The economics of green growth in LMICs

24 Apr 2024

By 2030, the poorest 52 countries will emit up to 6-11% of global emissions1. This range is likely an upper bound, but it still represents a significant portion of global emissions. With the additional harm caused by air pollution, poverty, and lack of access to education (all of which are sustainability issues), green growth in developing nations is something we should take seriously. However, note that the vast majority of emissions do not and will not come from poorer nations - our attention should not be solely focused, and it cretainly should not be solely focused on developing nations.

Addressing the planetary crises of global boiling, pollution, and loss of biodiversity has numerous co-benefits for developed and developing nations. Not only are there global benefits to reducing carbon emissions like preventing disruption of existing infrastructure and making extreme weather events less frequent, but the change required has specific upsides like making cities more walkable, creating jobs, and improving energy independence. There are many benefits to reducing pollution like fewer microplastics in food, cleaner air and water, and improved focus on top of reducing the 7-9 million lives lost each year to air pollution2. Addressing this man-made mass extinction would have benefits like mitigating natural disasters, fostering sustainable tourism, and protecting food production.

Acknowledging then that if nations address these crises in a smart way we can expect numerous co-benefits, there is still the problem of the upfront investment required. Most of the money for addressing the climate crisis does not generate clear returns for a private investor, so where should the money come from? This is an especially critical problem for Lower and Middle Income Countries (LMICs) which struggle to access the necessary finance to meet climate goals. There is a 4-7x gap in funding for mitigation in developing nations3.

Potential Solutions

We are usually presented with two ways of addressing development in LMICs: do nothing or stop them industrialising. Neither of these options are sustainable, as in good for current and future generations, and neither would achieve the UN Sustainable Development Goals, but there is another way.

The third option would be to enable LMICs to develop sustainably, allowing them to reduce poverty and improve quality of life without having to deal with the illness and death which typically comes with industrialisation (e.g., air pollution tends to peak with industrialisation). Instead of continuing to leave LMICs one step behind the global north we could bring them onto a more genuine level playing field by skipping over the environmental Kuznet’s curve.

Development is a priority for LMICs, the poorest 52 of which only contribute 2% of global emissions despite containing 19% of global population1. At the same time, air pollution is a critical threat to health around the world and the most imminently deadly environmental crisis we face. Air pollution kills millions each year, generally concentrated in LMICs which, in addition to the suffering this directly causes, bear the cost of sick days and lost productivity. Solid fuels and especially wood burning cause more air pollution than other fuels. Investing in and supporting cleaner fuels including renewables and gas is critical to reducing deaths from household air pollution and decarbonising as nations develop.

Analysis

Even without a formal cost-benefit analysis, the case for mitigation (preventing damages caused by climate change) is clear. Ignoring the impacts of heatwaves, sea level rise, tropical cyclones, and tipping points (as well as damages to human health and ecosystems), we are already committed to (as in there is no statistically significant difference from our emissions pathway) a permanent income reduction of 19% worldwide by 2049; the impacts are worse in South Asia and Africa with an approximately 22% income reduction4. Globally, this constitutes a cost of roughly $38 trillion /yr (2005 international dollars) (£49 trillion /yr in 2024 GBP). The cost of mitigation in line with 2oC of about $6 trillion /yr is approximately six times lower than the damages5. Note that this cost will only be significantly impactful after 2050, since the above damage is locked in.

A cost-benefit analysis on mitigating emissions found that ignoring tipping points, non-market effects and co-benefits such as air pollution, meeting 2oC in 2050 has no statistically significant net economic benefit (there are large uncertainties present, but they estimated a 5.6% of GDP net economic benefit to meeting 2oC)6. However, the study saw net benefits after 2050. The largest impacts were in Africa, with net benefits in every scenario in nearly every country in South and Central America, Africa, and South Asia. It’s likely that these are underestimates, especially since the benefits of improved air quality are impactful much faster than those of emissions reductions which would impact when mitigation would have a statistically significant net benefit in models.

As we have seen, most of the damage climate change will cause over the next 25 years is unavoidable. Climate adaptation (avoiding harms to people and planet of climate change) feels more expensive than mitigation, even though it pays back four times in risk and GDP degradation avoided ($1.7 trillion of investment producing $7.1 trillion total benefits across five key target areas)7. This is because there are not clear business models or financial incentives for private finance (in the short term) and because most of our attention is on mitigation. By 2030, UNEP estimates there will be a $140-300 billion annual adaptation demand which is far larger than current investment8.

