Make or break for green economy

SDG indicators

Target 9.4: By 2030, upgrade infrastructure and retrofit industries to make them sustainable, with increased resource-use efficiency and greater adoption of clean and environmentally sound technologies and industrial processes, with all countries taking action in accordance with their respective capabilities
Indicator 9.4.1: CO2 emission per unit of value added (Tier I)


Target 7.3: By 2030, double the global rate of improvement in energy efficiency
Indicator 7.3.1: Energy intensity measured in terms of primary energy and GDP


Target SDG 12.6: Encourage companies, especially large and transnational companies, to adopt sustainable practices and to integrate sustainability information into their reporting cycle
Indicator SDG 12.6.1: Number of companies publishing sustainability reports (Tier III)

In light of new scientific research (IPCC, 2019), choices in climate policy taken now will be critical for our future and for the future of the ocean and cryosphere. According to the IPCC (2014, p. 6), climate change has already “caused impacts on natural and human systems on all continents and across the oceans”. We are experiencing more frequent natural disasters and extreme weather events, rising sea levels and diminishing Arctic sea ice, among other changes (IPCC, 2018). In August 2019, the United Nations Secretary General, António Guterres, named 2020 a make-or-break year for climate policy, not anticipating that the COVID-19 pandemic would bring societies and economies to an abrupt halt, cutting emissions by an amount impossible to imagine under normal conditions.

Greenhouse gas emissions levelled off but still at a record high in 2019

A growing concentration of the 'critical' greenhouse gases, mainly CO2, CH4, N2O and F-gases, in the atmosphere has been identified as the main cause of increased temperatures on the planet (WMO, 2019). In 2018, greenhouse gas emissions reached a record high of 51.8 Gt of CO2e. Emissions increased by 2.0 per cent from the previous year after a period of little or no growth from 2015 to 2016, and a 1.3 per cent increase in 2017. Including emissions from land-use change, which are difficult to measure, total emissions amounted to 55.3 Gt in 2018. This level is about 55 per cent higher than in 1990 and 40 per cent higher than in 2000 (see figure 1).

Estimates by the Global Carbon Project, a global consortium of experts, indicate an increase of 0.6 per cent in total carbon dioxide emissions from 2018 to 2019 (Carbon Brief, 2019). In the first quarter of 2020, global CO2 emissions were over 5 per cent lower compared with the same period in 2019 according to estimates by IEA (2020). Depending on the scenario used, in 2020, global CO2 emissions are forecast to decline by 8 per cent, equaling 2.6 Gt. This is largest reduction ever recorded and will bring us back to levels last seen 10 years ago. The previous record fall, caused by the global financial crisis, was a reduction of 0.4 Gt in 2009.

Figure 1. Greenhouse gas emissions and target reductions (SDG 9.4.1)
(Gt of CO2e)
Source: UNCTAD calculations based on Netherlands PBL (2019) and UNEP (2019).
Notes: Intermediate goals are shown as released by UNEP (2019). Emissions from land-use change are not included. The CO2 emission estimate for 2019 by Carbon Brief (2019), and the estimate for 2020 by IEA (2020).

What do these developments imply for global warming? In 2019, the annual global temperature was already 1.1°C warmer than pre-industrial conditions (WMO, 2020). The 2015 Paris Climate agreement aims, by 2100, “to limit the temperature increase from pre-industrial levels to 2°C and pursue efforts to remain below 1.5°C” (UNFCCC, 2016). Even with a 1.5°C warming, climate scientists warn that the effects will be far greater than originally expected, including extinction of coral reefs, and many plants, insects and animals (IPCC, 2018).

According to simulations, reaching the Paris target of keeping global warming below 2°C will require emissions of critical greenhouse gases to peak in 2020, and decline sharply thereafter. To remain below 2°C warming by 2100, global emissions should not exceed 40 Gt of CO2e in 2030, and to achieve the below 1.5°C warming target, total emissions should remain below 24 Gt of CO2e by 2030. Remaining below the 2°C target requires a reduction from 2018 levels of nearly 25 per cent and nearly 55 per cent to remains below 1.5°C UNEP (2018). Thus, although record-breaking, the forecast reduction of CO2 emissions caused by the COVID-19 outbreak will not be enough to achieve even the weakest of the targets set out by the Paris Climate agreement. Global emissions should be cut by almost 8 per cent every year for the next decade to keep us within reach of the 1.5°C target of the Paris Climate agreement.

