Towards a green economy

5 Quantifying the implications of greening

5.1 Business-as-usual trends

Summarising findings from the Millennium Institute’s T21 model for investment scenarios up to 2050, we start with BAU in manufacturing. The IEA projects that under all scenarios, GDP will quadruple between 2010 and 20509

and manufacturing (as defined for purposes of this

chapter) will contribute 27.6 per cent of GDP and 24.2 per cent of global employment in 2050. Yet, if peak oil occurs sooner than the IEA assumes, the global economic growth rate may be much lower than foresaw by the IEA (2009).

Heavy reliance on energy and manufacturing industries account for one-third of global energy use and 25 per cent (6.7 Gt) of total world emissions, 30 per cent of which comes from the iron and steel industry, 27 per cent from non-metallic minerals (mainly cement) and 16 per cent

from chemicals and petrochemicals production. CO2 emissions from fossil-fuel combustion in the industrial sector totaled 3.8 Gt in 2007, a 30 per cent increase since 1970. They are projected to continue increasing to reach 5.7 Gt in 2030 and 7.3 Gt in 2050 in the BAU case, primarily owing to increased consumption of coal.

The amount of water withdrawal for industrial production is expected to increase from 203 km3 to 1,465 km3

in 2030 and 2,084 km3 in 1970 in 2050. Industrial

water as a share of total water demand is expected to increase from 9.4 per cent in 1970 to 22 in 2030 and 25.6 per cent by 2050.

5.2 Trends under a green investment scenario

The Millennium Institute’s T21 model uses IEA estimates selectively (among others) to simulate what the economy- wide effect of investments in the greening of sectors would be, using indicators such as industrial production and GDP growth, employment, resource consumption, and CO2

from fossil-fuel use (Figure 8). These results

9. The IEA economic model is typical of neo-classical growth models, in assuming that growth can and will continue at historical rates regardless of the availability or price of energy. This assumption has been strongly challenged by the econometric work of Ayres and Warr (Ayres et al. 2004, 2009a), who argue that growth is actually proportional to the output of “useful work” by the economy as a whole. Useful work is the product of energy consumption times conversion efficiency.

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are presented in this section, covering six industry sub- sectors: steel, textile aluminum, leather, paper and pulp, and chemical and plastics products. Other industrial sectors are covered in the broader and aggregated industrial macro sector, presented in the modelling chapter. Energy intensive industries such as cement, the non-metallic mineral products and electrical and electronic products sub-sectors are not disaggregated in the model owing to lack of data.

In the T21 green economy model, the green investment scenario G2 in the industry sector assume the allocation of 3 per cent of the total additional green investment10 to improvements in industrial energy efficiency. This translates into US$ 79 billion per year on average between 2010 and 2050. Investments are allocated to both the broader industrial sector and to the selected subsectors) in more efficient, low carbon, development.11 Faster growth, all else being equal, translates into higher demand for basic materials, resulting in higher energy demand and generation of greater CO2

emissions in the industrial sectors.

Results of the simulation indicate that investing in the industry sector reduces energy consumption and emissions. This, in turn (other things being equal) helps to reduce the price of fossil fuels and yields higher value- added and employment (both within the industrial sectors analysed and across the economy). The total industrial employment is projected to be about 1.04 billion (people employed) in the G2 scenario (21 per cent of overall employment across all sectors) in 2050, 2.4 per cent lower than in BAU2. Concerning employment in the six manufacturing sectors analysed in more detail, the total number of jobs is 109 million in the G2 scenario in 2050, 15 per cent more than in BAU2 (Figure 9). The change (net reduction) in total employment is driven by the interaction of several factors: (1) higher demand for the industries analysed –increasing employment (the dominating factor making employment rise in the energy intensive sectors studied in more detail); (2) higher efficiency and capital intensity (as opposed to labour intensity, also due to the fact that running capital is cheaper in G2, for instance

published by the IEA in the WEO 2009 but with limited investment in CCS. See Modelling chapter.

10. Additional green economy investments worth 2 per cent of GDP for G2. 11. This investment is estimated using the industrial CO2

abatement cost