European heads of state, energy ministers, and the European Union are actively debating climate and energy policy at a series of summits in the coming weeks. If the decisions they take are to matter, the leaders must work to understand the changing nature of such policies – and the enormous opportunity that they must seize.
Energy can be a key driver of European competitiveness and the transition to a low-carbon economy, benefiting European businesses and citizens alike. But realizing this promise requires European leaders to provide a vision and act decisively now.
While the developed world may still be wrestling with the fallout of the financial crisis, most emerging economies are already back on a strong growth track. China posted nearly 10% growth in 2010; India was close behind, at 8%. Much of that remarkable economic performance is built on the industries of the low-carbon future.
Against this backdrop, should our leaders focus on energy policy from a narrow, nationalist perspective? Or should they connect the dots and frame a vision of a Europe that can compete in a global economy where resource efficiency, clean energies, and low-carbon prosperity are the ingredients of success? The future of economic growth is low-carbon growth, so Europe has a stark choice.
Of course, a new competitive landscape will create winners and losers. Creative destruction, the process of innovation described by the economist Joseph Schumpeter, will be at work. Not surprisingly, the loudest voices are heard from companies that face challenges and are among the potential losers. The potential winners, meanwhile, are creating the jobs of tomorrow.
In fact, HSBC estimates that global climate business will total $2.2 trillion (€1.6 trillion) in 2020, and that China’s low-carbon market will overtake that of the United States, but not Europe’s. But Europe’s leadership in the environmental field cannot be sustained without the right policy framework. We need a visionary approach and active engagement on energy issues from our leaders.
Here are seven policy steps that EU heads of state can take to embrace the low-carbon economic future:
- Create an investment-driving, low-carbon EU vision that combines the goal of 80-95% emissions reductions by 2050 with the prospect of a Europe that leads, and make this vision a tangible and inspiring part of all European governments’ policy orientation;
- Commit immediately to a 30% reduction in CO2 emissions by 2020, and commit to a target for 2030. Only bold target-setting demonstrates a credible commitment to the low-carbon vision and can provide much-needed certainty to businesses and markets. Furthermore, a 30% reduction by 2020 is well within reach, as a 17.3% reduction against the 1990 baseline was already achieved by 2009;
- A consistent, economy-wide price for carbon that effectively mobilizes capital towards technologies of the future is key. The EU’s Emission Trading System remains the cornerstone of Europe’s climate policy, but suffers from the unambitious 20% cap, as well as from the lack of complementary policies to increase its effectiveness;
- Commit to the decarbonization of the power sector as a vital building block of the low-carbon economy. The European Climate Foundation’s Roadmap 2050 shows that full decarbonization of the EU power sector by 2050 is feasible and affordable. Electricity grids are the key infrastructure element that will connect the EU power markets. Public investment must be matched with private capital to accelerate these grids’ deployment;
- Competitive leadership will not come without substantial increases in R&D commitments. The EU’S Strategic Energy Technology Plan (SET-Plan) is an excellent but modest start, and should be scaled-up;
- Energy efficiency is often called the “low-hanging fruit” of emissions reduction. But if it is so easy, why is it not getting done? A firmer commitment to energy efficiency, particularly the rollout of large-scale programs to retrofit the existing building stock, would create large numbers of jobs, expand the market for energy-efficiency products and technologies, and reduce energy demand;
- Industry would benefit enormously if energy-efficiency standards were demanding and continuously tightened. Nowhere is this truer than in automotive emissions, where the battle for leadership on new power trains – whether electric, hydrogen, or biofuel-based – is already upon us. Tougher automotive standards will help the European car industry remain competitive.
An ambitious policy framework that underpins Europe’s energy security and strengthens the single market would also support Europe’s drive towards reduced CO2 emissions and low-carbon prosperity. The economic transition would help maintain and strengthen Europe’s competitiveness in a global economy that is increasingly competing on the basis of sustainability and resource efficiency.
The challenge for Europe’s leaders nowadays is to see that the economy, energy, and climate change are interdependent. Only concerted action taken and an integrated policy vision on these issues can give Europe the lead in the twenty-first century.
Jules Kortenhorst is CEO of the European Climate Foundation.
Copyright: Project Syndicate, 2011.