Can Europe manage the transition to a low-carbon economy? (part I)

November 25, 2013 | 00:00

Interview with Dr. Johannes Meier, CEO of the European Climate Foundation

Can Europe manage the transition to a low-carbon economy? (part I)

Dr. Johannes Meier, Chief Executive Officer of the European Climate Foundation, firmly supports the transition to a decarbonised economy. In part I of this two-part interview, he rebuts any simplistic debates challenging science, generalising the risks to European competitiveness or denying the ETS. Just the opposite: Meier considers the transition a huge opportunity for the EU to become a reference point for the rest of the world. He describes the benefits of being a first-mover. Do not miss the second part on 28th November.

Johannes Meier, CEO of European Climate Foundation
Climate change scepticism is rising along with higher energy prices, while legally binding climate targets on an international level are still missing. What are the risks of this inactivity, and how much could it cost?

“It is rather telling when scepticism towards science is rising along with higher energy prices. Energy prices or legally binding international climate targets cannot change the physics of the greenhouse gas (GHG) effect. Scientists widely agree that continued man-made GHG emissions will lead to higher temperatures and myriad negative effects. Specifically the short- and medium-term risks of extreme weather events, ocean acidification, rising sea levels, water shortages and food crop failures are tipping points at which the changing climate reaches runaway dynamics. Climate change poses an existential risk for billions of people. It is worrisome that the most immediate climate change impacts will likely be felt in some of the world’s most politically sensitive areas.”

Although the EU is trying to do its homework on climate change responsibly, our carbon footprint represents ‘only’ twelve percent of global CO2 emissions. Won’t our efforts prove useless unless the growing economies of China and India will adopt effective climate change policies?

“There are two assumptions embedded in your question. The first assumption, that the EU is doing its homework responsibly, needs to be proven in the near future with the definition of an ambitious and robust 2030 package. The combination of recession, offsets and weak targets has meant that we are reaching the goal of twenty percent GHG reduction by 2020 with little effort – and, in some cases, none at all – in many member states. At this point, there are still many obstacles on the way to making EU leadership on climate change mitigation visible and recognised on the international stage.

The second assumption has to do with China’s role as a major CO2 emitter. In fact, it would be wise to look closely at China’s intense efforts to move ahead on renewable energies, to build new energy-efficient cities and to curb air pollution from coal plants. Clearly, the Chinese leadership is managing a very difficult balancing act between growth aspirations, environmental damage and potential social unrest as the emerging middle class wants their children to grow up with breathable air. The Indian development story is equally complicated.

Europe’s importance in this context should not be measured in terms of our declining share of global GDP or our share of global CO2 emissions. Our ability to innovate, to drive down costs in the large European market

“Our ability to innovate, to drive down costs in the large European market and to manage the transition in a complex group of democracies can provide a reference point for China and India.”
and to manage the transition in a complex group of democracies can provide a reference point for China and India that a low-carbon economy is feasible. This proof of concept will define Europe’s future importance in the global arena to a significant extent, and it will be the basis for harnessing export opportunities. Given our privileged starting point in terms of infrastructure and technology, and also taking account of our huge fossil fuel import bill, the burden is on us to show that the transition can be done without sacrificing growth, development and prosperity.”

Coming back to our EU environment, 2014 has been set as a deadline to create the internal energy market. Do you think this goal is too ambitious?

“The ECF has invested a lot of effort in developing roadmaps for the decarbonisation of the power sector. Our studies and many related studies all point at the benefits of an integrated, pan-European approach to decarbonisation, where the system benefits of balancing across borders can be harnessed. Thus, the goal of an internal energy market remains a valid one.

The real question is how to best accelerate the transition to an internal energy market. Any change of this magnitude requires a combination of clear overall direction as well as pragmatic stepping stones that build confidence in the benefits and the feasibility of a full transition. Important interim steps can include regional market integration efforts – for example, with the help of a North Sea Grid or a Southern Grid. Making these interim steps happen is a significant governance challenge involving many stakeholders and a redefinition of their roles and business models.”

Another milestone will be 2020, when the 20/20/20 goals should be met. However, the well known triangle of sustainability, competitiveness and security of supply isn´t currently balanced and it is clear that the competitiveness of the European economy has been significantly weakened. What must be done to rectify this situation? Would it be a positive step to resuscitate the ETS, if it could lead to higher energy prices and even more delocalisation?

“Following the financial and economic crisis, concerns about European competitiveness have gained prominence on the political agenda.

“The real question is how to best accelerate the transition to an internal energy market.”
However, undifferentiated statements about EU competitiveness or the European economy tend to be misleading as we are witnessing a huge variance among regions and sectors. A recent study by KfW disaggregated the value chains of different industry sectors. Not surprisingly, competitiveness is impacted by very different factors in each sector. In many cases, energy prices do not play the central role that they play in energy-intensive industries.

In order to not get lost in the sectoral differentiation and to get a sense of the overall macro-economic costs and benefits of ambitious climate policies, we asked PwC to look into the economic performance of Switzerland, Denmark, Germany, the UK and the Netherlands and to assess the impact of energy and climate policies on these economies between 1970 and 2012. The study found that a significant expansion of renewables requires substantial funds and R&D efforts, but these initial investment costs can create long-term benefits. New industries could emerge if the technology is largely created locally. And first movers can also become market leaders. Moreover, energy efficiency improvements can contribute to economic growth too. Not only can the resulting energy savings partially offset higher energy costs, but domestic demand for energy efficiency measures can also contribute to local employment creation.

In short, any simplified contraposition of climate change policies and competitiveness neither reflects realities nor does it point to a better balance of sustainability, competitiveness and security. Competitiveness is not just about energy prices; it is also about economic growth and innovation. As indicated by the PwC study, policies can stimulate the latter even if costs are up in the short term.

It is also important to note the difference between the competitiveness of nations on one hand and single companies on the other. Economist Paul Krugman demonstrated more than twenty years ago that the competitiveness of nations is not a zero-sum game. We would all benefit from a more sophisticated debate on competitiveness in Europe going forward.

As to the ETS, this mechanism needs to be kept alive and to undergo structural reform as part of this wider debate. That’s why the ECF supported the backloading proposal in the EP.”

Johannes Meier is CEO of European Climate Foundation (ECF). He holds a M.S. in Computer Science and a Ph.D. in Communication and Information Sciences. Prior to joining the ECF he was a partner at McKinsey & Company, CEO of GE CompuNet Computer AG, managing board member of the Bertelsmann Foundation, and founder of a software company developing coordination platforms. Johannes sits on the supervisory boards of Xing AG, the Leipzig Graduate School of Management, and UNICEF Germany.

Coming up on Thursday 28th November: part II of this interview, where Johannes Meier elaborates on the debate about mandatory or indicative 2030 climate targets, the risks of pursuing a “business-as-usual” strategy and the benefits of being a first-mover.

 

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