Most carbon dioxide emitted in Asia – per unit of GDP and in total

The most prevalent greenhouse gas is CO2, as figure 1 reveals. It is a gas released through human activities, such as deforestation and burning of fossil fuels, and through natural processes, such as respiration and volcanic eruptions. Around 90 per cent of CO2 emissions are generated by burning of fossil fuels in the form of coal, oil and natural gas. However, CO2 concentrations in the atmosphere are also influenced by deforestation and other types of land-cover or land-use change, due to their impact on the land's potential to absorb or generate CO2.

In 2018, CO2 accounted for almost three quarters of total greenhouse gas emissions. Thus, by focusing on CO2, SDG indicator 9.4.1 helps monitor the largest part, although not the full amount of global greenhouse gas emissions.

The regional concentration of CO2 emissions varies considerably across the globe. In 2018, half of the countries in Africa recorded emissions of less than 20 kg/km2. In Latin American countries and in Australia, emissions were mainly between 20-100 kg/km2. Much higher CO2 emissions, typically more than 200 kg/km2 and sometimes even higher than 2 000 kg/km2, were common for countries located in a band that ranges from the United States of America and Central America over to Europe, excluding Iceland and most of Scandinavia, and including the Near East, to Southern, Eastern and South-Eastern Asia. Within that band, particularly high emission levels were recorded in Central Europe and Eastern Asia. Farther to the North, in Canada, Northern Europe and in Northern and Central Asia, emission levels were lower, usually ranging between 50 and 200 kg/km2 on average per country.

Map 1. Geographic concentration of carbon dioxide emissions
(kg/km2 per year)
Source: UNCTAD calculations based on UNCTAD (2019) and Crippa et al. (2019).
Notes: CO2 emissions from fossil fuel use (combustion, flaring), industrial processes (cement, steel, chemicals and urea) and product use are included. Emissions from fuels burned on ships and aircrafts in international transport are not included.

As figure 2 shows, three regions of the world emitted most of the CO2 from fuel combustion, industrial processes and product use: Eastern and South-Eastern Asia (15.2 Gt in 2018), Northern America (5.9 Gt) and Europe (5.7 Gt). Together, they accounted for about 70 per cent of global CO2 emissions in 2018. While Europe has a larger economy, measured in terms of GDP, than Northern America, almost one third less emissions were associated with each unit of production in Europe compared to Northern America. Eastern and South-Eastern Asia was characterized by both higher GDP and higher carbon intensity than the other world regions shown in figure 2. They alone emitted 40 per cent of world’s emissions.

The least CO2 emissions per unit of production were caused by the economies of Latin America and the Caribbean. The economies of Sub-Saharan Africa produced only slightly more CO2 emissions per unit of production than European economies. Sub-Saharan Africa with Latin America and the Caribbean together only contributed 7 per cent of global CO2 emissions, while Europe contributed 15 per cent. Fuels burned on ships and aircrafts involved in international transport, which cannot be distributed to economies, would add about 3 per cent to global CO2 emissions (Crippa et al., 2019).

Figure 2. CO2 emissions, emissions intensity and GDP, by region, 2018 (SDG 9.4.1)
Source: UNCTAD calculations based on Crippa et al. (2019).
Notes: The area of bars measures CO2 emissions. Regions are arranged by order of emissions amount. CO2 emissions from fossil fuel use (combustion, flaring), industrial processes (cement, steel, chemicals and urea) and product use are included. Emissions from fuels burned on ships and aircrafts in international transport are not included. US$ values are in constant 2011 prices, adjusted to purchasing power parities based to the United States of America. Central and Southern Asia includes developing economies in Oceania.

