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G20 low carbon competitiveness index: 2012 update
Report prepared for The Climate Institute
Final Report
March 2012
2 G20 low carbon competitiveness index: 2012 update
An appropriate citation for this report is:
Vivid Economics, G20 low carbon competitiveness index: 2012 update, report prepared for The Climate
Institute, March 2012
3 G20 low carbon competitiveness index: 2012 update
Executive Summary Most countries improved their low carbon competitiveness score
between 2005 and 2008
The agreement made at COP 17 in Durban for all countries to commit to a legally binding framework for
emissions reductions provides the backdrop for a review of how each is positioned to be competitive in a
low-carbon future. The way in which each nation adapts to a carbon constrained world will, to an extent,
determine its future economic competitiveness and ability to create prosperity for its residents.
In 2009, The Climate Institute released the G20 low carbon competitiveness report which quantitatively
ranked the nineteen G20 countries in terms of their low carbon competitiveness (Vivid Economics, 2009).1
The measures in that report complement traditional measurements of competitiveness, which alone were
largely failing to assess the consequences of how countries adapt to the opportunities and costs of moving to
a carbon constrained world. The measures are selected based on their correlation with low carbon
competitiveness as indicated by statistical techniques and represent a unique approach to assessing low
carbon competitiveness. This report updates the low carbon competitiveness index, and fills this gap with
comparative, data-driven analysis of the progress countries are making.
The low carbon competitiveness index measures the current capacity of each country to be competitive and
to generate material prosperity for its residents in a low carbon world, based upon each country’s current
policies and indicators.
Generally speaking, countries that have both high levels of GDP per capita and have acknowledged the need
to orient their economies towards low carbon growth come towards the top of the low carbon
competitiveness index. The index is charted in Figure 1. By contrast, countries towards the bottom of the
index are Australia and non-Annex I nations that are heavily dependent upon carbon intensive production for
income.
Highlights from the report:
In order, France, Japan, the UK, South Korea and Germany top the LCCI. These countries are
followed by Canada, China, the USA, Italy and Brazil.
Since the release of the first index in 2009,2 France has retained its position at the top of the index,
while Japan and the UK have overtaken South Korea to take second and third places. Using updated
1 There are nineteen country members of the G20 plus the EU. The performance of the EU as a whole is not considered in this report.
2 The report released in 2009 was based upon 2005 data, while this 2012 report is based upon 2008 data.
4 G20 low carbon competitiveness index: 2012 update
data, most countries attain a ranking one or two places higher or lower in the updated index;
although Australia, ranked 16th, is one of those countries which retains the same ranking. Russia,
South Africa and India also see no change in their rankings.
The LCCI has also been calculated for 1995 and 2000 as well as for 2005 and 2008. The overall
pattern is that those countries in the top half are improving their performance over time, while many
of those in the lower half are stagnating. Australia is the only country which has a score in 2008
lower than that in 1995; although other countries such as Canada, South Africa, the UK and India
also show little improvement. Some of the biggest improvements since 1995 are seen in China,
South Korea and Mexico.
The LCCI is built from indicators grouped into three categories – early preparation, sectoral
composition and future prosperity.
– Early preparation variables include indicators reflecting the steps that countries have
already taken to move towards a low carbon economy. Countries which take early action
will have higher standards of living in a low carbon future. The carbon intensity of
electricity and investment in sustainable energy businesses are examples of indicators in this
category.
The USA has the highest score for early preparation, followed by France and then Germany.
The USA has, by some distance, the highest levels of investment in sustainable new energy
on its stock market, and also has levels of industrial energy efficiency which are above
average and electricity distribution losses which are below average.
Australia ranks slightly below average in this category due to a higher carbon intensity of
electricity generation, while performing mid-table on the other measures.
– Sectoral composition variables reflect the fact that economies which have a more emissions
intensive structure – for example, through exporting carbon-intensive goods and having
carbon-intensive electricity and transport sectors – will face a greater challenge in remaining
competitive in a carbon constrained world.
France, South Korea and China have the best scores on sectoral composition. France has the
highest level of clean energy production, the least emissions-intensive exports and relatively
low levels of car ownership, while South Korea has the highest share of high technology
exports. China has low emissions per capita from the transport sector, the highest rate of
reforestation, and the second highest share of high technology exports.
Australia is amongst those countries facing the biggest challenge from its sectoral
composition in remaining competitive in a low carbon future. Australia has the lowest level
of overall clean energy production, the second highest number of cars per capita, and
relatively high deforestation and emissions per capita from the transport sector.
5 G20 low carbon competitiveness index: 2012 update
– Future prosperity indicators contribute towards prosperity today and will also be important
in a carbon-constrained future. A country can achieve a higher score in the future prosperity
category of the LCCI if, for example, it has high educational expenditures and investment in
physical capital and has low depletion of energy, forest and mineral resources and high
existing GDP per capita.
Japan, Germany and the USA have the highest scores in this category. Japan has low
population growth, low depletion of natural capital and the highest level of GDP per capita,
but relatively low spending on education.
Australia ranks in the middle for this category with higher than average spending on
education, levels of GDP per capita and ease of starting up a business, but lower than
average investment in physical capital and a relatively high rate of natural capital
depreciation. The deterioration in Australia’s future prosperity score is due to declining
investment in education and higher population growth.
The score for Australia does not include the impact of the Clean Energy Futures package, as the measures
contained therein have largely not yet come into force. Australia’s position – ranking 16th out of the 19 G20
countries - remains the same in the updated index, and Australia has fallen backwards on a number of
indicators for 2008 when compared to the 2005 data in the original report.
