Press Release: Launch of Climate Strategies/IDDRI study on strengthening the EU climate and energy package
Climate Strategies and IDDRI study finds that immediate action to strengthen the European Climate and Energy Package is needed to ensure Europe’s sustained growth, competitiveness and energy security.
Cambridge/Paris, 8th June 2011 –Climate Strategies and IDDRI announce the results of a major study considering the need to strengthen the European Climate and Energy Package (EU CEP).
The study finds that there are two main reasons to strengthen the EU CEP.
First, the current 20% emissions reduction target is too low to reach the European long-term goal of reducing emissions by at least 80% by 2050 at acceptable costs. Reducing emissions by only 20% by 2020 would lead to a full decade of declining GDP between 2040 and 2050 to reach the 2050 goal.
Emmanuel Guerin, the project leader, said: “Europe cannot accept to suffer sustained negative growth to reach its climate objective. This would surely be politically unacceptable. This is even more unacceptable that it is avoidable”.
For example, compared to a 20% reduction by 2020, moving to 30% by 2020 (more precisely, 25% domestic emissions reductions, 5% offsets) induces significant long-term GDP gains (GDP growth on average 1% higher between 2040 and 2050) and only marginal GDP short-term costs (GDP growth on average 0.1 % between 2010 and 2020).
Second, the current EU CEP does not address efficiently competitiveness issues.
Emmanuel Guerin said: “In the long term, high carbon competitiveness is a contradiction in terms. But, in a world of unequal global carbon prices, enhancing the European competitiveness through the implementation of more ambitious climate policies is a balancing act: between the short and the long term, technology push and market pull instruments, the politically feasible and the economically optimal”.
Increasing the emissions reduction targets and focusing on fostering low carbon goods and services innovation, would increase the competitiveness of European firms producing low carbon technologies. Low Carbon and Environmental Goods and Services (LCEGS) is a market already worth approximately 3,5 trillion euros a year, and growing faster than most other sectors (projected to grow at 4% a year for next 5 years).
For the time being, European firms are well positioned in this market. But eventually, their ability to remain competitive will depend on their ability to innovate. And this in turn will depend on the ability of Europe to support innovation. Europe has long been a leader on environmental innovation. It still has the biggest share of environmental patenting. But the growth has been higher in Japan during the past 10 years. And the specialisation in environmental innovation is higher in some emerging countries, such as China and Korea.
In the meantime, some carbon intensive industries might be negatively impacted by an increase of emissions reduction targets. The scope of potential carbon leakage is narrow, and its scale is small on average. But it is a serious issue for some sectors, including cement, steel and aluminium. Estimates of the amount of production losses resulting from tighter ETS caps vary, depending on the hypotheses and on the methodologies used. But evidence suggests that free allocation is not a sustainable way to address leakage.
Immediate action is therefore needed on the EU CEP. To have maximum impact, a strengthening of the EU CEP should target sectors with high levels of inertia and long-lived capital stocks, such as the infrastructures of building and transport sectors, and foster low carbon technology innovation, rather than simply delivering short-term abatement, for example through fuel shifting.
The report makes the following three main policy recommendations:
On energy efficiency:
It recommend sthe implementation of new policies, to reach the European 20% energy efficiency target, focusing on the two weakest link of current policies: the deep retrofit of the existing building stock; and the modal shift from high to low carbon transportation modes.
On the European Emissions Trading Scheme (EU ETS):
The EU ETS sends a post-2020 carbon price signal. But the 1.74 annual cap decrease is not consistent with the EU long-term goal to reduce emissions by at least 80% by 2050, and in particular with the objective of almost fully decarbonising the power sector.
The weakness of the post 2020 signal is currently reinforced by the expectations for a low carbon price up to 2020: official projections range between Euro 16.5-25/tonne. Indeed, as a result of the economic crisis and of banked surplus allowances of around 500-800 Mt, the EU ETS is likely to be over-allocated until around 2020.
Emmanuel Guerin said: “We recommend increasing both the stringency and the predictability of the EU ETS. From an economic, environmental and political perspective setting a stringent 2030 EU ETS cap is the most relevant, efficient, and realistic option. Evidence suggests that the order of magnitude of the 2030 EU ETS cap should be 45 – 50% below 2005 levels”.
On auction revenues and the EU budget:
Further use of the EU budget should be made to support the achievement of climate and energy objectives in Central and Eastern European countries, in particular to increase the energy efficiency of buildings, to shift from high to low carbon transportation modes, and to build low carbon energy production and transmission infrastructures.
The auctioning of allowances during phase III of the EU ETS will also generate some new fiscal revenues. The allocation structure currently proposed would raise €150-190bn of revenues across the EU out to 2020. These revenues will accrue to Member States. But at least 50% of these revenues should be used for climate purposes. And some level of European coordination is required for the spending of these revenues to have the highest possible leverage.
For all further enquiries please contact:
Benoît Martimort-Asso
Directeur Développement et communication / Director Development and Communication, Institut du développement durable et des relations internationales / Institute for Sustainable Development and international Relations (IDDRI)
Email : This e-mail address is being protected from spambots. You need JavaScript enabled to view it
Phone : +33 (0)1 45 49 76 71
Cell. : +33 (0)6 10 02 20 89
About Climate Strategies
Climate Strategies is an international research organisation which aims to assist governments in solving the collective action problem of climate change. It connects leading applied research on international climate change issues to the policy process and to public debate, raising the quality and coherence of advice provided on policy formation.
About IDDRI
The Institute for Sustainable Development and International Relations (IDDRI) is a European think tank based in Paris (France) and Brussels (Belgium). Its mission is to bridge the gap between research and decision-making and investigate international policy issues on sustainable development and global governance. IDDRI focuses its activities on four major themes: climate change, biodiversity, global governance and urban fabric. It also seeks to facilitate discussions between the various stakeholders involved in global issues related to sustainable development.
More information and publications available at www.iddri.org
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