European action on climate change is at a critical stage. Europe has moved from setting climate targets to delivering large-scale investment in critical infrastructure. But the impact of the economic crisis means that though the EU will meet its headline emissions targets it is failing to provide adequate incentives for new investment.
On paper Europe has the right policy agenda: ranging from the 2050 energy roadmap to tightening up the ETS system to legislation on energy efficiency, infrastructure and transport. But ambition in each of these dossiers is falling short of that needed.
The problem is not a lack of policy but of politics. European leaders are rightly focused on preventing a catastrophic financial crisis. But Europe cannot afford to be paralysed by the worst case scenario of an unravelling Euro. Europe still needs to address slow growth due to low investment and high energy import costs. The election of Francois Hollande has finally provoked a serious discussion on growth and a high-level agreement was outlined at the European Council summit in June.
Low carbon action must be a key part of this growth package. There is a wealth of analysis showing the economic benefits of low carbon investment, far more than for traditional alternatives. Climate policy is already critical for maintaining European growth with over 60% of new EU power investment in 2011 being in renewable technologies.
But this reality is not yet understood in European economic ministries. At best climate change policy is seen as marginal to macroeconomic issues, and at worst harmful to growth.
Shifting these views needs more than clever economic analysis. The policy and political debate must be reframed if the idea of “green growth” is to take root in European politics.
Low carbon recovery packages are currently identified with a Keynesian centre-left approach to demand stimulation. This does not resonate with the majority of European centre-right governments. Policy packages must be reframed to emphasise their impact on long run competition and productivity. Showing that liberalisation of EU electricity markets will only work alongside a stronger European grid. Liberalising retail electricity markets and smart grids will create consumer value as well as delivering distributed renewables. That energy efficiency increases competiveness and brings large macro-economic benefits by reducing the impact of oil price volatility.
A low carbon recovery package can also not be won against a hostile business constituency. European low carbon businesses must be more vocal in arguing that Europe’s competitiveness in low carbon sectors depends on growing home markets, especially now China has a new stimulus package focused on the clean energy and vehicles sectors.
Energy and environmental policy makers have little leverage in shaping the current economic debate. A low carbon champion is needed at Head of Government level who understands these issues are part of Europe’s core political identity and will drive these proposals to implementation.
Marginalising low carbon policy in any European recovery package will be damaging for climate policy but also for European politics. European citizens need to see visible action that generates growth, jobs and hope. This cannot be done just by throwing more money at banks and hoping they will lend. In contrast an ambitious green growth package would show that Europe had regained the confidence to invest in its future.
Attached is a briefing note outlining potential European policy packages that address the challenge of driving growth in a time of austerity.