6 G20 low carbon competitiveness index: 2012 update
Contents
Executive Summary ............................................................................................... 3
1 Introduction .......................................................................................... 9
2 The results of the updated LCCI ...................................................... 14
Appendix: constructing the LCCI ........................................................................ 33
Appendix: data preparation .................................................................................. 35
References ............................................................................................................ 38
7 G20 low carbon competitiveness index: 2012 update
List of tables
Table 1. A total of nineteen variables are included in the index ....................... 12
Table 2. The future prosperity category has the highest weight in the index ... 13
Table 3. Each country has improved performance in some areas and
deteriorated in others .......................................................................... 32
List of figures
Figure 1. Twelve of the nineteen countries have moved position in the index
from 2005 to 2008 ............................................................................... 15
Figure 2. Most countries improved their score from 2005 to 2008 .................... 16
Figure 3. The UK stagnates over time while South Korea and Germany have
caught up. ............................................................................................ 17
Figure 4. With the exception of Indonesia and Saudi Arabia, most of the
improvement is in the upper half of the index. ................................... 18
Figure 5. Indonesia, Mexico, China and Korea show the largest improvement in
the Low Carbon Competitiveness Index from 1995 to 2008, while
Australia, South Africa, India and the UK show the smallest
improvement ....................................................................................... 19
Figure 6. Most countries’ scores improve from 1995 to 2008, with Australia
being the notable exception. ............................................................... 20
Figure 7. From 1995 until 2008, Australia is the only country not to have
improved its index score ..................................................................... 21
Figure 8. The USA, France and Germany have the highest score for early
preparation in 2008. ............................................................................ 23
Figure 9. France, South Korea and China have the best sectoral composition
scores .................................................................................................. 25
Figure 10. Japan, Germany and the USA have the highest future prosperity
scores. ................................................................................................. 27
8 G20 low carbon competitiveness index: 2012 update
Figure 11. Australia’s score worsens over time while South Africa stagnates .... 29
Figure 12. While all countries improve in their early preparation score, the
evidence is mixed for the sectoral composition and future prosperity
score. ................................................................................................... 30
Figure 13. There have been some large changes within each of the three
categories, even in cases where the overall score is relatively constant
over time ............................................................................................. 31
Figure 14. Data revisions mean that the rankings for 2005 are slightly different
from those in the original report ......................................................... 36
Figure 15. Data revisions resulted in slight changes to the 2005 index ............... 37
9 G20 low carbon competitiveness index: 2012 update
1 Introduction This report presents an update of the original 2009
report
Section Contents:
1.1 Description and motivation for the index ............................................. 10
Rankings of countries in the low carbon competitiveness index change over
time
The low carbon competitiveness index combines multiple components into a
single performance index based upon statistical modelling. This update report
uses an identical methodology and variable definitions to the original report in
2009, and not only calculates the index based upon the most recent data, but also
backcasts the index to 1995 and 2000 to allow changes over time to be identified.
The original report states:
‘the definition of low carbon competitiveness
for a country is taken to be the ability of a
country to generate material prosperity to its
residents in a carbon constrained world’
10 G20 low carbon competitiveness index: 2012 update
1.1 Description and motivation for the index
Low carbon competitiveness will deliver a higher standard of living
in a carbon-constrained world
1.1.1 Low carbon competitiveness
A carbon3 constrained future will alter the economic position of every country, producing winners and losers.
The differential impact of these changes will mean that, along with changes in production costs and
consumer demands, global patterns of trade will shift. There is widespread recognition that those countries
which are relatively less emissions intensive, or move first to reduce emissions, will gain a relative
advantage as the world reduces its greenhouse gas emissions (Commonwealth of Australia, 2011; NRTEE,
2010). In sum, countries’ competitiveness will change. Although competitiveness is a complicated concept
and, moreover, ideas of competitiveness themselves also need to adapt to a low carbon world, countries
which are prepared for these shifts are likely to be better placed to secure the well-being of their residents.
Low carbon competitiveness has been assessed by a number of organisations, some of which produce
quantitative measures and others which are more qualitative in nature. Examples of exercises which
benchmark low-carbon performance include the Climate Competitiveness Index (AccountAbility, 2010),
OECD indicators for green growth (OECD, 2011), the Counting the cost of carbon report of
PricewaterhouseCoopers (PricewaterhouseCoopers, 2011), the Measuring up report of the Canadian NRTEE
(NRTEE, 2010) and the precursor to this report, the G20 low carbon competitiveness report (Vivid
Economics, 2009). The contribution of this report is to enhance accountability by tracking the changes in
countries’ rankings over time. The methodology developed in the 2009 report, which was calculated on the
basis of data from 2005, has been updated and re-calculated on the basis of 2008 data. In addition, historical
information has been collected which has enabled the index to be calculated for 1995 and 2000. It is
therefore now possible to consider how countries are moving over time, as well as their absolute ranking at
the present moment.
1.1.2 The definition of the low carbon competitiveness index (LCCI)
Full details of the methodology are presented in the 2009 release of this report, and a summary is also
included in an appendix to this report.
The definition of low carbon competitiveness for a country is taken to be the ability of a country to generate
material prosperity (proxied by economic output) to its residents in a carbon constrained world. Countries
with higher levels of carbon productivity; that is, GDP per unit of emissions, will be better-placed to provide
material prosperity to their residents in a carbon constrained future. Accordingly, the LCCI considers a large
number of variables and then weights them according to their association with carbon productivity. This
approach is unique as it uses statistical analysis to assess and rank the variables with respect to their
influence on low carbon competitiveness. The variables used to construct the index are summarised in Table
3 Throughout the document, except where stated, references to carbon (dioxide) relate to emissions of the six greenhouse gases
identified by the IPCC, excluding those from the land use change and forestry sector, expressed on a CO2e basis.
