Posted on 03 November
2009 - Berlin, Germany – A major new European
study of the costs of climate protection
shows that avoiding dangerous consequences
of climate change at manageable costs is
only possible with early action – but Europe
would profit from taking a leadership role
even if other countries continued to hesitate.
RECIPE – a Report on
Energy and Climate Policy in Europe, conducted
by the Potsdam Institute for Climate Impact
Research (PIK) and four other European research
institutes and supported by global financial
services provider Allianz and WWF, also
found that distributing the costs of climate
protection would not overburden any region
of the world.
“Climate protection
is economically manageable and feasible,”
said Professor Ottmar Edenhofer, chief economist
at PIK. “For Europe, getting an early start
on comprehensive climate protection, even
unilaterally, will pay for itself through
significantly lower costs.”
Professor Edenhofer,
also Chairman of the Response Strategies
Working Group of the Intergovernmental Panel
on Climate Change (IPCC), said globally
a key mechanism for keeping overall costs
of climate protection down would be financial
transfers to emerging nations.
“The key to affordable
climate protection is to create binding
political conditions to take effect immediately
for the coming decade,” Professor Edenhofer
said..
Wasting the next decade
would increase costs by nearly half
The scientists compared
three energy economy models and used them
as a basis for climate policy recommendations
for Europe. RECIPE drew up pathways to reduced
emissions for the major CO2-intensive sectors
of energy, cement & steel, transportation
and agriculture, finding that effective
climate protection measures would cost just
one year of delayed economic growth by 2050.
Delays in implementing
such measures would decrease the likelihood
of avoiding dangerous climate change further
by having to accept overshooting emissions
concentrations. It would increase the costs
of mitigation, with wasting the next decade
to take meaningful action on climate change
resulting in an increase of mitigation costs
of at least 46 % compared to early action.
These scenarios also
did not take into account the massive costs
of damage due to climate change caused by
not implementing climate protection measures,
making climate protection measures look
even more manageable.
The study estimates
that the window for ambitious climate action
would close completely by 2020.
Convinced of the overwhelming
importance of investing in the transformation
to a low-carbon economy, Allianz and WWF
formed a climate partnership on climate
change in 2007 after two years of joint
activity globally and at regional levels
which included significant studies of climate
risk and costs in the US. The company noted
that the fact that in global industry some
40 percent of insured losses were now attributable
to climate effects was a compelling reason
for it to be involved in climate protection.
“There is no other market
that needs and will experience such a sudden
and sustainable growth in investments in
the next ten years as the market for climate
protection and the decarbonization of the
economic processes,” said Joachim Faber,
member of the Allianz SE Board of Management
and CEO of Allianz Global Investors.
“But the willingness
of our customers to invest depends upon
reliable conditions. It is now up to governments
to provide these conditions. This includes
no t only reliable paths toward reduction
targets but market-based economic elements
such as the auctioning of all CO2 certificates,
the establishment of global cap and trade
systems, rapid implementation of the EU
Directive to promote renewable energies
that guarantees investors reliable feed-in
tariffs, and stronger subsidies for research
into low carbon technologies.”
Significantly, as countries
shape up to the Copenhagen UN climate change
conference in December unwilling to move
themselves in the absence of commitments
from others, the report finds that Europe
has little to lose from bold and unilateral
climate action.
Important not to give
carbon intensive industries a break
One interpretation from
the report is summed-up by Allianz and WWF:
“The real world requires real first-movers
and RECIPE demonstrates that Europe has
every reason to move first,” they said.
“By moving first in implementing ambitious
carbon reduction targets, Europe’s economy
benefits as it foregoes investment into
carbon intensive infrastructure that otherwise
would have to be dismantled well before
the end of its economic life.”
Central to avoiding
dangerous climate change was a global carbon
price, best achieved by integrating regional
carbon markets. However, it was important
not to give carbon intensive industries
a break from carbon pricing as this distorted
crucial investment decisions by both industry
and financial investors. Full auctioning
of permits was the preferred option.
To link developing countries
into such a global carbon market, clear
incentives for decarbonization and financial
transfers not immediately based on binding
reduction targets for developing countries
need to be developed. One possible framework
were Nationally Appropriate Mitigation Actions
which need to be supported by capacity building,
technology transfer, financial investments,
and reporting requirements that help encourage
mitigation efforts.
Of the largest emitters,
the USA would minimize its costs with an
immediate introduction of carbon targets
while China would face expensive costs in
replacing costly infrastructure unless it
significantly diverted from its current
carbon intensive pattern of development.
The study also examined
various options for distributing the greatly
reduced global carbon budget required to
keep the world below the threshold of unacceptable
risks of catastrophic climate change.
“Based on the RECIPE
results, Allianz and WWF conclude that a
per capita allocation that gives developing
and emerging economies some headroom for
development with a subsequent participation
in the reduction efforts represents one
possible compromise accommodating most of
the negotiation asks on the table prior
to Copenhagen,” the report said.