Governments can do a lot to facilitate and encourage green growth and climate resilience, which makes the economic case for companies simpler. This is likely how LMICs will finance the upfront investment in mitigation and adaptation required. Reports from Climate Compatible Growth (CCG)9 and the Global Commission on Adaptation (GCA)8 give recommendations for governments on financing climate adaptation and mitigation, with CCG’s report, Data-To-Deal, focusing on sustainable development the GCA’s focusing on climate resilience (adaptation). I’ve summarised some key points below.

Investors need risks to be clear and government plans to be clearly explained. Alongside a decarbonisation strategy, ministers could produce plans for each sector and expected costs (to government). These should be based on high quality, open data, processed primarily by expertise within the country wherever possible. Transparent and clear messaging is crucial, especially when engaging the public. Markets can move quickly and ahead of where they are required to by climate goals if deadlines and policy plans are clear and trustworthy10.

Governments should encourage climate risk disclosure (e.g. via SASB standards11). With current modelling and research there is uncertainty in estimates of damage caused by climate change more than 25 years in the future, but overall trends are clear. Damages from air pollution, poverty, infant mortality, lack of education, etc. are in some ways easier to model as they are more immediate.

Pressure can be put on companies to invest in their own climate resilience, especially using disclosures. Governments should make clear in what cases they will function as insurer of last resort, as having this fallback encourages them not to invest in adaptation (as well as contributing to the debt crisis in developing nations12). The private sector often completely depends on public infrastructure (e.g. roads which employees use to commute) but doesn’t contribute to its maintenance. If companies felt more threatened by the risk posed by not making public infrastructure more climate resilient, they would improve that infrastructure.

An example of mitigation and co-benefits: low carbon energy vs. fossil fuels

Renewables are now cheaper than fossil fuels. Considering the levelised cost of electricity (that’s the cost you’d have to charge for a plant to break even over its lifetime), nuclear is the most expensive at $180, but solar photovoltaic and onshore wind are $60 and $50 respectively, compared to coal at $117 and gas (combined cycle - not peaking, which is much higher) $7013. Low carbon energy also kills many fewer people than fossil fuels. Coal, oil, and gas cause 24.6, 18.4, and 2.8 deaths per terawatt-hour respectively but solar, nuclear, and wind cause only 0.02, 0.03, and 0.03 deaths/TWh - each is about 1000 times safer than coal. Hydropower is unusually high due to the Banqian Dam Failure in 1975 at 1.3 deaths/TWh14. On top of safety, renewables use a similar amount of space and are quicker to set up. When weighted for capacity, in 2018, new renewables took just under 2 years to construct, whereas thermal power15 took just over 4 years16.

Conclusions

The idea that we require degrowth or to reduce our living standards to address the climate crisis primarily slows down climate action and unnecessarily divides activists, especially when it comes to LMICs. Growth has decoupled from carbon emissions in many nations17 and can do so elsewhere. None of the actions I’ve suggested would involve totally changing the way our society functions.

To address global issues like extreme poverty, infant mortality, education, and access to basic resources and global issues like air pollution, climate change, deforestation, and biodiversity loss, developing nations need to be able to develop sustainably. I see no sustainable or moral alternative. The recommendations above are great steps towards understanding how this can be done in more countries. Whilst more research is needed to reduce uncertainty in the economic effects of the planetary crises, countries like Costa Rica, which used $200 k to secure $2.4 bn in concessional climate finance18, are acting regardless because the case for green growth for people, planet, and - inevitably - profit is clear.

An improved version of my Environmental Economics coursework.

Oscar Mitcham


  1. Centre for Global Development Note, ‘Projecting Global Emissions for Lower-Income Countries’. (April 2020). Available at: https://www.cgdev.org/sites/default/files/Projecting-Global-Emissions-LMICS-Mitchell.pdf 2

  2. Max Roser (2021) - “Data review: how many people die from air pollution?” Published online at OurWorldInData.org. Retrieved from: ‘https://ourworldindata.org/data-review-air-pollution-deaths’ [Online Resource] 

  3. Kreibiehl, S., T. Yong Jung, S. Battiston, P. E. Carvajal, C. Clapp, D. Dasgupta, N. Dube, R. Jachnik, K. Morita, N. Samargandi, M. Williams, 2022: Investment and finance. In IPCC, 2022: Climate Change 2022: Mitigation of Climate Change. Contribution of Working Group III to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change [P.R. Shukla, J. Skea, R. Slade, A. Al Khourdajie, R. van Diemen, D. McCollum, M. Pathak, S. Some, P. Vyas, R. Fradera, M. Belkacemi, A. Hasija, G. Lisboa, S. Luz, J. Malley, (eds.)]. Cambridge University Press, Cambridge, UK and New York, NY, USA. doi: 10.1017/9781009157926.017 

