Opinion

A European approach to climate finance will make a deal at COP21 more likely

Europe needs to convince poor countries that it is serious about a climate deal. To do this it must act jointly and decisively to shape global climate finance.

By: and Date: October 1, 2015 Topic: Energy & Climate

mni-logo_hires

Kamara online

Altinget

Rzeczpospolita logo

handelsblatt logo

Le-Monde-newspaper-logo

Kathemerini

Il Sole logo

This op-ed was originally published in MNI and has also been published in Kamara Online, Kathemerini, Altinget, Rzeczpospolita, Handelsblatt and Le Monde,. It will also be published in Il Sole 24 Ore.

Europe spends significant resources on building wind-farms and investing in better insulation. At the same time, it burdens its industry with a plethora of emissions related regulations and levies, all with the aim of combatting climate change, a topic that EU citizens consider a significant problem. But with Europe producing less than 10% of global CO2 emissions, such costly efforts will not even delay climate change – instead, the efforts could even put other continents at a competitive advantage, allowing them to buy fossil fuel more cheaply and produce carbon intensive goods to be exported to Europe. Without an ambitious and constraining deal involving all major emitters, Europe’s mitigation effort could become not only costly, but largely futile.

This global coordination problem will be addressed at the Paris climate conference at the end of 2015. The most critical element in the negotiations is how to share the cost of decarbonisation. Developing countries argue that they need to pollute in order to grow. They say that developed countries are responsible for most man-made greenhouse gases in the atmosphere, and that their economic strength enables them to do more than developing countries. They therefore call on developed countries to not only make a greater domestic decarbonisation effort, but to also support them with financial resources in order to mitigate and adapt to climate change. At previous climate summits, a principal agreement has been reached to provide US$100 billion per year to that effect.

Financial resources are the best tool the EU has to make a global deal possible. Offering faster domestic abatement would have limited impact on the costs of climate change for other countries. It is therefore a weak bargaining chip. Consequently, the EU should focus on technology transfer and climate finance. And in contrast to sharing the mitigation burden, both are positive-sum contributions, as they cost the rich world less than the poor world would gain.

Already now, Europe is providing more than half of global climate finance. It should use this and further resources to obtain ambitious mitigation commitments from global partners that would contain the effects of climate change. Acting jointly and decisively would also allow Europe to shape the global climate finance architecture. This is not only about good governance of the involved sums. More importantly, according to the IEA, a global attempt to contain temperature increases below 2°C will necessitate investments of US$53 trillion. Ensuring that some of the investment demand falls on European exporters of low-carbon technologies and services, an area where the EU still has a competitive advantage, should be one goal of a strong and unified EU position.

A joint European stance on climate finance would reveal the true weight of the member states. It would make a difference if the 28 countries contributed a few billion each, or the bloc as a whole put some US$30 billion on the table. In order to demonstrate credibility – which is crucial in an international agreement that is supposed to run over many years without strong enforcement mechanisms – the EU should make clear how it wants to meet its commitments before and after 2020. Credibility will be more important in the negotiations than large but vague numbers. And a real transfer component is crucial, as investments in adaptation and leveraging private finance will require at least some public funding.

It would be logical to use some of the current resources collected in climate mitigation measures and earmark them for climate finance. Allocating a dedicated part of the revenues from selling emission permits could be one part. Fiscal revenues from a harmonized carbon tax on transport and heating would not only provide predictable revenues, but would also help to make the EU’s own domestic decarbonisation ambitions more efficient and credible. Channelling some of the current resources for building solar panels and wind turbines inside the EU, where electricity demand is falling, to poor but energy-hungry developing countries, would be an effective way of increasing the value of that spending.

A vaguely coordinated European position on climate finance will fail to impress poor countries that Europe is serious about a climate deal. A joint position backed by credible public and private resources will make a deal more likely, justifying the expensive domestic mitigation efforts and benefitting European industry.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to communication@bruegel.org.

View comments
Read article More on this topic

Blog Post

Building positive incentives: the potential of coalitions for sustainable finance

We need to move towards more sustainable, long-term thinking in the corporate and financial worlds. Coalitions of willing actors could play a role in driving this process. But what makes for an effective coalition, and how can this be measured? The authors assess existing coalitions for sustainable finance and business, and argue that well-functioning coalitions can positively reinforce social and government action.