11 G20 low carbon competitiveness index: 2012 update
1, and the weightings applied are presented in Table 2. In analysing this index, it is important to recognise
that there are a number of reasonable choices of which variables to include and the weights to give them, and
that there is no deterministic manner in which to make those choices. This is a widely recognised limitation
of all such index-creation exercises. It is partly in recognition of this limitation that it is useful to consider
changes over time as well as absolute rankings. Counterbalancing this limitation, composite indices such as
the LCCI have a number of advantages, such as being able to combine different measures into a single index,
and pinpointing the reasons for changes in headline rankings.
1.1.3 Data sources for the updated index
Data for 2005 has been revised for some variables and this has been taken into account for this project. The
result of this is a slight change in the rankings for 2005 over the previous version. For example, the IEA data
(International Energy Agency, 2010) for non-OECD countries has been revised and the World Bank (World
Bank, 2011) revised the fixed capital formation and the amount of renewable energy in total energy
production. Lastly, the source for the price of diesel fuel has been changed in order to have consistent data
for the current past versions of the index; and, for GDP per capita and population growth the estimates from
the World Bank instead of the Penn World Tables have been used.
In order to recast the index for 2000 and 1995, the same sources as for the 2005 and 2008 indices have been
used. Most of the data is available for 2000 and 1995 and where data was missing for certain variables,
assumptions have been made to enable construction of an index which is directionally accurate.4
For the current 2008 index most data are from 2008, with only two exceptions. Firstly, the change in forest
cover rates is only reported on a 5 year basis and has been interpolated to 2008 levels based upon 2000 and
2005 forest cover. Secondly, the size of road transport, i.e. the motor vehicles per 1,000 people, is only
available for 2007 for some countries. As this variable is not prone to large changes within one year, 2007
data has been used for these countries as a proxy for their 2008 levels.
4 For example, the cost of business start up procedures in 1995 has been approximated with its 2000 value.
12 G20 low carbon competitiveness index: 2012 update
Table 1. A total of nineteen variables are included in the index
Variable Definition Source Is higher better?
Category
Transport sector energy consumption per capita
‘000 tonnes of oil equivalent (toe) per capita
International Energy Agency (IEA) No Sectoral Composition
Deforestation rate Percentage of total forest cover
World Development Indicators (WDI) and UN Global Forest Resource Assessment (FRA)
No Sectoral composition
Share of high technology exports
Percentage of total exports WDI Yes Sectoral Composition
Size of road transport sector
Cars per 1000 people WDI No Sectoral Composition
Balance of emissions embodied in trade
Percentage of total emissions from production
Peters et al. (2011) No Sectoral Composition
Air freight Million tonne-kilometres WDI No Sectoral Composition
Clean energy production Percentage of total energy use
IEA Yes Sectoral Composition
Efficiency of oil refining Net energy input into oil refineries per unit of output (‘000 toe)
IEA No Early Preparation
New sustainable energy investment
$US equivalent listed on the local stock exchange
Bloomberg New Energy Finance Yes Early Preparation
Electricity distribution losses
Percentage of total electricity generated
IEA No Early Preparation
Annual growth in greenhouse gas emissions
Change in emissions (%) World Resource Institute (WRI) No Early Preparation
Price of diesel fuel $US/litre GTZ Yes Early Preparation
Carbon intensity of electricity
CO2 per kWh WRI No Early Preparation
Human capital Education expenditure as % of GNI
WDI Yes Future Prosperity
Physical capital Rate of fixed capital formation as % of GNI
WDI Yes Future Prosperity
Natural capital Depreciation as a % of GNI WDI No Future Prosperity
Population growth Percentage WDI No Future Prosperity
GDP per capita 2000 $US per person WDI Yes Future Prosperity
Cost of business start-up procedures
Percentage of GNI per capita WDI No Future Prosperity
Source: Vivid Economics, World Development Report, International Energy Agency, World Resources Institute, Bloomberg New
Energy Finance, GTZ, UN FRA and Peters et al. (2011)
13 G20 low carbon competitiveness index: 2012 update
Table 2. The future prosperity category has the highest weight in the index
Category Category weight Number of variables in
category
Weight of each variable in
overall index
Early preparation 0.194 6 0.032
Sectoral Composition 0.349 7 0.050
Future Prosperity 0.457 6 0.076
Note: The derivation of the category weights is described in Vivid Economics (2009)
Source: Vivid Economics
14 G20 low carbon competitiveness index: 2012 update
2 The results of the updated LCCI
Almost all countries improved their score between
2005 and 2008
Section Contents:
2.1 Rankings in the LCCI over time ........................................................... 15
2.2 Rakings in the LCCI by sub-component .............................................. 22
2.3 Country analysis ................................................................................... 28
France was ranked first using 2005 data, and remains at the top with the
2008 data; Australia retains 16th
position
In this section the low carbon competitiveness index is calculated on the basis of
data from 1995, 2000, 2005 and 2008. The performance of each country in 2008
is compared and the reasons for high and low performance outlined. Changes in
both relative and absolute position over time are also identified.
‘those countries in the top half are
improving their performance over time,
while many of those in the lower half are
stagnating’
15 G20 low carbon competitiveness index: 2012 update
2.1 Rankings in the LCCI over time
Many countries have different rankings in 2008 and in 2005
2.1.1 France and Japan are ranked first and second in the 2008 LCCI
The rankings from the LCCI calculated with data from 2005 and 2008 are presented in Figure 1. Most
countries move one or two places up or down in the revised index, although Australia, ranked 16th, is one of
those countries which retains the same ranking.
