A green new deal

Stavros Dimas on the economic and environmental benefits of green policies

The past few months have seen an unprecedented crisis in international financial markets. Governments around the world are grappling with the difficult questions of how to stabilise the banking system and avert the worst impacts of the coming economic downturn which will affect households, businesses and jobs.

Amidst this crisis, there are those who are questioning whether measures to address climate change are an expensive luxury which should now be cut back or even shelved.

This question is based on a false dichotomy. The reality is that we do not have to make a choice between addressing the financial crisis and taking action to address climate change. We can and should do both.

The measures needed to tackle climate change should be seen as an integral part of the response to the economic downturn. Addressing the current financial crisis will require a combination of measures aimed at sustaining demand, supporting innovation and directing investment to best effect.

Energy and environment can act as a strategic focus for these stimulus measures. Well-designed green measures can both stimulate our economies in the short term and accelerate progress towards developing a low carbon economy over the medium to long-term.

Last year, European leaders agreed to ambitious targets: to cut greenhouse gas emissions by at least 20 per cent and more than double the market share of renewable energies to 20 per cent by 2020 (known as the ‘20/20/20’ targets).

In January, the European commission proposed a major package of legislation to put in place the concrete measures needed to deliver on these targets. Far from making these measures less necessary, the economic crisis makes it all the more important that these measures are adopted.

The climate and energy package is part of the solution and will enhance our energy security, increase the competitiveness of European industry and create high quality ‘green’ jobs. It represents a green ‘new deal’ which will put Europe firmly on the road towards becoming a low-carbon economy.

And in so doing, it will give Europe a first mover advantage over other regions of the world that have yet to seize the initiative.

The set of measures we propose requires net additional investments and changes in our energy system equivalent to about 0.45 per cent of EU GDP in 2020 or around €70bn. This is much lower than the costs of inaction. Further, these costs do not represent a loss to our economy but rather investments into the EU economy.

It will also shift investment flows into innovative low- carbon solutions, energy-efficiency and improvements in our energy infrastructure. This investment will encourage innovation, provide new opportunities for European businesses and create new jobs in green technology sectors as well as in more traditional sectors such as the building sector.

Meeting the target of 20 per cent renewable energy alone is forecast to lead to nearly 700,000 new jobs in Europe’s renewables industry by 2020.

Further, the increased auctioning of emission allowances from 2013 under the EU emissions trading system will provide additional revenues which governments may use to stimulate their economies further, through tax cuts or measures to invest in the economy, including investment in projects that reduce greenhouse gases.

By 2020, these auctioning revenues could result in revenues totalling up to €30-50bn a year. In addition to the new investment stimulated by the package, the EU’s competitiveness will further be strengthened through the increase in energy efficiency and reduced dependence on energy from abroad as a result of the decentralisation of energy production driven by the increased use of renewables.

Investment in the green economy makes not just environmental sense but also economic sense. By reaching agreement on the climate and energy package, Europe’s leaders have a chance to capitalise on the benefits offered by the package and turn necessity into opportunity by setting the foundations for a future green economy.

European governments and the institutions are committed to intensifying negotiations to find solutions for outstanding issues with a view to reaching an agreement on the climate and energy package in December.

This would be an important milestone on the road to our ultimate objective of a new international agreement under the UN Convention on Climate Change in Copenhagen next year. Europe needs this package in December. The economic slowdown is only adding to the urgency.