Europe needs to develop a new economic model

The author

Simone Tagliapietra is an energy expert, scientist at think tank Bruegel and professor at Johns Hopkins University SAIS Europe in Bologna.

(Photo: Ispi, Montage)

In her first address on the State of the Union, Commission President Ursula von der Leyen announced an increase in Europe’s climate policy ambitions. She presented a plan to tighten the EU’s climate target: a reduction in greenhouse gas emissions by 55 percent by 2030 compared to 1990 levels – instead of the originally planned 40 percent.

This is obviously good news from a climate protection standpoint. Climate researchers have long made it clear that achieving climate neutrality by 2050 is the only sensible way to keep the global temperature rise below 1.5 degrees compared to the pre-industrial level and thus to protect the planet from the dramatic effects of climate change. Raising the climate target is a necessary step for this.

The new target also sends a clear signal to the markets: The EU’s climate policy course is irreversible. This has the important advantage of consolidating the expectations of market participants and influencing future investment and consumption decisions.

The 55 percent target could also have positive effects globally. As early as next year, the signatories of the Paris climate agreement will have to present their plans to reduce greenhouse gas emissions at the world climate summit in Glasgow. The conference offers a historic opportunity to raise global climate goals. The EU can now lead by example and credibly demand that other countries also step up their efforts.

However, Europe needs to be aware that the journey to climate neutrality only begins with the goal being set. In 2021 the EU will have to enact a spate of new climate and energy laws. Both the two pillars of the European CO2 market – the emissions trading system (ETS) and the ordinance on burden sharing – and the directive on energy taxation must be reformed. Such a reform of the ETS is also increasingly seen as a means of financing the € 750 billion European reconstruction fund with new EU own resources.

The legislation on energy efficiency and renewable energies also needs to be improved considerably, because with the current requirements, the EU will reduce its CO2 emissions by only 45 percent by 2030. The main challenge here will be to ensure that Member States keep their commitments to higher emissions reductions and encourage private investment in the absence of binding treaties.

Climate policy must affect every corner of the national economy

This brief overview of the multitude of legislative measures that are required to get closer to the new 55 percent target makes it clear how drastic a comprehensive decarbonisation process will be. In order to actually achieve the necessary climate goals, climate policy must affect every single corner of our economies.

It is also important to underline that each of these decisions are the result of lengthy and difficult negotiations, some of which will continue to be fierce fighting in the future. All of this speaks for the need to shift the EU’s climate policy focus from targets to concrete measures.

Finally, there is also perhaps the most difficult point: the economy. Commission President von der Leyen describes the European Green Deal as “Europe’s new growth strategy”. The Commission underpinned its new 55 percent target with an impact assessment that suggests that reducing CO2 emissions across the EU will boost economic growth and jobs in Europe.

However, the real economic and social effects of faster decarbonisation are still not clear. We don’t really know how to turn decarbonization into an industrial opportunity for Europe. We don’t really know how to fully counter the inevitable distributive effects of climate policy.

In order to keep the process going, it is of crucial importance to understand the structural, economic aspects of a comprehensive decarbonisation, because either it is economically viable and is thus also socially supported – or not.

As a global pioneer in climate protection, Europe is the first to be confronted with these important questions. It therefore has the responsibility – but also the chance – to develop a new economic model for decarbonisation that is based in particular on a practicable green industrial policy and on fair transitional regulations.

More: The Vice President of the EU Commission is setting the course for a sustainable Europe with the chemical turnaround and a huge renovation program for houses.

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