Profile: Dr Michael Molitor

Profile: Dr Michael Molitor

“Simply put, addressing climate
change, sustainable food and energy production, and delivering more clean water
are the only economic opportunities large enough to expand global economic
output six-fold in the next 40 years.
Many people now refer to this, the biggest economic opportunity in
history, as the clean industrial revolution.” Michael Molitor writing in
Climate Spectator. Read More

Michael Molitor in Climate
Spectator (3 October 2011):

Australia is now struggling with
legislation that would introduce a carbon price in its economy through a new
tax.  The opposition leader is claiming
that the tax is a waste of time and will only create costs for Australians
without any benefits—environmental or otherwise.  Most of the key emerging macroeconomic data
is now pointing in completely the opposite direction.  In the absence of a carbon price created by
Federal legislation in Australia, it is unlikely that the Australian economy
will be able to generate sufficient new growth to meet its economic aspirations
between now and 2030.

In May of this year the OECD
celebrated its 50th anniversary and it chose the topic of green growth as the
highlight of the celebrations.  The OECD
report on green growth released at that time made it clear that, in order to
deal with the rapid expected increase in middle class consumers that will occur
between now and 2050, global GDP will need to rise from around US$55 trillion
today to US$300 trillion by 2050.  This
nearly six-fold growth requirement over the next 40 years is in dramatic
contrast  with the three-fold increase
that occurred over the last 40 years since 1970 (from US$18 trillion to US$54

Equally important, the OECD
report advances the view that the daunting challenge of doubling the global
economic growth rate over the next 40 years is going be almost impossible
without adequately dealing with a range of global environmental and resource constraints—including,
most importantly, climate change.  These
challenges act as effective road blocks keeping us from reaching a global
economy of US$300 trillion.  In response,
we will need to both address these environmental challenges while simultaneously
increasing resource productivity at least ten fold.  These are herculean objectives involving
enormous capital and massive transformative and disruptive technologies.

Fortunately, there is now
considerable discussion around the world about how we will mobilize enough
capital to deal with these global environmental and resource constraints.  At the UN climate meeting in Cancun last year
governments decided to create a large green climate fund with the capital being
used to accelerate the de-carbonization of the developing world.  The G20 process led by France this year is
also looking at climate finance. There are also efforts to use well-established
capital market instruments to try and direct more money towards green
initiatives—these include the creation of climate bonds and other green bonds
(even “reef bonds” to protect the Great Barrier Reef are under discussion).

Climate change and all other
global resource and environmental problems are, in the end, capital markets
activation challenges.  The dysfunctional
global economy is driving all of these problems because the current rules give
you credit for destroying ecosystems and fail to punish you when, for example,
you emit large quantities of greenhouse gases into the atmosphere.  Capital markets, as a result, direct enormous
sums of money towards activities that undermine the planet’s climate system,
devour natural resources faster than they can be replenished, and produce goods
and services at exceedingly poor rates of productivity.  Simply put, the global economy directs more
capital to wasteful and harmful activities than it does to activities that will
ultimately allow 9-10 billion people to live well in 2050.

There are two approaches to
correcting the dysfunctional global economy so that capital changes direction
and begins to focus on improving global economic and environmental
sustainability.  The first is to try and
create a global regime that forces the market to incorporate the costs of the
unsustainable economic activities—that is, try to make the system
functional.  We tried this with 20 years
of UN negotiations on climate change between 1991 and 2011.  The failure in Copenhagen in 2009 to reach a
global agreement that would have put a global price on carbon emissions makes
it clear that this approach has little hope of succeeding—at least on a
timescale meaningful to the problem of global climate change.

The other approach is to
recognize that we have little hope of fundamentally correcting a dysfunctional
global economy and to use the dysfunctional operating rules to achieve the
results we require.  Under this approach
the focus is on creating a better value proposition for green investments—that
is, lower risks and, more importantly, better returns but without the policy
interventions that would internalize the externalities.