Population growth and rising prosperity drive carbon dioxide emissions

Since 1990, global CO2 emissions have increased by two thirds: from 22.6 Gt in 1990 to 37.9 Gt in 2018. This translates to almost 1.9 per cent average annual growth. Between 2014 and 2016 CO2 emissions remained almost constant. Previously, falling emissions were driven by stagnant economies, but this time the global economy grew at around three per cent annual rate during that period. The falling emissions were mainly due to the reduction of emissions in China as a reaction to slowing construction and weaker demand for steel. But improvements in energy efficiency, for instance in the United States of America, as well as the growth of solar and wind energy in many countries also played a role. But from 2017 CO2 emissions’ growth resumed, and by 2018 the annual growth rate had returned to 1.9 per cent (Crippa et al., 2019).

Much of the increase in CO2 emissions observed over the last decades relates to world population growth and increased consumption per capita, since consumption relies on the production of goods and services. In fact, CO2 emissions can be expressed as the product of population size, GDP per capita (GDP/population), and the carbon intensity of production (CO2/GDP):

An increase in GDP, the product of the first two factors in the equation above, leads to rising CO2 emissions, unless carbon intensity, the third factor, decreases at a higher rate than the growth of GDP. Some studies suggest that carbon intensity decreases as a country's level of development rises, to the extent that GDP growth can be offset. This would result in a bell-shaped relationship between GDP and emissions – the so-called "environmental Kuznets curve". So far, research has provided mixed empirical evidence for the validity of this curve (see Stern, 2004; Victor, 2010; Hoffmeister, 2013; Pacini and Silveira, 2014).

At the global level, real GDP has more than doubled over the last quarter century – from US$47 trillion in 1990 to US$121 trillion.1 This is the result of a 44 per cent increase in the world population (1971: 5.3 billion, 2018: 7.6 billion) and an over two thirds’ increase in real GDP per capita (1990: US$8 966, 2018: US$15 957) (see figure 3).

Decreasing carbon intensity cannot offset GDP growth in the less developed regions

Global carbon intensity reduced by over one third from 1990 (478 g/US$) to 2018 (313 g/US$). Therefore, CO2 emissions have grown at a slower pace than GDP. This decoupling of CO2 emissions from GDP has been most significant in Europe, where carbon intensity dropped by more than 50 per cent since 1990, and almost as much in Northern America (-46 per cent).

Over the past 28 years, carbon intensity has decreased less in regions consisting mainly of developing economies. Eastern and South-Eastern Asia released over three times more CO2 in 2018 than in 1990 with a drop in their carbon intensity of only 28 per cent. Recently, their carbon intensity has been declining notably. However, the reduction in carbon intensity did not compensate for the extraordinary increase in GDP per capita, and was just enough to offset the population growth.

In Sub-Saharan Africa carbon intensity of the economy dropped by about 37 per cent from 1990 to 2018, compared to 10 per cent in Latin America and the Caribbean. In Australia and New Zealand, carbon intensity decreased by 35 per cent.

Figure 3. Population, GDP per capita and carbon intensity contributions to CO2 emissions growth, by region
Growth contribution (per cent)
Source: UNCTAD calculations based on Crippa et al. (2019).
Notes: CO2 emissions from fossil fuel use (combustion, flaring), industrial processes (cement, steel, chemicals and urea) and product use are included. Rates based on US$ values are in constant 2011 prices, adjusted to purchasing power parities based to the United States of America. Central and Southern Asia includes developing economies in Oceania.

Europe is the only region where the overall amount of CO2 emissions is lower than in 1990, by almost 30 per cent. Northern America is close to 1990 levels, but the remaining regions are well above.

As countries are connected by global value chains and trade relations, the observed growth in carbon intensity of GDP in developing regions may be driven by demand for carbon-intensive final products in other regions. In fact, studies based on inter-country input-output tables prepared by the OECD (2018) find that demand-based CO2 emissions of developed economies are generally higher than their production-based emissions, while most developing economies are net-exporters of CO2 emissions embodied in final products (Wiebe and Yamano, 2016). As environmental policy is more stringent in some regions than in others, companies can save production costs by relocating carbon intensive production processes globally, a process described as "carbon leakage" (Lanzi et al., 2013).