Figure 1. Twelve of the nineteen countries have moved position in the index from 2005 to 2008
Note: The country codes used are the ISO3 standards
Source: Vivid Economics
France retains its position at the top of the index, while Japan and the UK overtake South Korea to take
second and third places. Canada and the USA also see some improvement and each overtakes one other
country to achieve rankings of 6th and 8
th respectively. Turkey improves significantly and moves up two
places from 13th to 11
th, overtaking Mexico and Argentina. The countries ranked 14
th to 17
th – Russia, South
Africa, Australia and India – see no change in their rankings. At the bottom of the index both Saudi Arabia
Country code
Ind
ex r
an
k
19
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
FRA KOR JPN GBR GER CHN CAN ITA USA BRA MEX ARG TUR RUS ZAF AUS IND SAU IDN
Year
2005
2008
16 G20 low carbon competitiveness index: 2012 update
and Indonesia improve, but Indonesia does so faster and so overtakes to leave Saudi Arabia as ranked last out
of the G20 countries in the 2008 LCCI.
Figure 1 presents the ranking in the index, but it is also informative to examine the way the scores of
countries have moved up or down over time. The absolute values of the scores from 2005 and 2008 are
presented in Figure 2. This figure reveals, for example, that South Korea is ranked lower not because its
score declined, but because those of the UK and, especially, Japan increased. France, already at the top in
2005, extended its lead even further and was one of the countries to achieve the largest increase in its score.
Relatively big improvements were also recorded by Turkey, Indonesia and Saudi Arabia, with smaller
improvements by Canada and the USA.
Figure 2. Most countries improved their score from 2005 to 2008
Source: Vivid Economics
Country code
Ind
ex s
co
re
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
FRA JPN GBR KOR GER CAN CHN USA ITA BRA TUR MEX ARG RUS ZAF AUS IND IDN SAU
Year
2008
2005
17 G20 low carbon competitiveness index: 2012 update
Figure 3. The UK stagnates over time while South Korea and Germany have caught up.
Source: Vivid Economics
Index score
Co
un
try c
od
e
SAU
IDN
IND
AUS
ZAF
RUS
ARG
MEX
TUR
BRA
ITA
USA
CHN
CAN
GER
KOR
GBR
JPN
FRA
0.3 0.4 0.5 0.6 0.7 0.8
Year
1995
2000
2005
2008
18 G20 low carbon competitiveness index: 2012 update
Figure 4. With the exception of Indonesia and Saudi Arabia, most of the improvement is in the upper half of the
index.
Source: Vivid Economics
2.1.2 There are large changes from 1995 to 2008 for many countries
The LCCI has also been calculated for 1995 and 2000 as well as for 2005 and 2008 and the results of this are
presented in Figure 6 and Figure 5. The overall pattern is that those countries in the top half are improving
their performance over time, while many of those in the lower half are stagnating. Australia is the only
country which has a score in 2008 lower than that in 1995; although other countries such as Canada, South
Africa, the UK and India also show little improvement. Some of the biggest improvements over time are
seen in China, South Korea and Mexico.
Change 2005 to 2008
Co
un
try c
od
e
SAU
IDN
IND
AUS
ZAF
RUS
ARG
MEX
TUR
BRA
ITA
USA
CHN
CAN
GER
KOR
GBR
JPN
FRA
-0.02-0.010.000.01 0.02 0.030.04 0.05 0.060.07
Index score
Co
un
try c
od
e
SAU
IDN
IND
AUS
ZAF
RUS
ARG
MEX
TUR
BRA
ITA
USA
CHN
CAN
GER
KOR
GBR
JPN
FRA
0.3 0.4 0.5 0.6 0.7 0.8
Year
1995
2000
2005
2008
19 G20 low carbon competitiveness index: 2012 update
Figure 5. Indonesia, Mexico, China and Korea show the largest improvement in the Low Carbon Competitiveness Index from 1995 to 2008, while Australia, South Africa,
India and the UK show the smallest improvement
Source: Vivid Economics
Year
Lo
w C
arb
on
Co
mp
etitive
ne
ss In
de
x S
co
re
0.40
0.45
0.50
0.55
0.60
0.65
0.70
ARGAUS
CAN
KOR
MEXRUSZAF
USA
BRA
CHN
FRA
GER
IND
IDN
ITA
JPN
SAU
TUR
GBR
1996 1998 2000 2002 2004 2006 2008
Country
aaaa Argentina
aaaa Australia
aaaa Brazil
aaaa Canada
aaaa China
aaaa France
aaaa Germany
aaaa India
aaaa Indonesia
aaaa Italy
aaaa Japan
aaaa Korea, Rep.
aaaa Mexico
aaaa Russian Federation
aaaa Saudi Arabia
aaaa South Africa
aaaa Turkey
aaaa United Kingdom
aaaa United States
20 G20 low carbon competitiveness index: 2012 update
Figure 6. Most countries’ scores improve from 1995 to 2008, with Australia being the notable exception.
