Vice-President Ambroise Fayolle’s speech at DIW Berlin’s event on “Measures for a climate-friendly restructuring of the economy in Germany and Europe”.
Check against delivery
Professor Fratzscher,
Professor Kemfert,
Many thanks for the warm welcome you have shown me at the German Institute for Economic Research.
Ladies and gentlemen,
The UN Climate Change Conference starts in Glasgow next week and I am delighted to talk with you today about how we can achieve a climate-neutral economy in Germany and Europe.
Severe flooding in the Ahr Valley which claimed nearly 200 lives, heavy rainfall in many parts of Europe and devastating forest fires worldwide this summer all pointed to the same thing: climate change is here — and has been for a long time. The time for warnings is over.
Now we have to act.
I was pleased to read that in Berlin, the parties currently negotiating a traffic light coalition after the Bundestag elections have agreed on the first steps:
- They want to accelerate the country’s withdrawal from coal.
- They want to launch an innovation and digitalisation offensive.
- And they want to roll out a comprehensive climate action programme next year to achieve a climate-neutral economy by 2045.
For an industrial country such as Germany, a huge task lies ahead, and my mentioning innovation and climate action in the same sentence was no coincidence: to achieve climate neutrality by 2050, industries such as steel and chemicals would already need to be using technologies that we are still developing today — green hydrogen, for instance. So we need more innovation — and faster. And we also need to be ready to finance it.
The financial needs are enormous: for Germany, the additional investment required every year is calculated at €50 billion. For the European Union, our economists estimate the sum at €350 billion — each year until 2030.
Here is my opportunity to advertise what we are doing at the European Investment Bank. Our strategic focus has long been on the critical investment gaps that exist throughout the European Union. We are prepared to finance the development of promising technologies from the early stages right through until they are ready for industrial use.
Early on, we supported the development of wind farms and solar energy systems, including in Germany. Prices for renewable energies are competitive today.
We also want to promote the development of new breakthrough technologies such as green hydrogen and advanced energy storage.
As is the case everywhere in Europe, we can see significant investment gaps in Germany. Closing them is particularly important for the climate. At the EIB, we see a need for action in four key areas:
- Housing renovation, especially for social housing: modernisation levels are too low. Real estate accounts for 36% of CO2 emissions across the European Union. On a positive note, the technology needed for this action is already at hand.
- Helping CO2-intensive industries on the path towards decarbonisation. The steel, chemicals and automotive industries are facing a huge transformation. We mustn’t lose sight of the fact that in addition to financing, industries with long investment cycles crucially need policymakers to set clear long-term decarbonisation targets — and then to follow through. Companies need reliability.
- Not enough green energy is available in Germany. We need to invest more in wind power, and especially in transmission networks, to take full advantage of the huge opportunities offered by state-of-the-art offshore wind farms.
- Public transport is another priority: transport can only become climate-friendly if passenger services are energy-efficient and attractive. In Germany, we are therefore financing the construction of modern trains for local rail networks.
Billions of euros of investment are needed for the transformation of the economy. To avoid placing too great a strain on the public purse, the private sector should be more involved in financing.
But there are other reasons: the green transformation of the economy creates new businesses, with fresh opportunities for making profits. Industry needs to modernise to serve its own interests. The German automotive industry, for instance, is highly profitable and therefore not heavily dependent on subsidies.
To organise the transition and finance projects with loans on favourable terms, promotional banks such as the EIB and KfW can play an even more important role in the future. And with the Green Deal and NextGenerationEU recovery fund, the European Union has set up new programmes worth billions of euros. Germany’s new government should take advantage of the opportunities offered here.
Promotional banks provide more than money — they also offer expertise. At the EIB, we are particularly proud of one example from the COVID-19 crisis: at the beginning of 2020, we provided BioNTech with the crucial €100 million it needed to develop a vaccine — and we did so in record time. We were only able to provide financing so quickly because we had been familiar with BioNTech’s mRNA research for years and could therefore see the opportunities.
Ladies and gentlemen, let me introduce our new Climate Survey:
Although we are complaining about the high gas and petrol prices in Europe right now, all of us — especially the new German government — should be encouraged by a strong tailwind prevailing among the general public that supports decisive action to combat climate change.
