A new green economy is within Europe’s grasp: Report

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Europe can revitalise its economy by a massive burst of investment in green technologies aimed at reducing emissions by 30% by 2020 on 1990 levels, according to a major new report promoted by the German Environment Ministry.

By increasing investment from 18% to 22% of GDP, the report argues, a major retrofit of European building stock and reorientation of the energy grid towards renewables can spur a construction boom that will increase economic growth rates by up to 0.6% a year.

In the process, a mutual reinforcing process would take place with up to six million additional jobs being created. This would be helped by the utilisation of hi-tech industries such as nanotechnology and robotics.

'Realistic assessment'

'A new growth path for Europe' is the brainchild of several leading climate economists, led by Professor Carlo Jaeger of the Potsdam Institute for Climate Impact Research.

In an exclusive interview, Professor Jaeger told EURACTIV that the report had taken a realistic assessment based on Europe's declining importance in the global economy.

"Our role is to be pioneers in engineering and technology and designing new solutions that can be imitated and imported and picked up by the Chinese, Indians and Brazilians," he said.

"The big risk is that we miss our huge opportunities and enter a disappointing path of economic development with low innovation, low growth and therefore decreasing trust in the whole European project, in particular the euro as a monetary institution."

The paper's findings were promoted by the German Environment Ministry, whose parliamentary state secretary, Katharina Reiche, gave a keynote speech at the report's launch in the German Permanent Representation to the EU in Brussels.

But brows may be furrowed in some quarters of the European Commission, where Energy Commissioner Günther Oettinger, a member of Reiche's CDU party, has publicly opposed the 30% target.

Marlene Holzner, the European Commission's spokesperson for energy, reiterated the EU's long-standing position: "The Commission's position is that we will only go to 30% if other big players will also follow."

Expectation management

Jaeger's study, which contains a breakdown of data for all 27 member states, involves modelling simulations assuming domestic reductions of 30% and no international climate agreement beyond the modest pledges made in the Copenhagen agreement of 2009.

It uses the Gem-E3 economic model developed by the European Commission's DG Research, which Jaeger described as "definitely as good as it gets these days".

Three effects were introduced to it: expectations management, learning by doing and the insider-outsider divide, with particular regard to the financial crisis of 2008. 

Expectations management governs the role that anticipation can have, and specifically the way that positive expectations can positively affect outcomes.

For example, during the financial crisis, "it was one bank expecting another bank not to pay back the credit, so you don't give the credit, therefore the other guy goes bankrupt and the real economy gets slowed down because of a breakdown in expectations," Jaeger said.

Learning-by-doing refers to the mulitiplier effect that 'trial and error' practices can have on the expertise to build installations such as wind turbines.

"For instance, Airbus learned how to produce planes better and better by producing them," Jaeger explained. "If we had not built Airbus in Europe, we would not have had the skills to build planes. You have to actually build things to get better at building them."

The 'insider-outsider divide' is a technical term for labour market imbalances that over long periods of time can render large sections of the workforce permanently unemployed.

Micro and macro-economic measures

Macro-economic measures proposed by the report include: using funds from the Emissions Trading Scheme's (ETS) auctioning reserve to support mitigation in Eastern Europe; incentivising entrepreneurial investment with tax relief and marginal tax increases; building low-carbon expectations into public procurement and managing growth expectations.

Micro-economic measures include rewriting building and transport codes to support energy efficiency, using ETS auctioning reserve funds to support energy efficiency and renewables, standardising smart grid infrastructure and smart household appliances, and creating learning networks.

Technologies such as carbon capture and storage, solar photovoltaics and nuclear energy "cannot make much of a difference over this time span," the report further argues.

To read the interview with Professor Jaeger in full, please click here.

EU Climate Action Commissioner Connie Hedegaard welcomed the report, saying: "The study makes a very strong link between job creation, GDP growth and increased climate action in Europe. It clearly reconfirms a trend in our studies, namely that economic growth and climate action are complementary and not each others opposites. Moreover, the study importantly points out that a more targeted use of EU funds would be an effective means to achieve the goal."

UK Energy and Climate Change Secretary Chris Huhne also lauded the report's findings. "This important study moves the debate about green growth into new territory," he said. "Until now, studies have worked on the basis that new resources to tackle carbon emissions would have to come from competing uses, and would therefore cost a small amount. This study is arguably more realistic in showing how green growth can create work for the unemployed and generate new income and prosperity."