Source: Vivid Economics
Change 1995 to 2000
Co
un
try c
od
e
SAU
IDN
IND
AUS
ZAF
RUS
ARG
MEX
TUR
BRA
ITA
USA
CHN
CAN
GER
KOR
GBR
JPN
FRA
-0.02 -0.01 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07
Change 2000 to 2005
Co
un
try c
od
e
SAU
IDN
IND
AUS
ZAF
RUS
ARG
MEX
TUR
BRA
ITA
USA
CHN
CAN
GER
KOR
GBR
JPN
FRA
-0.02 -0.01 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07
Change 2005 to 2008
Co
un
try c
od
e
SAU
IDN
IND
AUS
ZAF
RUS
ARG
MEX
TUR
BRA
ITA
USA
CHN
CAN
GER
KOR
GBR
JPN
FRA
-0.02 -0.01 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07
21 G20 low carbon competitiveness index: 2012 update
Figure 7. From 1995 until 2008, Australia is the only country not to have improved its index score
Source: Vivid Economics
Change 1995 to 2008
Co
un
try c
od
e
SAU
IDN
IND
AUS
ZAF
RUS
ARG
MEX
TUR
BRA
ITA
USA
CHN
CAN
GER
KOR
GBR
JPN
FRA
-0.02 -0.01 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09
22 G20 low carbon competitiveness index: 2012 update
2.2 Rankings in the LCCI by sub-component
Countries can also be ranked according to their early preparation,
sectoral composition and future prosperity
2.2.1 Early preparation
The early preparation category accounts for around 19 per cent of the overall score. The variables included in
this category are:
– annual growth in greenhouse gas emissions;
– price of diesel fuel;
– efficiency of oil refining as a proxy for industrial sector energy efficiency;
– new sustainable energy investment;
– electricity distribution losses; and
– the carbon intensity of electricity generation.
These variables reflect the fact that the transition to a low-carbon economy will be more costly if it has to
occur over a shorter time period. A short transition will likely mean significant losses from stranded capital
assets as well as high transaction costs as institutions will not be sufficiently developed to expand the low-
carbon economy. Countries which prepare early will face lower transition costs, and so will be better placed
to remain competitive with carbon constraints.
Early preparation in the context of the LCCI is achieved if a country has:
– a lower rate of growth in greenhouse gas emissions, as the transition to carbon constraints will involve a
smaller turnaround;
– a higher price of diesel fuel as the vehicle fleet and logistics infrastructure will be better-suited to higher
fuel prices;
– higher energy efficiency in industry, as a price on emissions will have a smaller impact on costs;
– higher levels of new energy investment, as capital will be able to exploit emerging commercial
opportunities;
– lower electricity distribution losses, as a proxy for the sophistication of the electricity grid which is likely
to be important in a low-carbon future; and
– a lower carbon intensity of electricity generation, as this will reduce the costs from stranded capital in
emissions-intensive electricity generation.
Figure 8 shows how the early preparation component of the index has changed over time. Australia ranks
slightly below average in this category.
The USA has the highest score for early preparation in 2008, followed by France and then Germany. The
United States has, by some distance, the highest levels of investment in sustainable new energy on its stock
market, and also has levels of industrial energy efficiency which are above average and electricity
distribution losses which are below average. France and Germany have the lowest rate of growth in
23 G20 low carbon competitiveness index: 2012 update
greenhouse gas emissions and some of the highest fuel prices. France also has the least emissions-intensive
electricity supply while Germany has the second-highest amount of sustainable new energy investment.
Mexico and India have the two lowest scores in this category. India has the most emissions-intensive
electricity supply along with high distribution losses. Mexico has the least efficient oil refineries and, with a
number of other countries, no new investment on the stock market in sustainable new energy.
Over time there have been steady reductions in all countries of distribution losses from electricity networks,
and the price of diesel has also been increasing in all countries due to both regulatory and market factors.
The largest improvements in this category from 1995 to 2008 have been made by China, Brazil, France,
Germany and the USA.
Figure 8. The USA, France and Germany have the highest score for early preparation in 2008.
Source: Vivid Economics
2.2.2 Sectoral composition
The sectoral composition category accounts for around 35 per cent of the overall score. The variables
included in this category are:
– transport energy consumption per capita;
Early preparation score
Co
un
try c
od
e
SAU
IDN
IND
AUS
ZAF
RUS
ARG
MEX
TUR
BRA
ITA
USA
CHN
CAN
GER
KOR
GBR
JPN
FRA
0.2 0.3 0.4 0.5 0.6 0.7 0.8
Year
1995
2000
2005
2008
24 G20 low carbon competitiveness index: 2012 update
– deforestation rate;
– share of high technology exports;
– size of the road transport sector;
– balance of emissions embodied in trade;
– amount of air freight; and
– clean energy production.
These variables reflect the fact that economies which have a more emissions intensive structure – for
example, through exporting carbon-intensive goods and having carbon-intensive electricity and transport
sectors – will face a greater challenge in remaining competitive in a carbon constrained world.
A country achieves a higher score in sectoral composition in the LCCI if:
– the transport sector is an important upstream provider of services to many other sectors of the economy
and so an economy will be more competitive with carbon constraints if it has low transport energy
consumption per capita;
– the deforestation rate is low (or the reforestation rate is high) as the land sector can provide emissions
credits to offset industrial and other emissions;
– there is a high share of high technology exports, because these are usually low-emissions intensity and
high value;
– it has a smaller road transport sector, measures as fewer cars per capita, as transport will become more
costly with carbon constraints;
– there is a lower balance of emissions embodied in trade, because countries with emissions-intensive
exports may suffer a deterioration in their terms of trade with carbon constraints;
– the amount of air freight is lower, as this is the most emissions-intensive way to transport goods; and
– if the amount of existing clean energy production (including electricity, transport, and industrial) is
higher.
Figure 9 shows how the sectoral composition component of the index has changed over time. Sectoral
composition is a key factor behind Australia’s position being in the lower half of the index. Along with Saudi
Arabia and the USA, Australia is amongst those countries facing the biggest challenge from its sectoral
composition in remaining competitive in a low carbon future. Australia has the lowest level of overall clean
energy production, the second highest number of cars per capita, and relatively high deforestation and
emissions per capita from the transport sector. The USA has, by far, the largest amount of air freight and the
most emissions per capita from transport sector. Saudi Arabia has the lowest share of high technology
exports and clean energy production.