We published our new Climate Survey today. It is a representative survey that polled 30 000 people across 30 countries about how they see climate change and what they expect from their governments. The results for Germany show that:
- 63% of Germans are in favour of stricter government measures that impose changes on people’s behaviour.
- 77% think that climate change and its consequences are the biggest challenge facing humanity.
- And 72% of Germans can already feel the impact of climate change on their everyday lives.
According to our Climate Survey, the majority of people all over the world would be in favour of greater action from their governments to impose more changes on individuals’ behaviour to tackle the climate crisis: 91% of respondents from China, 73% from the UK, 70% from the European Union and 60% from the United States are in favour.
Therefore, a clear majority of people want their governments to introduce rules that apply to everyone, punishing behaviour that is detrimental to the climate while rewarding climate-friendly conduct.
Most Germans would also welcome a tax on the products and services that contribute most to global warming. Moreover, they are in favour of replacing short-haul flights with fast, low-emission trains.
Ahead of the UN Climate Conference of the Parties (COP26) in Glasgow next week, the public is therefore giving governments a clear mandate to do more to speed up the green transition.
However, although the vast majority of people around the world support the green transition, many — including in Germany — reject renewable energies and want to continue driving diesel instead of electric cars.
Society is divided in Germany too: politically left-learning and younger people are clearly in favour of strict climate measures. Older people and those with right-leaning political views are less in favour.
Surveys are always snapshots of a specific moment in time. We must not forget that on the long journey to climate neutrality, new obstacles can always arise, bringing swift and dramatic changes in people’s attitudes.
Gas and petrol prices have risen sharply, just as winter begins. Some EU governments are already shying away from the introduction of carbon pricing. In fact, the opposite policy — price subsidies for fossil fuels — is back on the table.
The concern felt by governments is understandable: the poorest are hit hardest by the major price hikes in the short term — and they are being affected today.
Ladies and gentlemen, let me outline briefly the changes we are making at the EIB to become Europe’s climate bank
At the EIB, we are also undergoing a transition. We want to be the EU climate bank, and we have asked ourselves a fundamental question: as a multilateral financial organisation, how can we best support the transition to a green economy?
The answers can be found in the Climate Bank Roadmap that we adopted a year ago. It sets qualitative and quantitative targets.
Qualitative means that all our activities must be in line with the objectives of the Paris Agreement. Since the start of 2021, we have required all new projects to support the goal of limiting global warming to 1.5 degrees. Of course, we had to decide what we will finance more, what we will finance less, and what we will no longer finance at all.
In agriculture, for example, we are no longer supporting projects that would increase livestock because this would also raise carbon emissions. Nor are we financing extensions to airport capacity. We also calculate the shadow costs from CO2 emissions for our projects. These calculations are a feature of the performance audits of new roads.
In 2019, we already stopped financing power plants that generate electricity with the unabated use of fossil fuels.
On the quantitative side, we decided to increase our support for the economy’s green transformation. By 2025, more than half of our lending will go to projects promoting climate action and environmental sustainability. In other words, we will be investing €30 billion a year in these goals instead of €15–20 billion today.
To show how we, as the EU climate bank, are leading the way, we will present two new plans at the UN Climate Conference in Glasgow next week:
Firstly, we will present an “adaptation plan” designed to help curb the damage caused by climate change and ensure our societies are better equipped to deal with more frequent extreme weather events and rising sea levels. We intend to devote 15% of our climate finance to adaptation projects by 2025, three times as much as today.
Our second contribution to COP26 will focus on how we will ensure that our borrowers and business partners implement the Paris objectives in our projects, with a requirement for financial institutions to provide climate-relevant information and companies to submit decarbonisation and resilience plans.
In conclusion:
The transition to a green, resilient and inclusive society will not be straightforward. Not all regions and industries are setting off on the journey from the same starting point. We need to ensure that people living below the poverty threshold are not hit the hardest by measures to combat climate change.
No one should be left behind.
We need to make better use of our scarce public resources and mobilise private investment for climate action and environmental protection. Without private investment, we will not succeed.
Ladies and gentlemen, thank you for your attention. I’m looking forward to your comments.