EDITOR'S note: This is the second part of the author's lengthy speech delivered during the World Expo in Shanghai last month.

China is very well placed to lead the low-carbon industrial revolution and capture the significant benefits it offers.

HSBC forecasts that China's share of the global low-carbon energy market will grow from 17 percent today to 24 percent by 2020, moving ahead of the US. HSBC expects global low-carbon energy markets to triple in size to US$2.2 trillion (14.67 trillion yuan) by 2020. It is estimated that the market for energy-efficient lighting alone will be worth US$79 billion by 2020.

Countries that recognize both the urgency of the problem and the opportunities from managing climate change are more likely to lead the transition to low-carbon growth and capture these global markets. However, competition for these new global markets will be strong.

For example, South Korea is showing leadership with its five-year plan for green growth between 2009 and 2013. This plan will allocate two percent of GDP to reducing emissions, improving energy security and promoting new engines of economic growth. The target is to increase Korea's share of global clean technology exports from two percent today to eight percent by 2012.

It is a mistake to ignore these opportunities and see the transition to low-carbon growth as a burden and a growth-reducing diversion.

That is what happens if you apply the crude planning models from the middle of the last century. Modern growth theory is about endogenous technical change and learning. And it will also have to embrace interactions with the environment.

Cities will be at the centre of the low-carbon growth transition story. Cities are home to half the world's population of 6.7 billion, produce 70 percent of the world's GDP and are responsible for 75 percent of total emissions of greenhouse gases.

The Asian Development Bank estimates that 44 million people move to cities each year. It is projected that by 2050, 75 percent of the world population will be living in cities.

In China alone, given planned urbanization rates, around 10 to 15 million people will move to cities each year over the coming decade.

Cities are well placed to lead the transition to the low-carbon economy, with major cities taking the lead by setting strong targets New York (30 percent cuts in emissions of greenhouse gases over the period from 2007 to 2030), Los Angeles (35 percent cuts between 1990 and 2030), Seoul (40 percent cuts between 1990 and 2030), Hong Kong (proposed 50-60 percent cut in emissions per unit of GDP between 2005 and 2020).

The choices made in cities today on transport, infrastructure, buildings and industry, as they grow rapidly over the coming decades, will determine, via the technology and way of life they lock in, whether humankind can both manage climate change and capture the benefits of low-carbon growth.

2-degree path

We see global emissions paths which can give a 50-50 chance of limiting average global temperature increases to no more than two degrees. We can cut emissions more strongly and peak earlier, and do a little less on reductions later, or vice versa.

Crudely, what matters is the overall cumulative emissions over the next few decades. The most plausible of these emissions paths, all of which start at 47 billion tons of CO2e p.a. (estimated emissions in 2010, but which would have been around 50 billion tons of CO2e without the global slowdown), passes through 44 billion tons of CO2e in 2020, and well below 35 billion tons of CO2e in 2030, and well below 20 billion tons of CO2e in 2050.

This is the path I shall refer to as the two-degree path. To go to 48 billion tons of CO2e in 2020 (the upper limit for the earlier years) requires very sharp falls in later years and much lower levels in 2050 and afterwards. Catching up would not be easy and would require very radical and probably very expensive action.

Let us examine some basic arithmetic for China.

Emissions by China in 2010 are likely to be around 8 to 9 billion tons CO2e. If emissions per unit of output remained constant between 2010 and 2030, and assuming GDP growth of seven percent p.a. (i.e. China's economy doubles each decade), total annual emissions by China would be around 30 to 35 billion tons of CO2e in 2030, the entire world budget on a two-degree path.

China has indicated that it will take voluntary action to decrease carbon dioxide emissions per unit of GDP by 40 to 45 percent between 2005 and 2020. China has also indicated targets for increasing the use of non-fossil fuels and for increasing forest cover.

These collectively imply total emissions by China in 2020 of around 11.5 billion tons of CO2e. A comparable increase between 2020 and 2030 would mean total emissions of 14 to 15 billion tons of CO2e, nearly half the world's budget for 2030, from a country with a population projected to be about 17-18 percent of the world total in 2030.

Given that, for a 2°?C path, the world's average emissions per capita have to be below four tons of CO2e by 2030, China's emissions per capita would likely have to be well below its current level of around six tons.

That would mean that China would have to return to something like 8-9 billion tons of total emissions by 2030; in other words, if it is to grow at seven percent p.a. for the next two decades, and we hope growth rates will be at least that, it would have to cut emissions per unit of output by a factor of four over 20 years.

These calculations are mainly arithmetic. They take no account of relative income or wealth, the challenge of poverty reduction, of past history of emissions, or of the questions of whether responsibility for emissions lies with the producer or consumer. All of these are important ethical issues.

(The author is Professor of Economics & Government and Chair of the Grantham Research Institute on Climate Change and the Environment London School of Economics and Political Science. Shanghai Daily condensed the article.)