New recipe for a fast acting Europe to profit from going it alone on climate action
RECIPE – a Report on Energy and Climate Policy in Europe, conducted by the Potsdam Institute for Climate Impact Research (PIK) and four other European research institutes and supported by global financial services provider Allianz and WWF, also found that distributing the costs of climate protection would not overburden any region of the world.
“Climate protection is economically manageable and feasible,” said Professor Ottmar Edenhofer, chief economist at PIK. “For Europe, getting an early start on comprehensive climate protection, even unilaterally, will pay for itself through significantly lower costs.”
Professor Edenhofer, also Chairman of the Response Strategies Working Group of the Intergovernmental Panel on Climate Change (IPCC), said globally a key mechanism for keeping overall costs of climate protection down would be financial transfers to emerging nations.
“The key to affordable climate protection is to create binding political conditions to take effect immediately for the coming decade,” Professor Edenhofer said..
Wasting the next decade would increase costs by nearly half
The scientists compared three energy economy models and used them as a basis for climate policy recommendations for Europe. RECIPE drew up pathways to reduced emissions for the major CO2-intensive sectors of energy, cement & steel, transportation and agriculture, finding that effective climate protection measures would cost just one year of delayed economic growth by 2050.
Delays in implementing such measures would decrease the likelihood of avoiding dangerous climate change further by having to accept overshooting emissions concentrations. It would increase the costs of mitigation, with wasting the next decade to take meaningful action on climate change resulting in an increase of mitigation costs of at least 46 % compared to early action.
These scenarios also did not take into account the massive costs of damage due to climate change caused by not implementing climate protection measures, making climate protection measures look even more manageable.
The study estimates that the window for ambitious climate action would close completely by 2020.
Convinced of the overwhelming importance of investing in the transformation to a low-carbon economy, Allianz and WWF formed a climate partnership on climate change in 2007 after two years of joint activity globally and at regional levels which included significant studies of climate risk and costs in the US. The company noted that the fact that in global industry some 40 percent of insured losses were now attributable to climate effects was a compelling reason for it to be involved in climate protection.
“There is no other market that needs and will experience such a sudden and sustainable growth in investments in the next ten years as the market for climate protection and the decarbonization of the economic processes,” said Joachim Faber, member of the Allianz SE Board of Management and CEO of Allianz Global Investors.
“But the willingness of our customers to invest depends upon reliable conditions. It is now up to governments to provide these conditions. This includes no t only reliable paths toward reduction targets but market-based economic elements such as the auctioning of all CO2 certificates, the establishment of global cap and trade systems, rapid implementation of the EU Directive to promote renewable energies that guarantees investors reliable feed-in tariffs, and stronger subsidies for research into low carbon technologies.”
Significantly, as countries shape up to the Copenhagen UN climate change conference in December unwilling to move themselves in the absence of commitments from others, the report finds that Europe has little to lose from bold and unilateral climate action.
Important not to give carbon intensive industries a break
One interpretation from the report is summed-up by Allianz and WWF: “The real world requires real first-movers and RECIPE demonstrates that Europe has every reason to move first,” they said. “By moving first in implementing ambitious carbon reduction targets, Europe’s economy benefits as it foregoes investment into carbon intensive infrastructure that otherwise would have to be dismantled well before the end of its economic life.”
Central to avoiding dangerous climate change was a global carbon price, best achieved by integrating regional carbon markets. However, it was important not to give carbon intensive industries a break from carbon pricing as this distorted crucial investment decisions by both industry and financial investors. Full auctioning of permits was the preferred option.
To link developing countries into such a global carbon market, clear incentives for decarbonization and financial transfers not immediately based on binding reduction targets for developing countries need to be developed. One possible framework were Nationally Appropriate Mitigation Actions which need to be supported by capacity building, technology transfer, financial investments, and reporting requirements that help encourage mitigation efforts.
Of the largest emitters, the USA would minimize its costs with an immediate introduction of carbon targets while China would face expensive costs in replacing costly infrastructure unless it significantly diverted from its current carbon intensive pattern of development.
The study also examined various options for distributing the greatly reduced global carbon budget required to keep the world below the threshold of unacceptable risks of catastrophic climate change.
“Based on the RECIPE results, Allianz and WWF conclude that a per capita allocation that gives developing and emerging economies some headroom for development with a subsequent participation in the reduction efforts represents one possible compromise accommodating most of the negotiation asks on the table prior to Copenhagen,” the report said.