France, South Korea and China have the best scores on sectoral composition. France has the highest level of
clean energy production, the least emissions-intensive exports and relatively low levels of car ownership,
while South Korea has the highest share of high technology exports. China has low emissions per capita
from the transport sector, the highest rate of reforestation, and the second highest share of high technology
exports.
25 G20 low carbon competitiveness index: 2012 update
Figure 9. France, South Korea and China have the best sectoral composition scores
Source: Vivid Economics
2.2.3 Future prosperity
The future prosperity category accounts for around 46 per cent of the overall score. The variables included in
this category are:
– human capital investment, measured by education expenditure;
– physical capital investment, measured by the rate of fixed capital formation;
– natural capital investment, measured by the depreciation of natural capital;
– population growth;
– GDP per capita; and
– the cost of business start up procedures.
This high weight reflects the fact that many of the same variables that contribute towards prosperity today
will also be important in a carbon-constrained future. A country can achieve a higher score in the future
prosperity category of the LCCI if it has:
– high educational expenditures and investment in physical capital;
– low depreciation of natural capital (such as low depletion of energy, forest and mineral resources);
Sectoral composition score
Co
un
try c
od
e
SAU
IDN
IND
AUS
ZAF
RUS
ARG
MEX
TUR
BRA
ITA
USA
CHN
CAN
GER
KOR
GBR
JPN
FRA
0.2 0.3 0.4 0.5 0.6 0.7 0.8
Year
1995
2000
2005
2008
26 G20 low carbon competitiveness index: 2012 update
– lower population growth, as a higher population implies fewer emissions per head to generate wealth in a
carbon-constrained future;
– high existing GDP per capita, as wealthier countries will be better able to make the required investments
in adaptation and mitigation; and
– a lower cost of starting a business, as a proxy for the ease with which entrepreneurs will be able to take
advantage of new opportunities.
Figure 10 shows how the future prosperity component of the index has changed over time. Large
improvements have been seen in some of the fast-growing emerging economies such as Indonesia, Brazil
and Saudi Arabia. However, fast growth is not enough for a good score in this category: the country must
also be investing in human, physical and natural capital at the same time.
Japan, Germany and the USA have the highest scores in this category. Japan has low population growth, low
depletion of natural capital and the highest level of GDP per capita, but relatively low spending on education.
Germany scores well in all variables in this category; as does the USA with the exception of investment in
physical capital, which is relatively low.
Australia ranks in the middle for this category with higher than average spending on education, levels of
GDP per capita and ease of starting up a business, but lower than average investment in physical capital and
a relatively high rate of natural capital depreciation. The deterioration in Australia’s future prosperity score is
due to declining investment in education and higher population growth.
Saudi Arabia, while still ranked low overall in this category due to very high depletion of natural resources,
has improved over time due to a reduction in the costs of starting up a new business and in the rate of
depletion of natural capital. Indonesia has also made it cheaper to start a new business, as well as greatly
increasing spending on education and reducing its population growth rate.
27 G20 low carbon competitiveness index: 2012 update
Figure 10. Japan, Germany and the USA have the highest future prosperity scores.
Source: Vivid Economics
Future prosperity score
Co
un
try c
od
e
SAU
IDN
IND
AUS
ZAF
RUS
ARG
MEX
TUR
BRA
ITA
USA
CHN
CAN
GER
KOR
GBR
JPN
FRA
0.2 0.3 0.4 0.5 0.6 0.7 0.8
Year
1995
2000
2005
2008
28 G20 low carbon competitiveness index: 2012 update
2.3 Country analysis
A closer look at the performance of eight countries
In this section the movement for eight selected countries is analysed in more detail; namely, Australia,
Canada, China, France, Japan, South Africa, South Korea and the USA.5 Figure 11 shows the LCCI score for
these eight countries only for 1995, 2000, 2005 and 2008. Australia’s score is the only one of these seven to
decrease consistently over time, although South Africa stagnated from 2000 after an initial improvement.
The largest increases over time were observed in China, France and South Korea. Most countries do not
show a consistent improvement over time however, it is common for a country to have one or two periods in
which its score declines, even if the overall pattern is one of an increase.
Figure 12 considers the change in the index for these eight countries only from 2005 to 2008. All countries
have been improving their score in the early preparation category. Sectoral composition has been relatively
static, with the exception of France and Canada, where the category score has gone up, and China, where it
has gone down markedly. Japan, China, and, to a lesser extent, France, have achieved higher scores in future
prosperity, but those in the other five countries have become lower to a greater or lesser extent.
In recent years the largest increases in the low carbon competitiveness score have been in France, the USA
and Japan. The increases are driven by improvements in different categories. In the case of the USA this
stems from an improvement in the early preparation category, for France it is driven by a large improvement
in the sectoral composition category and for Japan the largest improvement has been in future prosperity.
Australia’s early preparation score has risen, but this is offset by a worsening performance in sectoral
composition and future prosperity. China has experienced modest improvements in early preparation and
future prosperity, but a reduction in its score from the sectoral composition categories. Figure 13 presents the
overall and category scores for each of the four years considered in this report.
5 While Indonesia improves significantly in the recent index, this is due to variables in future prosperity, such as spending on education
and the cost of business start up procedures, which do not directly relate to carbon emissions.
29 G20 low carbon competitiveness index: 2012 update
Figure 11. Australia’s score worsens over time while South Africa stagnates
Source: Vivid Economics
Index score
Co
un
try c
od
e
AUS
ZAF
USA
CHN
CAN
KOR
JPN
FRA
0.4 0.5 0.6 0.7 0.8
Year
1995
2000
2005
2008
30 G20 low carbon competitiveness index: 2012 update
Figure 12. While all countries improve in their early preparation score, the evidence is mixed for the sectoral
composition and future prosperity score.
