Decarbonise effectively and globally

Decarbonise effectively and globally

The European Commission aspires to become a leader in decarbonisation. If the UE’s mission is to make the planet green again, then the vision and action plan should convince other non-EU countries to join these efforts.

"The Green New Deal", the EU programme to reform the financial, tax and energy systems, has been announced as the official European Commission’s work plan for the next five years. The project’s ambitious goal is to make Europe the first climate-neutral continent by 2050. Ursula von der Leyen, President of the European Commission, believes that decarbonisation can pull the European Union out of economic lethargy by reviving the European industry and stimulating economic growth and employment in the long term. To this end, the EU economy would need to remain highly competitive globally, which will not be easy given the increasing competition from China and other major players.

How to decarbonise the EU economy and stay competitive? The Green New Deal programme must be free from the shortcomings of the Europe 20/20/20 targets. We should be guided by the overriding goal of decarbonisation, that is combating global warming. This goal can only be achieved through reducing emissions globally. To be a leader in global decarbonisation means to propose solutions that can convince other countries to follow them, as this is the only way to reduce carbon leakage. As individual countries vary widely in terms of the level of development and wealth, the effectiveness of climate policy depends on compensation mechanisms in and outside the EU. The principle of equal efforts towards decarbonisation in different countries could be adopted when designing such mechanisms.

I have been dealing with the economics of climate change for 12 years now believing that decarbonisation is a necessity, because it is imperative that we limit the negative impact of all economic activities on climate and the natural environment. There is nothing unusual about this view – the majority of the global population think the same way.

The question, therefore, is why there has been hardly any progress in reducing global emissions? To my mind, the reason is that carbon dioxide cannot be actually seen and is not an immediate danger, while what we fear the most are immediate dangers. Smog, which is ruining our health here and now, is a different story. It is therefore easier to win public support for combating smog locally, reducing carbon dioxide emissions along the way, than for combating carbon dioxide emissions, which is taking place globally, far from us, and is a process that will take decades and requires considerable financial transfers to poorer countries. For example, the plan to allow only electric vehicles to enter the centres of European cities will transform city centres into zero-emission zones, which will surely solve the problem of smog and carbon dioxide emissions from cars locally. Transport electrification programmes are winning the approval of the general public as they improve the living conditions of city dwellers by helping reduce transport emissions. This is why they have been included in national decarbonisation plans of the EU, including Poland.

The number of electric cars is growing exponentially, but their share in the global fleet of light-duty vehicles is still less than one percent. While waiting for the effects of decarbonising global transport through electrification, it is worthwhile to use other available solutions. From a global perspective, it seems reasonable to decarbonise transport by using in traditional vehicles low-emission fuels derived, for instance, from bio-components (and, in the future, from synthetic fuels produced from green hydrogen and captured carbon dioxide). Biofuels and synthetic fuels are treated in the European Union as low-emission fuels. However, they are not included in the list of solutions considered by the European Commission as decarbonising transport, because they do not reduce carbon dioxide emissions from the exhaust pipe, which undoubtedly excludes their use in heavily urbanised and emission-free areas. Still, such solutions could be used outside city limits, including in heavy transport. According to FuelsEurope, low carbon liquid fuels can be among the most cost-effective options for reducing carbon dioxide emissions from transport. This is partly attributable to the existing, extensive and reliable distribution infrastructure, offering a clear advantage over other energy solutions that require building new infrastructure, often financed with public funds. What also matters is that using low emission fuels in road transport helps reduce total emissions from all vehicles in traffic across the world.

Since the goal is to stop global warming, the EC should propose solutions that will cut emissions globally. It is the only and ultimate goal of climate policy, global and distant at the same time, and therefore difficult to achieve. We need to start acting right now and incur expenses locally. People, also in Poland, demand turning words into actions. Trouble is that effective solutions do not lie where people tend to see them.

The European Commission is committed to becoming a leader in decarbonisation. If the UE’s mission is to make the planet green again, then the vision and action plan should convince the countries outside the EU to join these efforts. Solving the problem of global warming calls for international cooperation. EU leadership will only make sense if other large countries, also non-European ones, will follow the example of Member States. Implementing a large-scale decarbonisation plan single-handedly carries more risks than benefits since it raises the costs of economic activity, thus undermining the competitiveness of the region without actually contributing to reduction of global emissions as the most harmful production is relocated abroad. The best method to stop carbon leakage is to engage other countries in the decarbonisation process and to work in a joint and coordinated manner.

Effective decarbonisation solutions must be based on knowledge rather than emotions. The realms of science and industry are where diagnosis of decarbonisation issues and knowledge of technologies and acceptable actions are to be sought. Public institutions, such as national governments or the EC, are needed to put this knowledge into effective use, set the direction, and prepare the industry for change. However, they should not decide how to do it. Knowledge is also the best neutral platform for communication between the governments, responsible for developing decarbonisation plans, industry, whose task is to deliver the plans, and people, who will bear the costs at the end of the day. Evidence-based policy solutions are feasible and predictable, thus cheaper.

The state does not know more about prospects for innovative technologies than businesses. Businesses, on the other hand, will be tempted to use the technologies they are developing for their own gain. It is therefore the role of the government to discuss with businesses the coherence and conditions (costs, support systems) for achieving proposed goals rather than the advantages and disadvantages of specific technologies.

As different businesses will choose different methods (technologies) for achieving such goals, legislative solutions and governmental support should be technology neutral. Arbitrary elimination of certain technologies increases the costs of adaptation, and focusing support on specific technologies usually results in overinvestment, which is detrimental to the support system. When technological solutions supported by the state prove to be too expensive, the government has no other option but to change the rules of support (regulation). For businesses, such change represents a regulatory risk which cannot be managed, which directly affects the costs of implementing economic policies.

Implementation of economic policies should follow the path from cause to effect, i.e. from the instrument to the goal, and not the other way round, as is the case with the EU climate policy. The natural direction of implementing any policy decreases the regulatory risk. In the long term, it is inevitable that there will be both positive and negative game changers which cannot be predicted. Companies factor in this risk in their growth strategies and, as a sector, they have learnt to manage it (by extending and diversifying exposure to this risk). Any unexpected changes in regulations caused by such game changers (i.e. regulatory risk) are difficult to manage as they affect all parties. In practice, we will look for sustainable rather than optimum solutions or policies that are resilient to unexpected events.

And finally, a comment on climate solidarity. In designing climate policies, starting conditions at the national level should be taken into account and the pace of adaptation should be adapted to such conditions. Decarbonising the same business located in different EU countries would require different financial expenditure. The effectiveness of climate policy depends on compensation mechanisms in and outside the EU. The principle of equal efforts towards decarbonisation in different countries could be adopted when designing such mechanisms. We know full well how politically sensitive this issue is. However, if it is not defined and addressed properly, all we can talk about is decarbonising the richest EU countries and not protecting the climate. If “The Green New Deal” is to become a climate protection programme, it should be designed as a great bridge for everyone to cross, and not as a race too fast for the weakest to keep up.

The article “Decarbonise effectively and globally rather than quickly and locally” was published on December 1st at