Investment and Growth in the Time of Climate Change
- Date: 14 June 2012
“Climate action does not only represent cost but also economic opportunities – in particular over the long run. The development of the ‘green economy’ and new ‘green technologies’ has a potential to create jobs and support growth,” EIB President Werner Hoyer said.
The possible trade-offs and complementarity between the goals of safeguarding economic competitiveness and fighting climate change, climate change mitigation and adaptation, and between different climate policy instruments was part of the discussion that brought together over 100 participants, academia, policy-makers and industry representatives for the first joint conference organised by the EIB economics department in Brussels. The discussion came only days before an important global climate meeting, the Rio+20 conference where ‘green growth’ figures high on the agenda.
Climate investment challenge
“The European Commission has put the investment needs for the EU to make a transition to a low-carbon economy by mid-century in the range of an additional 1.5% of GDP per year over the next 40 years. This investment is crucial as the cost of inaction would be even higher,” EIB Vice-President Plutarchos Sakellaris stated.
The fight against climate change is a key priority for the Bank. Its share of climate action lending stands at roughly 30% and climate considerations are mainstreamed into all operations. It is the single most dynamically developing branch of EIB activities.
However, as a joint EIB-ECON/Bruegel report on climate investment, presented at the conference, points out, left to themselves markets tend to invest too little in climate change mitigation and adaptation. The publication strongly argues that there is unexploited scope for making Europe’s climate action more efficient, growth-friendly, and in tune with fiscal constraints.
For example, in the area of renewable energy technologies, such as in wind or solar power, attaching a price to carbon emissions is crucial to enable them to compete with conventional ones when selling into a liberalised European electricity market. In addition, there is a role for public support for innovative renewable technologies, which is, however, increasingly difficult to finance in times of austerity.
Discussants agreed that the investment needed to get the EU economy on a low carbon growth trajectory is formidable. While recognizing that that there are many non-financial barriers to investment that need to be removed, discussants emphasized that both private and public finance is required to establish a low carbon economy.
“We need to encourage people back into activity. This is what the project bond initiative is all about. This would be a good and efficient use of scarce resources,” EIB Vice-President Simon Brooks underlined. A project bond pilot scheme to attract institutional investors to key infrastructure projects is currently discussed by EU policy makers.
More than attracting finance, policy-makers should try to address current obstacles to climate-friendly investments, incentivise innovation and step up communication to explain public policy choices it was argued during the discussion.
Views converged, that a long-term challenge requires a long-term credible framework. Uncertainty is an important obstacle to business involvement and policy-makers need to deliver on predictability of the policy and support framework.
Decarbonisation & growth – trade-off or complements
“It simply does not add up,” Professor Richard Tol of Sussex University said, putting into question the ‘green growth’ concept as such. He argued that the energy sector, which represents only around 3% of the economy, was not able to sufficiently drive the economy. Moreover, he underlined that simply replacing fossil fuels with renewables would result in making the energy sector more capital intensive and doubted the job-creation effect of such policies.
Former Greek Minister of Environment, Energy and Climate Change Giorgios Papaconstantinou had a contrasting view pointingd out that in his country the workforce in renewable energy had doubled in the last years. “This is one of the few rays of light in our depressed economy,” he said adding that Greece would not be able to keep up the pace of previous growth in this sector.
EU and global action
“We are in danger of forgetting adaptation,” Professor Sam Fankhauser from the London School of Economics urged. “Closing the adaptation gap now pays out,” he added arguing that adaptation costs at a later stage would multiply if not tackled early on.
Director General for Climate Action at the European Commission, Jos Delbeke said that the EU already has taken a leadership role in the global climate debate so far, but should not be complacent. “We have to keep innovating and take global competition into account,” he stressed. Turning to ongoing global climate talks he urged that “the model of multilateralism and global governance needs to be reinvented”. “There is no alternative but to work together on truly global problems. Europe has a mission here,” he concluded.
Key issues in balancing the policy mix of mitigation and adaptation measures to address climate change, by Francesco Bosello, University of Milan, Italy
Decarbonisation and growth, by Giorgios Papaconstantinou, Former Minister of Environment, Energy & Climate Change, Greece
Investment, Growth and Climate Policy, by Richard Tol, Professor of Economics at the University of Sussex, United Kingdom