What the OECD did not mention in
its green growth report is that  not only
will it be impossible to get to US$300 trillion by 2050 if we fail to address
key environmental and resource constraints but, more importantly, the only
growth platforms large enough to get us to US$300 trillion are these very same
challenges.  Simply put, addressing
climate change, sustainable food and energy production, and delivering more
clean water are the only economic opportunities large enough to expand global
economic output six-fold in the next 40 years.
Many people now refer to this, the biggest economic opportunity in
history, as the clean industrial revolution.

Australia, one of the very best
performing countries in the OECD, will struggle to achieve sufficient economic
growth out to 2030.  At the moment, the
key Australian growth activities include the export of coking and thermal coal,
iron ore and, in the near future, large expected exports of LNG. These growth
platforms are outstanding by current OECD measures yet they are insufficient to
get Australia to 2030.  How then, do you
begin to invest in new economic growth platforms today that will help get
Australia to a prosperous 2030 and beyond?

Energy Minister Martin Ferguson
recently made public the very large capital requirements to expand the
stationary energy sector in Australia to meet growing demand for electricity
out to 2030.  He suggested that the scale
of investment was more than AUD$200 billion between now and 2030 and enormous
investments would be required to both add new generating capacity as well as to
expand the existing transmission and distribution networks.  In comparison to the large costs of the
National Broadband Network, the energy system funding costs become the largest
infrastructure investments in Australian history.

Countries wishing to stimulate
growth and jobs through the clean industrial revolution will need to make
transformative changes in the ways they produce and use electricity.  Although there are numerous policy approaches
that can achieve this outcome, most economists now agree that the introduction
of a robust carbon price is the most efficient means of doing so.  Continuing to invest in inefficient centralized
energy networks that rely on fossil fuels, and mostly coal, will make it
impossible to access the enormous growth platform provided by the clean
industrial revolution.  In other words,
Australia cannot afford not to have a carbon price in place—it is the basis of
one of the very few green growth platforms that will allow Australia to meet
its future economic aspirations.

The future of economic growth is
in greatly improved resource efficiency and environmental management.
Distributed energy, smart grids, battery storage and the electrification of
urban transport are some of the key job and wealth creating opportunities and
they are already here in terms of proven technologies.  A carbon price forces Australia to start on
the road of improving resource efficiency immediately.  Although it is attractive to try and rely on
the old growth models that rely heavily on inefficient energy technologies and
fossil fuels, countries that continue to do so will be left behind.  Australia is one of the very few countries
that can harness this pathway to growth and the AUD$23 carbon price is a big
step in the right direction.


Dr. Michael Molitor is the
Principal Advisor, Round Table on Sustainable Development at the OECD in

He is also the founder of
CarbonShift Pty Ltd, an Australian company with a focus on helping clients
develop, implement and communicate robust strategies to respond to the
challenge of a climate system modified by human activity. CarbonShift, based in
Sydney, works with many leading companies and organisations to deliver carbon
management outcomes that both protect and enhance shareholder value and
stakeholder relationships.

Dr. Molitor served as Senior
Advisor on Climate Change at McKinsey & Company and, during 2000-2003, was
the global leader of Climate Change Services at PricewaterhouseCoopers based in
London. In these roles his primary activities were in assessing the risks and
opportunities presented by climate change to corporate performance, with
particular emphasis on the cost of carbon emissions abatement.

Before entering the business
world, Michael was a leading Earth Systems academic for 10 years. Dr. Molitor
was a member of the faculty at the University of California, San Diego and the
Climate Research Division at the Scripps Institution of Oceanography. In this
capacity he served as an external advisor to BP on the development of the
company’s climate change strategy and attended all of the United Nations
negotiations on climate change.

Dr. Molitor earned his PhD from
Cambridge University, England and spent 3 years at Harvard University on a Ford
Foundation Post-doctoral fellowship.
After receiving his B.A. from the University of Michigan, he went on to
complete a joint M.Sc. between the London School of Economics and Political
Science and Imperial College (University of London).

Dr. Molitor has also held
academic appointments at Stanford University, the University of California,
Berkeley and Columbia University. He served as Science Advisor on the film,
‘The Day After Tomorrow’ and has appeared on numerous television and radio
programs in the US, UK, Germany, Canada and Australia.


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