Curbing climate change will cost $700 billion a year - report

A woman wears a mask as she does her morning exercise outdoors in Fuyang, Anhui province, January 14, 2013.

OSLO (Reuters) - The world must spend an extra $700 billion a year to curb its addiction to fossil fuels blamed for worsening floods and heat waves and rising sea levels, a study issued by the World Economic Forum (WEF) showed on Monday.

As government and business leaders prepare to meet at the forum in Davos, Switzerland this week, the world's nations are divided over who should pay for lowering emissions of greenhouse gases blamed for a growing number of extreme weather events.

Recessions in Western economies since the global financial crisis have slowed carbon emission growth but also left governments with scarcer state funds to channel into green technologies.

The Green Growth Action Alliance, which compiled the study on behalf of the WEF, said the extra spending was needed to promote other forms of energy generation and greater efficiency in sectors including building, industry and transport.

The $700 billion, part of which would promote cleaner energies such as wind, solar or hydro-power, would be on top of about $5 trillion projected to be spent each year on infrastructure under a scenario of business as usual until 2020.

"Shaping a global economy fit for the 21st century is our greatest challenge," former Mexican President Felipe Calderon and chair of the Alliance wrote in the report.

The Alliance is a public and private group tied to the WEF that was launched at a Group of 20 meeting in Mexico last year.

The study said a $36 billion annual rise in global public spending to slow climate change - less than the estimated $50 billion cost of damage by Superstorm Sandy in the United States in October - could unlock far greater private investment.

It suggested a $36 billion jump in state spending to $126 billion a year, from a current $90 billion, might trigger $570 billion from private investors if properly managed.

It noted that the world population was set to rise to about 9 billion by 2050 from 7 billion now.

"Greening the economy is the only way to accommodate 9 billion people by 2050," said Thomas Kerr, Director of Climate Change Initiatives at the WEF.

COMBINED EFFORT

Governments and the private sector have often failed to work in tandem to mobilise funds to combat climate change.

"There is still private sector money going to climate destruction," said Jake Schmidt, international climate policy director at the National Resources Defense Council in Washington. "To deal with climate change, everyone has to be moving in the right direction."

"And the key to all of this is how do you unlock big sources of private finance... Sovereign wealth funds, pension funds have a lot of capital. Mobilizing them would be the holy grail."

The WEF-commissioned report pointed to some hopeful signs -- global investment in renewable energy in 2011 rose to a new record $257 billion, up 17 percent from 2010.

But U.N. climate negotiations in Qatar in December ended with little progress on a global framework for emissions cuts.

Instead, governments agreed to devise a new United Nations pact to limit climate change that would enter into force from 2020.

A study published in the science journal Nature this month said it would be far cheaper to act now to keep global warming within an agreed U.N. limit of 2 degrees Celsius than to wait until 2020.

(Editing by Tom Pfeiffer)