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A practical guide to decarbonising the global economy

Summer 2010

by Jim Skea

Sorting fact from fiction is becoming central to the climate change debate. In the aftermath of Copenhagen and with Cancun looming ahead, Jim Skea distinguished what can be done and what must be done

by Allan Larsson, Måns Lönnroth

There are two approaches to meeting the challenge of climate change. One way is to ask how quickly we can de-carbonise the global economy if dangerous climate change is to be avoided, the other is how quickly we must do so.

How much common ground is there between the two? If they were two hands reaching out to each other, no one would say they are clasped in a firm handshake, but at least the fingertips are touching.

Last December’s Copenhagen Accord aims to keep global temperature increases below 2OC, and is commonly associated with reducing all greenhouse gas (GHG) emissions around the world by around 50% by 2050, and those from developed countries by around 80%. Yet the scientific truth is that keeping temperature increase below 2OC cannot be guaranteed. Probabilistic modelling work shows that if we can assume global emissions peak in 2016 and fall by 4% a year thereafter, there is still a 50% chance that the 2OC threshold will be exceeded. If emissions fall at only 1.5% per year that probability rises to 80%.

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There are also compromises on the “can” side of the debate. Among the stream of recent studies is one from the European Climate Foundation that shows it would be technically and economically feasible to reduce emissions by 80% at an affordable cost less than 1-2% of GDP. It is also often noted that 80% reduction targets are feasible, but require step changes in the delivery of policy, and thus the exercise of political will.

The term “challenging” is often used in the debate on how to tackle climate change, so it's worth exploring what is meant by this euphemism. There are two key elements; the first is that governments are orchestrators of societal action, but they are not the agents of practical change. It is the role of the private sector and citizens that is critical to investing in and driving forward low carbon solutions. Given the urgency and scale of action required, establishing trust between private and public sectors and as well as a shared understanding of the way forward is fundamental. For governments, this translates into a need for clear, stable, long-term policy signals that are developed with buy-in from the private sector.

The second key element is social consent. All the low-carbon scenarios so far involve investment in energy supply and infrastructure that will impinge on citizens, and also the assumption that people will choose different technologies for use in the home or on their travels, and so will to some extent modify their own behaviour. It is certainly true that people will be paying more for energy, but there is also strong sense that the consensus about climate change among Europe’s elites is not yet shared by public opinion at large. Two things could prevent the broadening of that consensus; the assault on climate science that has tarnished the reputation of the International Panel in Climate Change (IPCC), and fall-out from the banking crisis.

But the only basis for public-private trust and social consent to more determined policies is an honest dialogue. In Europe this means a clearer picture of which interventions are the most effective, and what the costs will be. The EU’s emissions trading scheme (ETS) is widely presented as the cornerstone of its strategy for reducing GHG emissions. Yet, this is simply not true; no framework that is delivering a CO2 price of €16 a tonne can be the cornerstone of a credible climate strategy. To reach an 80% reduction in GHG emissions by 2050 will require us to implement measures that will cost more than €100 a tonne, perhaps much more. The truth is that low carbon electricity, the key to a low carbon economy, depends on other policy interventions, notably those taken by national governments to meet their obligations under the EU’s Renewable Energy Directive. The CO2 price implicit in such measures as feed-in tariffs and renewables obligations provides a much more realistic account of the effort needed to mitigate climate change.

Equally, the current CO2 price will not by itself support more controversial technologies like carbon capture and storage (CCS) or nuclear power. There is no reason why the ETS could not in principle be the cornerstone of the EU’s climate strategy, but that would mean biting the bullet and allocating far fewer emission allowances than the EU currently does so as to drive up prices and incentivise serious mitigation efforts. At €16 a tonne, all Europe can hope to do is fine-tune the operational balance between coal and gas and influence the purchase of international emissions credits. Not a cent’s worth of investment will be stimulated.

So far, the burden of increasing investment in low carbon energy is largely borne by Europe’s energy consumers via their electricity bills. The recession has already had a real impact on their incomes, with perhaps worse to come, so the spotlight is sure to fall on the resources for climate change mitigation. Even if only 1-2% of GDP needs to be spent in it over the next 40 years, politics will be driven by the here and now.

It is incumbent on policymakers to ensure that consumers’ contributions towards a low carbon society are cost-effective. It’s still not certain that the balance is right between renewable energy support, energy efficiency incentives and support for emerging technologies such as carbon capture and storage. There are also other rationales than low carbon for investing in emerging technologies. There is a systemic market failure in relation to innovation as much as there is in relation to the externalities associated with GHG emissions. Public sector intervention in support of new technologies is perfectly legitimate, but some existing choices also need to be questioned. In Britain, for instance, does it make sense to offer private householders a financial inducement to generate photovoltaic electricity when much more cost-effective measures like home insulation and double glazing set nothing comparable in support?

The EU can only be part of a wider global process of de-carbonisation. The EU should continue to play a leading in this process, but by leading do we mean simply setting the most ambitious targets, or something more? The brutal truth is that the actions of China and the U.S. will not be tightly coupled to the targets by we Europeans. China’s approach is likely to be determined by a cool assessment of the advantages and disadvantages of climate mitigation, but whatever it chooses to do, its low carbon investment will be staggering. Last year China accounted for the global majority of new wind energy installations. By contrast, the U.S. approach will be the result of messy internal politics.

The main contribution Europe can make is to press ahead with climate measures that make sense, and these are many. One of Europe’s widely perceived weaknesses is to set ambitious targets and then fail to deliver results, so closing this implementation gap is essential. A host of vigorously implemented measures, like de-carbonisation of electricity supply, enhanced use of renewables, aggressive energy efficiency and the gradual extension of electricity into heating and transport, could bring greater energy security. Europe’s economic structure would change, but would not be disadvantaged as long as cost-effective balanced policies are pursued.

On the international stage, this would send a strong signal to smaller economic players other than China and the U.S. that Europe is taking a leading role. Securing their support has obvious advantages in terms of fostering new industries with global potential. While not perhaps changing the internal debate in China and the U.S., it would give others confidence that the measures they take will be in line with global best practice.

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Re:A practical guide to decarbonising the global economy

Are the EU’s green energy targets over ambitious?

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By Europe's World - Vox Pop on

6/4/2010