Energy demand dropped in early 2020 - an important factor in cutting emissions

Fuels are mostly burned to produce energy. For that reason, CO2 emissions and energy supply are closely interlinked. According to the IEA (2019), this subcomponent of total CO2 emissions, i.e. energy-related CO2 emissions, accounts for two thirds of CO2 emissions globally. In 2019, energy-related CO2 emissions flattened at around 33 Gt. During January-March 2020, global energy demand declined by 3.8 per cent (IEA, 2020). This is mainly an impact of the COVID-19 pandemic, but partially also due to warmer winter weather conditions.

Energy is an indispensable input for most processes generating value added in an economy. This means that energy intensity (Energy/GDP) is an important determinant of the carbon intensity of GDP (CO2/GDP). The other determinant is the carbon intensity of energy supply (CO2/energy), as the decomposition below reveals:

Figure 4 demonstrates the important role of efficient energy use in reducing the carbon intensity of GDP. From 1990 to 2017, energy intensity reduced on average by 1.6 per cent each year. From 2008 to 2017, the reduction was even higher, 1.8 per cent each year. During that time, energy intensity was cut most, by 20 per cent, in Central and Southern Asia and Eastern and South-Eastern Asia. There, the diminishing energy intensity has been the reason for the decrease of 17 to 19 per cent in the carbon intensity of GDP since 2000. At the same time, carbon intensity of energy supply increased most in these two regions. By contrast, from 2008 to 2017, in Northern America and Europe, the effect of rising energy efficiency has been complemented by significant reductions of 7 to 9 per cent in CO2 emissions per unit of supplied energy.

Figure 4. Changes in energy intensity (SDG 7.3.1) and carbon intensity, by region, 2008-2017
Growth rate (per cent)
Source: UNCTAD calculations based on IEA (2019).
Notes: Emissions not caused by fuel combustion are not included. US$ values are in constant 2010 prices, adjusted to purchasing power parities based to the United States of America. Central and Southern Asia includes developing economies in Oceania.

Soon after the start of 2020, demand for energy fell sharply due to the measures taken against the COVID-19 pandemic around the world. China, hit by COVID‑19 first, saw their weekly energy demand fall by 15 per cent, whereas in the Republic of Korea and Japan the estimated impact of COVID-19 measures on energy demand remains below 10 per cent. In Europe, the periods of partial lock down cut weekly energy demand by 17 per cent on average, while countries with a higher share of services and greater stringency of lockdowns saw their energy demand reduce by as much as 25 to 30 per cent. India’s full national lockdown reduced their weekly energy demand by almost 30 per cent. Overall, the IEA estimate that for each additional month of restrictions in place as of early April 2020, global annual energy demand would reduce by 1.5 per cent IEA (2020).

The falling demand has been reflected in sinking oil and gas prices. In March 2020, the UNCTAD free market commodity price index for fuels recorded a historic drop of 33.2 per cent month-on-month (UNCTAD, 2020).

The impact of COVID-19 has been especially pronounced on transport. Since the outbreak of the pandemic, people have not been travelling much, and the global number of flights has collapsed since mid-March. The number of weekly commercial flights available was about 75 per cent lower in the first half of May compared with the start of January 2020 (see Tourism section of Developing economies in international trade).

While air transportation generates about 2 per cent of global emissions, road transportation contributes almost 12 per cent (WRI, 2020). According to the IEA (2020), global average road transport fell to 50 per cent of 2019 levels by the end of March 2020. As a result, global emissions from surface transport fell by 36 per cent by 7 April 2020 which made the largest contribution to the total emissions change (Corinne et al, 2020). Interestingly, by the end of March 2020, port traffic in North America was still at 99 per cent of normal levels, albeit with elevated volatility (Geotab, 2020).

The impact of COVID-19 brought large changes to the global energy mix in spring 2020. While the share of coal declined to below 23 per cent, renewables jumped to almost 13 per cent. Regional differences in weekly energy demand are large and depend on the stringency of COVID-19 measures in each country (IEA, 2020).

