Daily Archives: July 4, 2011

The European Parliament will on Tuesday be asked to endorse an increase in the European Union’s target for greenhouse gas reductions, from 20 to 30 per cent by 2020, compared to 1990. This makes good economic sense, and would be a major step forward in the battle against climate change — but 20 per cent is not enough, and the EU must now move quickly to make more ambitious cuts in their emissions.

The problem is that the existing 20 per cent target is too low, making it very difficult for the EU to reach its ultimate target of reducing emissions by 80-to-95 per cent by 2050. Yet here the economic downturn has created an unexpected opportunity to make more progress: annual EU emissions in 2009 were actually 7.1 per cent lower than the year before. Emissions did rise again last year, but Europe is now on a significantly lower carbon path than before the financial crisis. This means the 30 per cent goal is now easier to reach.

The argument that the EU cannot afford a more ambitious target is simply wrong. The European Commission says the new goal would “cost” €81bn, or 0.54 per cent of EU gross domestic product, up from €70bn for the 20 per cent target. But this should be understood as an investment.

Europe badly needs a new growth strategy, and this target would send a strong signal to the private sector, strengthening confidence in the returns from investing in low-carbon technologies and infrastructure. The EU also needs to upgrade its power infrastructure, and faces a choice between reliance on fossil fuels or developing renewable energy sources that offer greater security of supply.

Confirming the EU’s plan would put Europe in the vanguard of a technological transformation set to drive global economic growth over the next few decades: the low-carbon industrial revolution. It would also add great momentum for change in countries outside of Europe, creating opportunities for those that embrace these new technologies.

Opponents claim that companies will be unable to bear the additional costs, and will leave. But the evidence shows that the costs of complying with environmental regulations over the past few decades have been far outweighed by other factors that boost profitability, such as the wider investment climate and the availability of skilled labour.

In truth, the exit fear is being played up by companies pleading their own particular short-term self-interests. The relatively small number of companies that genuinely are badly affected can and should be helped to adjust through targeted measures. But if they do not change, they too will ultimately miss out on major technological advances and could eventually be shut out of “cleaner” markets.

The real risk here is that Europe, without further action, will soon be surpassed by countries like China and South Korea, as they invest heavily in low-carbon technologies. The history of past waves of technological change shows that investment flows to the pioneers. It is this understanding of the opportunities of this transformation that underpins the important agreements on green technologies established by Angela Merkel, the German chancellor, and Wen Jiabao, the Chinese premier, earlier this week.

While the 30 per cent target by 2020 provides a clear signal and will strengthen EU Emissions Trading System carbon prices, it should be buttressed by urgent action in promoting energy efficiency and new technologies across the whole European economy as well as developing a new, smart and efficient, pan-European smart grid.

We must also remember the big picture. While all of the major emitters — including the two largest, the US and China — have made pledges for 2020, global plans are not enough to give a 50-50 chance of avoiding global warming of more than 2°C, compared with the mid-19th century.

Today, emissions match a path that, if sustained for the rest of the century, would actually bring a 50-50 chance of a warming of more than 4°C — a temperature not seen on Earth for more than 30m years, risking severe damage and dislocation to the lives and livelihoods of hundreds of millions, if not billions, of people across the world. The risk is a warmer world of severe and extended conflict, and massive migration, where any attempt at “high-carbon growth” is likely ultimately to destroy itself.

Tuesday’s vote at present is thought to be close, while a clear vote in favour would exert pressure on any waverers in the European Council, thought to include Poland, which currently holds the EU Presidency. Without a strong vote in favour, and then support at the Council, the risk is that we could go into the UN conference in Durban in December with the EU looking divided and equivocal instead of united and strong on emissions reductions.

The decision that the European Parliament and other policymakers face is whether the EU should join the front runners in the low-carbon race, or lag behind. The history of technological change shows that industrial revolutions are periods of great creativity, learning, innovation, investment and growth. Competitive advantage goes to the pioneers. Europe must now do more, or risk being overtaken by those who do.

The writer is I.G. Patel Professor of Economics and Government and chair of the Grantham Research Institute on Climate Change and the Environment at the LSE.

Response by Neil O’Brien

Europe’s self-sacrifices are in vain if China’s emissions continue to accelerate

Nicholas Stern shows neatly how the intellectual mistakes of current climate change policy all reinforce one another. Climate change is a real problem, but current policy is the wrong way to address it.

Let’s start from the top. On a consumption basis, emissions from the European Union’s six largest economies have risen 47 per cent since 1990, not fallen. As industry has shifted east, domestic production of carbon emissions has decreased. But it is a bit odd to complain about the emissions of China when much of their production is for our consumption. We are deluding ourselves if we believe that it is virtuous to outsource our emissions to a less efficient economy with much higher energy and carbon intensity. This is not real progress.

Jacking up domestic energy in the EU costs would further accelerate this trend. In 1990 it might have been plausible that the billions of people in developing countries living on a dollar a day would soon be inspired to follow our example and reduce their emissions and their economic growth. But after 21 years of failure, with no signs of an emissions cap in developing countries, this idea has surely had its day.

Mr Stern mentions that China has set a “target”, but he omits to mention that this (non-binding) goal allows its emissions to more than double within nine years. Remember that the country is already the world’s largest emitter. In this context, further self-sacrificing moves like the shift to a 30 per cent target in Europe are almost the contemporary equivalent of unilateral nuclear disarmament.

Let us assume that the European Commission is right in saying that the cost of the 30 per cent target is a mere €81bn. Even if that is true, it is difficult to see this as an “investment”. The nature of the EU’s 2020 targets and the policies that support them – particularly the renewables target – inevitably mean heavily subsidising the mass roll-out of known technologies.

In the UK’s case, this is principally offshore wind, an expensive technology which has limited potential to get cheaper, and also limited global relevance. Mr Stern also rejects the point that industry will leave because of these costs, but this seems wishful at best.

It is time to stop thinking like this is still 1990, and only the North Atlantic region matters. Most importantly it is also time to stop thinking of the climate debate in self-sacrificial terms of “if it’s not hurting, it’s not working”. But to do this, and for Europe to have any impact on the path of global emissions in this century, we need to put our effort into developing new technologies that developing economies will actually want to use.

Unlike current European and UK policy, heavier spending on research and development actually could be an “investment”, meaning that it could yield a return. More direct investment in innovation is really the only realistic way the very real problems Mr Stern describes can be avoided.

The writer is director of Policy Exchange, a UK-based think-tank focused on public policy.

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