  4. Kotz, M., Levermann, A. & Wenz, L. The economic commitment of climate change. Nature 628, 551–557 (2024). https://doi.org/10.1038/s41586-024-07219-0 

  5. Byers, E. et al. AR6 scenarios database. Zenodo https://zenodo.org/records/7197970 (2022). 

  6. Laurent Drouet, Valentina Bosetti, Massimo Tavoni, Net economic benefits of well-below 2°C scenarios and associated uncertainties, Oxford Open Climate Change, Volume 2, Issue 1, 2022, kgac003, https://doi.org/10.1093/oxfclm/kgac003 

  7. Arame Tall, Sarah Lynagh, Candela Blanco Vecchi, Pepukaye Bardouille, Felipe Montoya Pino, Elham Shabahat, Vladimir Stenek, Fiona Stewart, Samantha Power, Cindy Paladines, Philippe Neves and Lori Kerr. ‘Enabling Investment in Climate Adaptation and Resilience’. World Bank Group, Global Facility for Disaster Reduction and Recovery. https://openknowledge.worldbank.org/bitstream/handle/10986/35203/Enabling-Private-Investment-in-Climate-Adaptation-and-Resilience-Current-Status-Barriers-to-Investment-and-Blueprint-for-Action.pdf?sequence=5&isAllowed=y 

  8. Manish Bapna, Carter Brandon, Christina Chan, Anand Patwardhan, Barney Dickson, et al. ‘Adapt Now: a Global Call for Leadership on Climate Resilience’. Global Centre on Adaptation, World Resources Institute, (2019). https://gca.org/reports/adapt-now-a-global-call-for-leadership-on-climate-resilience/  2

  9. Hannah Luscombe, Emma Richardson, et al, for Climate Compatible Growth. ‘Data-To-Deal (D2D): an emerging and effective approach to financing the climate transition’. Cambridge University Press, (2024). https://doi.org/10.33774/coe-2024-21xv4-v3 

  10. For example, Ford’s response to moving the date of the ban on petrol and diesel car sales: Lisa Brankin, UK Chair, Ford: “Our business needs three things from the UK government, ambition, commitment, and consistency. A relaxation of 2030 would undermine all three,” https://www.bbc.co.uk/news/business-66863966 

  11. https://www.ifrs.org/issued-standards/sasb-standards/ 

  12. Jennifer Morris, CEO, the Nature Conservancy, for the WEF: “A lot of countries are unable to adapt because of increased debt burden. Between 2010 and 2020, the public debt of developing countries increased from 40% of their GDP to an average of 62%. More than a third of that happened in 2020 alone. We have to think of the climate crisis in the frame of the debt crisis as well. Most climate finance – 61% ($384 billion) – was raised as debt, of which only 12% ($47 billion) was low-cost or concessional.” Available at: https://www.weforum.org/agenda/2022/11/cop27-how-climate-finance-and-adaptation-can-support-vulnerable-countries/ 

  13. Lazard, ‘Lazard’s Levelised Cost of Energy Analysis, v16.0’ (2023) 

  14. Deaths per TWh energy production – processed by Our World in Data. “Deaths per terawatt-hour of energy production” [dataset]. Deaths per TWh energy production [original data]. 

  15. Thermal power is a type of power station which uses a steam turbine to generate power, which includes fossil fuels, nuclear, geothermal, and solar thermal. 

  16. IEA, “Average power generation construction time (capacity weighted)”, 2010-2018, IEA, Paris https://www.iea.org/data-and-statistics/charts/average-power-generation-construction-time-capacity-weighted-2010-2018, IEA. Licence: CC BY 4.0 

  17. Hannah Ritchie (2021) - “Many countries have decoupled economic growth from CO2 emissions, even if we take offshored production into account” Published online at OurWorldInData.org. Retrieved from: ‘https://ourworldindata.org/co2-gdp-decoupling’ [Online Resource] 

  18. Jaramillo, M., Quirs-Torts, J., Vogt-Schilb, A., Money, A., et al. (2023) Data-to-Deal (D2D): Open Data and Modelling of Long Term Strategies to Financial Resource Mobilization  - the case of Costa Rica. Cambridge Open Engage. [Online] Available from: doi:10.33774/coe-2023-sqbfm-v5. This content is a preprint and has not been peer-reviewed.