Source: Vivid Economics
Index score change 2005 to 2008
Co
un
try c
od
e
AUS
ZAF
USA
CHN
CAN
KOR
JPN
FRA
-0.01 0.00 0.01 0.02 0.03 0.04
Early preparation score change 2005 to 2008C
ou
ntr
y c
od
e
AUS
ZAF
USA
CHN
CAN
KOR
JPN
FRA
0.00 0.05 0.10 0.15 0.20
Sectoral composition score change 2005 to 2008
Co
un
try c
od
e
AUS
ZAF
USA
CHN
CAN
KOR
JPN
FRA
-0.06 -0.04 -0.02 0.00 0.02 0.04 0.06 0.08
Future prosperity score change 2005 to 2008
Co
un
try c
od
e
AUS
ZAF
USA
CHN
CAN
KOR
JPN
FRA
-0.03 -0.02 -0.01 0.00 0.01 0.02 0.03 0.04
31 G20 low carbon competitiveness index: 2012 update
Figure 13. There have been some large changes within each of the three categories, even in cases where
the overall score is relatively constant over time
Source: Vivid Economics
Index score
Co
un
try c
od
e
AUS
ZAF
USA
CHN
CAN
KOR
JPN
FRA
0.4 0.5 0.6 0.7 0.8
Year
1995
2000
2005
2008
Early preparation score
Co
un
try c
od
e
AUS
ZAF
USA
CHN
CAN
KOR
JPN
FRA
0.4 0.5 0.6 0.7 0.8
Year
1995
2000
2005
2008
Sectoral composition score
Co
un
try c
od
e
AUS
ZAF
USA
CHN
CAN
KOR
JPN
FRA
0.4 0.5 0.6 0.7 0.8
Year
1995
2000
2005
2008
Future prosperity score
Co
un
try c
od
e
AUS
ZAF
USA
CHN
CAN
KOR
JPN
FRA
0.4 0.5 0.6 0.7 0.8
Year
1995
2000
2005
2008
32 G20 low carbon competitiveness index: 2012 update
Table 3 lists the variables for each country which have made the biggest positive and negative contributions
to the change in the score of each of these seven countries from 2005 to 2008. The higher price of diesel fuel
led to an increase in the score of all countries; although the relative increase was larger in some countries
(e.g. China) than in others (e.g. Canada). Many G20 countries also saw an improvement in the balance of
emissions embodied in trade (i.e. a decrease in the emissions intensity of exports relative to imports) but, at
the same time, a decrease in the share of high technology exports.
Table 3. Each country has improved its performance in some areas and deteriorated in others
Country Variables contributing to a higher LCCI score
in 2008 compared to 2005
Variables contributing to a lower LCCI score in
2008 compared to 2005
Australia Higher price of diesel fuel Lower energy per capita in transport sector Lower emissions intensity of electricity
Higher population growth Higher deforestation Higher natural capital depreciation
Canada Relative reduction in exports emissions intensity Relatively fewer cars per capita Higher price of diesel fuel
Higher electricity distribution losses Less new energy investment Higher rate of greenhouse gas emissions growth
China Higher price of diesel fuel Lower cost to start a business Higher investment in physical capital
Lower reforestation rate Higher use of air freight Lower share of high technology exports
France Higher price of diesel fuel Relative reduction in exports emissions intensity Lower energy per capita in transport sector
Less new energy investment Higher use of air freight Lower educational expenditure
Japan Higher price of diesel fuel Fewer cars per capita Higher investment in physical capital
Lower share of high technology exports Lower share of clean energy production Lower efficiency of oil refineries
South Africa Higher price of diesel fuel Relative reduction in exports emissions intensity Lower cost to start a business
Higher natural capital depreciation Lower share of high technology exports Lower educational expenditure
South Korea Higher price of diesel fuel Relative reduction in exports emissions intensity Higher GDP per capita
More cars per capita Lower share of high technology exports Lower oil refinery efficiency
USA Higher new energy investment Higher price of diesel fuel Less transport energy consumption per capita
Lower investment in physical capital Lower share of high technology exports More use of air freight
Source: Vivid Economics
33 G20 low carbon competitiveness index: 2012 update
Appendix: constructing the LCCI
The following text is based upon the description in the 2009 report. An initial data collection exercise
provided 36 variables which were considered likely to be linked to a country’s low carbon competitiveness
and which had sufficient coverage across all countries and across a sufficient number of years. These
variables reflected the fact that a country’s low carbon competitiveness can be improved either by reducing
its carbon emissions for any given level of output (e.g. by switching from ‘dirty’ to ‘clean’ electricity
generation) or by increasing its level of output for any given level of emissions (e.g. by improving the
education opportunities for its residents).
The variables were assigned to one of three categories that were chosen to represent different, although
clearly related, elements which will determine performance in a low carbon future: sectoral composition,
early preparation and future prosperity:
– The sectoral composition category captures how well, or otherwise, the composition of the economy is
currently structured towards less emissions intensive activities. It is included because the relative prices of
output in different industries will change systematically. Countries whose economies are more heavily
weighted towards sectors which will experience lower demand will be relatively worse off. For example,
the measure of the balance of emissions embodied in trade, similar to the carbon intensity of exports,
developed by Peters and Hertwich (2008) is part of this category, as is transport sector energy
consumption.
