transparent regulatory frameworks.

Why does climate change matter to your industry? To you personally?

Fighting climate change has a significant impact on all business sectors, affecting costs, operations, supply chains, consumers and industry dynamics.

But, as I have said, the energy industry has the potential to turn this into an opportunity: by investing in clean technologies, we can provide a more secure and competitive energy supply to businesses and citizens and boost economic growth, creating wealth and employment.

At Iberdrola, we have incorporated sustainability as a key factor in all our business decisions and our relations with our stakeholders.

This is a long-term-oriented industry, so for me, building today the infrastructures that will supply clean energy during the coming 40 to 50 years is a way to help future generations develop a better relationship with the planet and, as an engineer, I’m very much willing to take up the challenge.

Author: Ignacio S. Galán, CEO of Iberdrola

Image: Iberdrola’s power generating wind turbines are seen at dusk in Moranchon wind farm in central Spain December 17, 2012. REUTERS/Sergio Perez