Speaking at the launch of the study, the head of the European Commission's environment directorate, Artur Runge Metzger, said: "This study is going to touch the heart of the EU 2020 strategy: How are we going to realise the low-carbon low-emissions economy that fosters both economic and social prosperity? Coming from the Commission side, we have already underlined this in our Europe 2020 strategy which presents a vision of smart, sustainable and inclusive growth. We are determined to waste no time in pressing forward with this approach."

"Achieving the 30% target cannot be the only objective, our aim must be to achieve it intelligently, or as it is written here, smartly. Our macro-economic analysis of last May for instance demonstrated that going from 20% to 30% could actually spur growth if an economically optimal policy of reducing emissions is put in place. In practice it means for instance, establishing a carbon price signal in all sectors and combining it with smart spending of these revenues. For instance, lowering the labour costs. This will create future growth and jobs in Europe."

He was followed by Hans-Jorn Weddige, head of corporate climate policies for ThyssenKrupp Steel Europe AG, who said that "in industry we are not really so fixed on the 20% or 30% or 0%, what we are really interested in is what's going to happen".

"Industry is going to follow what is given to us as a framework," he continued. "For us the discussion is not really about the big picture. We are not really discussing the politics in the boardroom, we are discussing what does it mean if you now were to move from 20% to 30% for the ETS certificate price? If the prices were to double or treble to 30-50 euros, that's what actually concerns us. I don't think it has to be that way. I think that there are many ways to reach 30% so for us it will be interesting to follow the discussion and see what we can do."

His emphasis on practicalities was reinforced by Klaus Willnow, the head of energy sector technology and innovation at Siemens AG. "This study is an excellent work as a starting point for further discussion," he said.

"Targets are very important and we know it from our own business. When we analyse our eco-portfolio, we have set a target for how we could get revenues out of ecologically or green portfolios, and interestingly this growth is stronger than for conventional technology.”

“Target setting is key,” he went on. “But the major point is then how to implement these targets. Whether we need 20% or 30% or 25% or 35%, more important is that we talk about the implementation itself. What triggers the investment?

Dutch Green MEP Bas Eickhout, European Parliament rapporteur on the EU's 30% climate target, said the report was "crucial" but insisted that "this debate is more important than just -20 or -30%. Everyone will focus on -20 or -30 because that’s easy for the media to note down: Which camp are you in? Are you in the 'Dark 20' or the 'Green 30'? But we are discussing the future for the world and also for Europe".

"Coming from the Green Party, I'm sometimes astonished that the climate system is not mentioned any more when we're discussing climate policies - most of the time because we don't want to get into this debate again. But if you look at the scientists, they are stating that if you want to have a 50% chance of reaching the two degrees target [for global warming within a century], all the rich countries have to reduce their emissions by 25-40% by 2020. Clearly, 20% is not on the right track."

Sam Van den Plas, climate policy officer at the World Wildlife Fund, told EURACTIV: "In our opinion this is a very useful analysis. It clearly shows the benefits to the European economy, particularly at member state level, of moving to higher emissions target. We see that while the economic costs are limited, there are lots of benefits associated with moving to higher targets."

"By investing in the short term in renewables and energy efficient technology, we can clearly create a first mover advantage - where by accepting higher emissions targets the EU would put itself ahead of other countries and so increase its industries' competitiveness - which would contribute to innovation, job creation and additional green growth."

Tim Gore, Oxfam's climate change policy spokesman, issued a press release stating: "This report brings light into a debate darkened by industry scaremongering. European governments must not ignore evidence that moving to a 30% target is in Europe's own economic interests, when the lives of millions of poor people, already hit by climate change, are on the line."

"At the Cancún climate conference the world recognised the emissions cutspledged so far are not enough - they put the world on track for 4°C of warming, which would plunge millions of poor people into hunger. Around the world high food prices are sparking unrest - giving a glimpse of a world where catastrophic climate change devastates crops. Rich countries must act first to close the emissions gap, and this report shows that the EU has no reason to wait to do so."

In March 2007, EU heads of state and government endorsed the EU's first energy action plan and called on the European Commission to prepare a new action plan for the post-2010 period.

Some offshoots of the current action plan have included far-reaching energy liberalisation proposals, the climate and energy package and the Strategic Energy Technology Plan (SET Plan).

The 'Europe 2020' strategy proposal, presented by the Commission in March 2010, incorporated the 2020 climate goals in its flagship initiative to promote a resource-efficient Europe.

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