HONG KONG – Sesame Street’s Kermit the Frog once lamented that “it’s not easy bein’ green.” Today, this sentiment is surprisingly relevant to the global economy – only it is becoming green that is the problem.
Last September, the Intergovernmental Panel for Climate Change warned that if the world sticks with “business as usual,” global temperatures may rise more than 4°C – far beyond the 2°C increase that has been deemed “safe.” This prompted UN Secretary-General Ban Ki-moon to challenge political, economic, and financial leaders in January to intensify their efforts to achieve a new global agreement on climate change by 2015.
But, as important as high-level deals are, they will amount to little unless they are backed by considerable investment in areas like smart grids, energy storage, and renewables. Indeed, the International Energy Agency estimates that nearly $1 trillion worth of investment will be needed annually between now and 2050 to put the world economy on a more sustainable path.
While that may seem like a lot of money, it is the equivalent of only 1% of global GDP, and less than 0.3% of global financial assets. Moreover, since 2007, major central banks have proved that they can augment their balance sheets by more than $1 trillion annually, without triggering inflation. In other words, the world can afford the transition toward a green economy.