State intervention ‘key to green growth’

Tackling climate change while maintaining economic growth requires public intervention to redirect the market forces towards green innovation, according to Bruegel, a Brussels-based think tank.

Ignoring the role of innovation in the ongoing debate about green growth could have long-standing consequences as the emergence of future technologies is dependent on actions today, Bruegel said in a policy paper published yesterday (23 November). 

It pointed to the small number of green patents and low R&D spending in electricity generation as evidence that private-sector green innovation has not taken off yet.

Governments will have to step in to orchestrate a “directed” technological change by making dirty production less profitable and propping up research and development of clean technologies, the paper said. This would be achieved by a combination of carbon pricing and subsidies for low-carbon technologies, it argued.

Moreover, the think-tank stressed that credible government action will be key to sustaining momentum. Venture capital is becoming more optimistic about clean technologies in anticipation of government support, but this could create a green tech bubble that might burst if expectations are not met, it warned.

This approach would balance the costs and benefits of climate protection, the authors concluded. They added that delaying intervention would only induce more environmental degradation and widen the productivity gap between dirty and clean technologies.

The EU relies on its emissions trading scheme to set the carbon price (EU ETS; see EURACTIV LinksDossier). The system was revised last year with the intention of increasing the current low price by reducing the number of credits. The bloc is also debating energy taxation reform that would introduce minimum CO2 taxation at EU level (EURACTIV 29/09/09).

Bruegel urged the EU and other industrialised countries to take the lead in the transition and facilitate the deployment of clean technologies in developing countries. A significant “innovation spill-over” would diminish the risk of “pollution havens” in countries without such stringent climate legislation, leading big multinationals to relocate their polluting activities to these countries. 

Setting up carbon tariffs on the EU’s borders should only come into question once clean technologies are available to everybody at an affordable cost, the paper stated.

“The main tool is the production and diffusion of technologies […] But if there is clear evidence that some countries take advantage of the move, […] then we cannot rule out that in the debate things like carbon tariffs will come on the table,” said Philippe Aghion, co-author of the paper.

France and Germany have been advocating carbon tariffs at EU borders to ensure the competitiveness of European industry (EURACTIV 18/09/09). But other member states have warned that this would send a protectionist signal and endanger progress in ongoing UN climate negotiations.

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