By: Enrico Nano and Dirk Schoenmaker Topic: Finance & Financial Regulation Date: July 18, 2017
Read article More by this author

Blog Post

How to make finance a force for sustainability

Traditional finance focuses on financial return, considering the financial sector separate from both society and the environment. In contrast, sustainable finance considers financial, social and environmental returns in combination. In a new essay, Dirk Schoenmaker provides a framework for sustainable finance highlighting the move from the narrow shareholder model to a broader stakeholder model. Here he presents the key arguments.

By: Dirk Schoenmaker Topic: Energy & Climate, Finance & Financial Regulation Date: July 12, 2017
Read article Download PDF More by this author

Essay / Lecture

Investing for the common good: a sustainable finance framework

Traditional finance focuses solely on financial return and risk. By contrast, sustainable finance considers financial, social and environmental returns in combination. This essay provides a new framework for sustainable finance highlighting the move from the narrow shareholder model to the broader stakeholder model, aimed at long-term value creation for the wider community. Major obstacles to sustainable finance are short-termism and insufficient private efforts. To overcome these obstacles, this essay develops guidelines for governing sustainable finance.

By: Dirk Schoenmaker Topic: Energy & Climate, Finance & Financial Regulation Date: July 11, 2017
Read article More on this topic More by this author

Blog Post

The US 100% renewables dispute

What’s at stake: Two years ago, a debate started on whether it would be feasible for the US to achieve 100% renewable energy power. The arguments on both sides have been fierce, and more has been written recently. We review the debate.

By: Silvia Merler Topic: Energy & Climate Date: June 26, 2017
Read about event More on this topic

Past Event

Past Event

Renewing the 2050 Roadmap

The objective of this brainstorm session is to explore how we can improve the quality and the impact of the revisited 2050 Roadmap, set the agenda for revising it, increase ownership of it and analyze the methodological basis of the 2050 Roadmap.

Speakers: Georg Zachmann Topic: Energy & Climate Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 22, 2017
Read about event More on this topic

Upcoming Event

Oct
20
09:00

EU-Turkey energy and climate dialogues

This event is part of the joint Bruegel-IPC initiative European Neighbourhood Energy and Climate Dialogues.

Topic: Energy & Climate Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event More on this topic

Past Event

Past Event

Future of the European energy industry

Closed-door brainstorming workshop about how the European energy system is changing because of decarbonisation and digitalisation.

Speakers: Simone Tagliapietra Topic: Energy & Climate Location: Milan Date: June 14, 2017
Read article More on this topic

Blog Post

Adieu Paris: what’s next for climate policy if Trump ditches the Paris Agreement?

US President Trump has made it clear that he is not happy with the Paris Agreement. This week he will announce whether the US will withdraw from the Agreement altogether. What might that mean for the global fight against climate change? US decarbonisation is already well underway but the EU would need to step up and defend global climate governance.

By: Simone Tagliapietra and Georg Zachmann Topic: Energy & Climate Date: May 30, 2017
Read article More on this topic More by this author

Blog Post

Global decarbonisation: a wake-up call for the Middle East and North Africa

Many countries in the MENA region are heavily dependent on oil and gas for exports and taxes. But global decarbonisation could undermine revenues, even though MENA exports are globally competitive. This threatens the MENA region's social contract, so economic diversification needs to start now.

By: Simone Tagliapietra Topic: Energy & Climate Date: April 11, 2017
Read article Download PDF More on this topic More by this author

Working Paper

The political economy of Middle East and North Africa oil exporters in times of global decarbonisation

Middle East and North Africa (MENA) oil exporting countries are still not adequately equipped to prosper in a decarbonising world. Decarbonisation should therefore represent an incentive for MENA oil exporters to pursue structural processes of transition from rentier to production states.

By: Simone Tagliapietra Topic: Energy & Climate Date: April 11, 2017
Read article Download PDF More on this topic More by this author

Policy Brief

The carbon buyers’ club: international emissions trading beyond Paris

The effort to define rules for international emissions trading faces the strong desire of nation states to develop their own climate policies, which collides with the need for tradable units in one country to be equivalent to tradable units in another country. To overcome this dilemma Georg Zachmann proposes a club of carbon-buying countries that would regulate only imported mitigation outcomes.

By: Georg Zachmann Topic: Energy & Climate Date: April 4, 2017
Read about event More on this topic

Past Event

Past Event

Trump’s energy policy: America first, climate last?

This event seeked to discuss the potential way forward for the US energy and climate policy, and its implications for both global energy markets and global climate change mitigation efforts.

Speakers: Kristine Berzina, Tim Boersma, Connie Hedegaard, Simone Tagliapietra and Zhang Xumin Topic: Energy & Climate Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: March 7, 2017
Load more posts