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.
'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."
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.