– Early preparation variables include indicators reflecting the steps that countries have already taken to
move towards a low carbon economy. They are included for two reasons. First, the cost of using and
developing low carbon technologies can be expected to fall over time as more experience is gained. This
effect is also known as learning by doing and is a well established phenomenon that has been observed in
many industries, notably in the power sector (McDonald and Schrattenholzer (2001). Countries which are
early adopters of energy efficient or low carbon technologies will experience higher rates of learning and
so will be better placed to generate material prosperity in the future. Second, the costs of shifting to a high
carbon economy will be higher as the period over which the shift has to occur becomes shorter. For
example, shifting to low carbon electricity is more costly over a shorter time period because the capital in
existing power stations has to be retired early. For these two reasons, countries which take early action
will have higher standards of living in a low carbon future. The carbon intensity of electricity and
investment in sustainable energy businesses are examples of indicators in this category.
– The final category consists of variables which will determine future prosperity through their impact on
the level of production of goods and services (broadly defined) per capita. The future level of production
will be determined by the future level of capital in the economy. Accordingly, we include measures of the
rate of change of human capital, physical capital and natural capital from the World Bank (2006). The
measure of natural capital captures the change in a country’s stocks of resources, such as agricultural
land, minerals and forests. If countries deplete their stock of natural capital, it reduces their capacity to
produce goods and services (such as timber or clean water) from the natural environment in the future.
34 G20 low carbon competitiveness index: 2012 update
The level of GDP per capita is included, as prosperity is highly persistent over time, as is population
growth, to reflect the fact that countries with higher populations will need to divide the output from the
fixed stock of emissions over a greater number of people.
With this data, statistical techniques were used to establish which of these variables, in the recent past, has
had the strongest association with low carbon competitiveness - defined as GDP per tonne of emissions in
this report. It should be emphasized that association does not necessarily imply causation: in many cases the
variables should be considered as proxies for the underlying, but more difficult to measure, driver of carbon
productivity; the efficiency of oil refining can be seen as a proxy for the efficiency of the industrial sector as
a whole, while the percentage of electricity distribution losses is a proxy for the overall sophistication of the
electricity grid (necessary if decentralized clean electricity generation is to be effectively harnessed).
Those variables which were both deemed to be positively associated with a good performance and reached a
certain threshold of significance were then selected.
In order to translate these criteria into a single index, weights need to be assigned to each component. This is
not a straightforward task, and there is no universally accepted method for doing this (see Morse and Fraser
(2005) and Esty et al (2005) for a discussion of some of the issues). The approach taken by this report is to
use the econometric analysis to understand the relative importance of each individual variable within the
index. As each individual variable is allocated to one of the three categories, the appropriate weight for each
category can be ascertained as the sum of the individual weights of its component indicators. Then, within
each category, all indicators have been weighted equally.
Due to the econometric approach taken to the weightings the index is cardinal; that is, the size of the gap
between countries provides information on the relative distance between them. Because the values of the
indicators were all transformed to be between zero and one, a difference of 0.01 in the index could be
interpreted as the distance a country would move if all of its indicators moved one per cent closer to best
practice.
35 G20 low carbon competitiveness index: 2012 update
Appendix: data preparation
Data revisions for 2005
Some of the data used to construct the 2005 index has since been updated, and so the 2005 rankings
presented in this report differ slightly from those presented in the original report. An overview of the changes
is shown in Figure 14. On the whole, data revisions are relatively small and so rankings are only affected
where two countries were very close to begin with.
Data revisions, e.g. by the World Bank, have led to a revised version of the 2005 LCCI. The World Bank and
the IEA have revised variables such as the capital formation and cost of business start-up for 2005. Variables
such as the size of road transport have become available for 2005, whereas estimates have been used before.
The revised 2005 index will be used in the inter-temporal comparison.
Due to the revision there are some slight changes over the original 2005 ranking as the index scores are, for
some countries, very close to each other as is shown in Figure 15. While the score changes due to the
revision are minimal, South Korea moves into second place, overtaking the UK and Japan. A minimal
change in scores also causes Russia to fall behind Argentina and Mexico and South Africa to overtake
Australia in the revision. Some larger changes in the index score occur for Saudi Arabia and Indonesia but
their ranking is unaffected.
36 G20 low carbon competitiveness index: 2012 update
Figure 14. Data revisions mean that the rankings for 2005 are slightly different from those in the original
report
Source: Vivid Economics
Country code
Ind
ex r
an
k
19
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
FRA KOR JPN GBR GER CHN CAN ITA USA BRA MEX ARG TUR RUS ZAF AUS IND SAU IDN
Year
Revised 2005 index
Original 2005 index
37 G20 low carbon competitiveness index: 2012 update
Figure 15. Data revisions resulted in slight changes to the 2005 index
Source: Vivid Economics
Back-casting the index to 1995 and 2000
Most of the data is available for 2000 and 1995. Where data was missing for certain variables, different
assumptions have been made to enable construction of an index which is directionally accurate.
Two variables, emissions embodied in trade and new sustainable energy finance, have been assumed to be
the same as in 2005 as they are not available for 2000 and 1995. For 1995, the World Bank doesn’t provide
data for the cost of business start-up procedures and they have been taken to be the same as in 2000.
Country code
Ind
ex s
co
re
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
FRA KOR JPN GBR GER CHN CAN ITA USA BRA MEX ARG TUR RUS ZAF AUS IND SAU IDN
Year
Revised 2005 index
Original 2005 index
38 G20 low carbon competitiveness index: 2012 update
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Peters, G. P., & Hertwich, E. G. (2008). CO2 embodied in international trade with implications for
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Peters, G. P., Minx, J. C., Weber, C. L., & Edenhofer, O. (2011). Growth in emission transfers via
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