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The EU needs a bold climate strategy

Summary:
Scientists report that global temperature increases must be limited to below 1.5 degrees Celsius. With global greenhouse gas emissions continuing to increase and rising temperatures driving up the frequency of extreme weather events, the world needs a greater commitment to climate policy. In order to avert catastrophic climate change for the entire human population, global temperature increases must be limited to below 1.5 degrees Celsius. Scientists have shown that achieving net-zero carbon emissions before 2050 is essential to this achievement, which has become a key goal of the Paris agreement. But as global greenhouse gas emissions continue to increase and rising temperatures drive up the frequency of extreme weather events, the world needs to commit much more to climate policy.

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Scientists report that global temperature increases must be limited to below 1.5 degrees Celsius. With global greenhouse gas emissions continuing to increase and rising temperatures driving up the frequency of extreme weather events, the world needs a greater commitment to climate policy.

In order to avert catastrophic climate change for the entire human population, global temperature increases must be limited to below 1.5 degrees Celsius. Scientists have shown that achieving net-zero carbon emissions before 2050 is essential to this achievement, which has become a key goal of the Paris agreement. But as global greenhouse gas emissions continue to increase and rising temperatures drive up the frequency of extreme weather events, the world needs to commit much more to climate policy.

The EU needs a bold climate strategy

Surveys confirm that citizens in the EU want to see progress on fighting climate change. Especially the young generation has been vocal and has already shaped elections with its climate demands. The European Union should therefore play a central role in global efforts to decarbonise. True, Europe produces only 16% of global emissions and the EU only 10%. But if the EU does not decarbonise, less developed parts of the world may find it even more difficult to convince their population to do so. A successful decarbonisation strategy in the EU could also become a business opportunity where the EU could export technology, for example to Africa or India, two regions where emissions are set to grow substantially in the coming decades as they develop. In turn, failing to address the challenge would not only be considered inacceptable by citizens, but could mean that the EU loses out on key technological developments that will shape the future. For example, already now the EU may be lagging on electro mobility.

Yet, the EU is far away from its self-set goals of decarbonisation. While the share of renewable energy in EU gross final energy consumption rose from 10.6 percent in 2007 to 17.5 percent in 2017, this number also means that more than 80% of energy consumption is still not renewable. Moreover, as GDP continues to grow, overall emissions are falling only quite slowly and actually even increased in 2017. Certain sectors such as transport lag behind in their efforts to reduce their emissions and coal phase out is too slow in several countries including Germany and Poland. Finally, Europe actually consumes more greenhouse gases than it produces. In fact, consumption amounts to 18% of global consumption – in other words, Europe’s imports are significantly more carbon-intensive than its exports. To succeed with decarbonisation, the EU will have to change gears and pursue three priorities.

First, the EU needs to put a price on greenhouse gas emissions in all sectors. The current emission trading system only covers some 50% of emissions. Moreover, the price for emission certificates is too low to provide a sufficient incentive to decarbonise. The emission trading system should either cover all sectors or be complemented with a tax on emission that are not covered by the system. Once an all-encompassing and expensive tax on emissions is established, the price signal should drive significant innovation as well as individual efforts to decarbonise. But to avoid even more carbon leakage the EU needs to establish also a tariff on imports of carbon-intensive products to disincentivise firms from shifting production to countries that have lower taxes on emissions.. Such a step would be compatible with the WTO and is also called for by a large group of US economists. Given the size of the EU’s market, it would also provide an incentive to third countries to adjust their production processes.

Second, industrial policy can usefully support decarbonisation. For example, the state needs to set standards that make it easier to switch from the current carbon-intensive mobility towards electro mobility. The EU should also support research and development of new technologies. The government also needs to play a role in the building of the necessary infrastructure for clean electric energy. Public funding for innovation will help reduce the cost of clean energy.

Third, serious climate action will be hugely transformative for the entire economic and social system. It will touch vested interest and result in social fallout as the French yellow vest movement has shown. Lowering the cost of the transformation is all the more important as key industries depend on access to affordable energy. The EU should therefore go ahead with a significant public investment programme. Moreover, the carbon tax proceeds should be redistributed to reduce the burden on low-income households.

Only bold action will suffice to avoid a global climate catastrophe. The EU needs to step up to the challenge.

Guntram B. Wolff
Guntram Wolff has been the Director of Bruegel since June 2013. His research focuses on the European economy and governance, on fiscal and monetary policy and global finance.

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