The EU’s increased climate ambitions will likely mean more economic hardship. They need to be smarter, writes Bjorn Lomborg.
Bjorn Lomborg is the president of the Copenhagen Consensus and Visiting Fellow at the Hoover Institution, Stanford University.
The European Union wants to be seen as the global leader in climate action. That is why it promised a larger reduction at the Paris climate negotiations in 2015 than any other country.
Because of the ever-increasing climate alarm and the youth climate protests, the EU now wants to up its promise from 40% emissions reduction below 1990-levels in 2030 to 55%. Unfortunately, this is an enormously costly way of achieving almost nothing.
Climate change is a real and man-made problem that should be tackled sensibly. Yet, the impacts are often dramatically exaggerated. The UN Climate Panel estimates that the negative impact of climate in the 2070s will be equivalent to reducing the average income between 0.2-2%.
By then, the UN predicts the average global income will have increased by 362%. Factoring in climate change means it will feel like incomes have increased by 356%. That is clearly a problem, but not Armageddon.
We often forget that climate policy also has costs, as it forces economies to use more expensive and less reliable energy. The UN Climate Panel’s latest overview of 128 analyzed climate policies shows that all have real costs, sometimes beyond 14% of GDP across the century.
For instance, studies show how the EU climate promises will quadruple electricity wholesale prices in just a decade.
Thus, any rational discussion should consider whether the added global climate benefits outweigh the EU’s additional climate costs.
Over the next three decades, the new 55% target will reduce EU emissions by an additional 12.7 billion tonnes of CO₂ or its equivalents. If put into one of the standard UN climate models, it will reduce the global temperature by the end of the century by an immeasurable 0.004°C.
Since the temperature will still be increasing by then, the result of the EU’s increased climate policy is equivalent to postponing global warming by six weeks in 2100. The temperature the world would have reached on January 1, 2100, will now be reached on February 11.
Moreover, much of this emission reduction is likely fictitious, since about two-thirds of CO₂-emissions will likely still occur but move out of the EU (so-called carbon leakage). This means the real temperature reduction will be 0.0017°C, postponing global warming by just over two weeks.
To its credit, the EU has always made cost estimates of its climate policies. Unfortunately, they have routinely been vast underestimates, achieved by picking the most optimistic models.
Academic studies show the real costs of the 2020 climate policy to be four times higher than the optimistic EU estimate, and the real cost of the original 40 percent by 2030 policy is three times more expensive.
With another optimistic model, the EU now estimates the new 55% reduction will cost an additional 0.39% of GDP by 2030.
Assuming costs will scale with the additional reduction over three decades, the extra economic loss to the EU economies will be at least €1.3 trillion. If the EU has played down the costs as up to now, it is more likely the total cost will be about €4-5 trillion.
For comparison, the EU estimates the 2020 economic loss of COVID-19 at 8.3%, or €1.4 trillion. The recovery fund for the EU is an additional €750 billion.
Thus, it is likely that the total cost of the COVID crisis and the recovery package is smaller than the additional cost of the EU’s upped climate policy.
Calculated across nine damage profiles and the UN’s five policy scenarios, the average damage from one ton of CO₂ emitted in 2030 is €27.[iii] In total, the EU will, therefore, deliver a climate benefit to the world worth about €0.3 trillion. That’s great. But spending €1.3-5 trillion to achieve that makes it a blatantly bad deal.
This does not mean that the EU should do nothing. It should do something smarter. The fundamental problem with climate policy is that switching to zero-carbon now is expensive. That means rich, well-meaning Europeans can afford a bit, but globally little will happen.
We need instead to focus on investing dramatically more in zero-carbon research and development. If we can innovate the price of future green energy below fossil fuels everyone will switch, not just in Europe but in China, India and Africa. This policy would cost much less, and over the century, help fix the climate much more.
The temperature benefit of the EU’s 55% policy will be immeasurable even by century’s end. Yet it will cost Europeans dearly over the coming decades. The EU’s increased climate ambition will likely mean more economic hardship than the entire impact of COVID-19.
Europe urgently needs to have a conversation about its climate policies. Let us not be remembered as the generation that cut temperatures by less than one-hundredth of a degree for trillions of euro. Instead, we should be remembered as the generation that ended wasteful climate policies and demanded smarter, cheaper and more effective green research.