These developments have led to notable short-term improvements in air quality, with NO2 levels, a gas emitted from burning fossil fuels for transportation and electricity generation, dropping recently. First, in some areas of China, NO2 concentrations dropped by 40 per cent from 2019 levels in January-February 2020. In March 2020, a 30 per cent drop was recorded in the North Eastern part of the United States of America, and the NO2 levels halved in Europe by April 2020 (Carbon Brief, 2020; NASA, 2020; European Data Portal, 2020; CCSA, 2020).

A mixture of positive and negative trends – what will prevail?

Climate change continues to be a development issue, demonstrated particularly by the trends in Asia, where CO2 emissions have dramatically increased in tandem with the rapid growth of GDP per capita over the last decades. Only decreasing energy intensity has limited the growth of CO2 emissions in that region. This is a sobering message, considering the urgent need to limit the concentration of greenhouse gases in the atmosphere. At the same time, some statistics give hope: in most developed regions, CO2 emissions have been diminishing for more than ten years, despite continuous GDP growth. This provides signs that a decoupling of emissions from the economic development is feasible.

The outbreak of COVID-19 has brought about an unexpected sudden deviation from many long-term trends, leading to an unprecedented fall of greenhouse gas emissions in early 2020 and a faster shift to renewable energy sources. However, these changes may be temporary. Even if COVID-19 has induced fast reductions of CO2 emissions in 2020, it will not be enough in the fight against climate change. More effective and lasting efforts are needed to reduce CO2 emissions and other greenhouse gases to limit global warming below 2°C or especially below the 1.5°C target by 2100. As populations and GDP per capita continue to grow, a drastic reduction in carbon intensity will be required. Rising energy efficiency serves as an important step in that direction, as well as renewable and cleaner energy.

Involving the private sector in the sustainable development agenda

The business sector is identified in the Addis Ababa Action Agenda as a significant player in the financing of sustainable development (United Nations, 2015). Their actions contribute directly or indirectly to the attainment of all SDGs, including the state of the environment and greenhouse gas emissions. Nonetheless, the business sector is mostly absent from the SDG targets and is explicitly mentioned in only one of them: target 12.6, which calls for a greater integration of sustainability information in the regular reporting cycle of firms.

To advance the measurement of target 12.6, international organizations, standard setting agencies and businesses launched an initiative to develop a commonly agreed upon and harmonized set of indicators for reporting on sustainable development in the business sector. More comprehensive reporting is important for making companies’ contribution to the 2030 Agenda visible and for encouraging them to review how their operations affect their stakeholders and the environment. Sustainability reporting promotes transparency in the business sector and increases business accountability to society.

SDG indicator 12.6.1 aims to measure the number of companies that publish sustainability reports. Developing consistent reporting on the indicator requires aligning multiple reporting frameworks, including the International Integrated Reporting Council (IIRC, 2013) framework, the Global Reporting Initiative (GRI, 2019) standards, the standards proposed by the Sustainability Accounting Standards Board (SASB, 2018), and the UNCTAD (2018) Guidance on Core Indicators.2

To this end, UNCTAD and UNEP, as joint custodians of SDG indicator 12.6.1, identified four themes for sustainability reporting: economic, environmental, social and institutional and governance. As a “minimum reporting requirement”, only reports that cover certain elements in a meaningful way will be counted as sustainability reports for the SDG indicator. To further strengthen sustainable practices and accountability, the agencies also identified an “advanced reporting requirement” with more comprehensive reporting rules.

In August 2019, the IAEG-SDGs approved the concepts and methods developed by UNCTAD and UNEP, and data collection for the indicator began. The framework does not add new reporting requirements, instead it suggests a way to reconcile the existing frameworks. UNCTAD and UNEP have also prepared correspondence tables so that firms choosing to report according to different standards can be assessed against the SDG indicator 12.6.1.

Businesses striving to close large gaps in sustainability reporting

UNCTAD regularly convenes a Group of Experts on ISAR to discuss international accounting and reporting standards in order to improve the availability, reliability and comparability of financial and non-financial enterprise reporting, and especially to integrate sustainability information into business reporting.

Official statistics for SDG 12.6.1 are not yet available as companies are setting up the new sustainability reporting. However, an initial review is possible by looking at company sustainability reports published by the United Nations Global Compact and assessing their alignment with the minimum requirements for SDG indicator 12.6.1 and the related UNCTAD Guidance (UNCTAD, 2018). The UN Global Compact database compiles CoP reports submitted voluntarily by companies.

In March 2020, the database contained sustainability reports for 2018 prepared by over 10,000 companies in over 160 countries. The increase in reporting is substantive as compared to March 2019, when the database included under 3,000 sustainability reports for 2017 by companies in 111 countries. Although this is a collection of voluntary reports and not representative of the world population of firms, the exercise still provides a first glimpse of current sustainability reporting practices and reveals some regional patterns.

Studying every single report would be time consuming. Instead, machine learning and natural language processing techniques have been used to analyse text syntax structures in the CoPs and identify keywords based on the 33 core elements listed in the UNCTAD Guidance, organised according to the four themes.3 Every report then received a score for each of the indicators: 0 if there was no mention of the indicator; 1 if the indicator was mentioned but with no quantitative information; or 2 if the report covered the indicator including quantitative information.4

Figure 5 shows the estimates from this exercise for 33 UNCTAD Core Indicators by theme, and the notable change in the coverage of indicators in 2018 reports when compared to the previous round. Basic economic indicators (revenue, value added and net value added) were routinely made available as well as “traditional” resource-related environmental measures (water use and energy efficiency). Apart from that, there were large gaps in all four themes of sustainability reporting. Most disclosure elements, except in the economic domain, were hardly reported at all.

Figure 5. Compliance of sustainability reporting in line with UNCTAD Core Indicators, by theme
(Percentage)
Source: Global AI Corporation with data from United Nations Global Compact (2019) and UNCTAD (2018).

Figure 6 aggregates this information by region. The results should be interpreted with caution, however, due to the large gaps in some regions. Still, they can be taken as an indication of the regional differences in voluntary reporting. It appears that in certain regions, such as, the Americas, Asia and Europe, firms demonstrate a higher compliance with the UNCTAD Guidance than in others. Larger gaps in reporting of some regions are evident, especially in Africa and the Oceania.

Figure 6. Compliance of sustainability reporting in line with UNCTAD Core Indicators, by region
(Percentage)
Source: Global AI Corporation with data from United Nations Global Compact (2019) and UNCTAD (2018).

The regions of America, Asia and Oceania demonstrated the most significant progress in reporting on 12.6.1 with the growth in the number of reports of more than 60 per cent in just one year. The overall quality of sustainability reports has improved across the world since the 2017 round of reports, especially in the environmental, social as well institutional and governance dimensions, where the ratio of reporting aligned with the minimum requirements almost doubled in these regions.

All in all, the 2030 Agenda has increased sustainability reporting among businesses and led to closer engagement of international organizations and businesses to develop a commonly agreed upon and harmonized set of indicators. The coming years will show if sustainability reporting will be used by an increasing number of firms to demonstrate commitment to sustainable development.

Notes

  1. In constant 2011 prices adjusted to purchasing power parity based to the United States of America.
  2. The Guidance on Core Indicators, developed by UNCTAD upon request by the 34th session of the Intergovernmental Working Group of Experts on ISAR, lists the main elements for entity reporting to monitor company-level contributions towards SDGs (UNCTAD, 2018).
  3. Additional complexity is caused by the fact that the CoPs are reported in over 20 different languages and in different formats. Therefore, the algorithms use multiple data cleaning, noise reduction and filtering methods to better identify relevant content for each indicator.
  4. The calculations were performed by Global AI Corporation, based mainly on CoPs available in United Nations Global Compact. However, some reports were obtained directly from companies’ websites, and other sources were used in some cases for additional data on revenue, value added and net value added.

References

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