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Jess McCabe

Jess McCabe

Jess is a writer for Environmental Finance.Environmental Finance is the leading global publication covering the ever-increasing impact of environmental issues on the lending, insurance, investment…

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Tougher EU Climate Target Would Boost EU’s GDP by $842bn

An increase in the EU's target to cut greenhouse gas (GHG) emissions to 30% by 2020 would boost its economy and cut unemployment, according to a report commissioned by the German government

Analysis of the economic impact of climate change policies usually focuses on how much they will slow growth in GDP, from the 2006 Stern review onwards. But the report, carried out by the Potsdam Institute, found that a more ambitious target could boost GDP by 6% to $15.4 trillion across the EU’s 27 member states, or an increase of about $842 billion (in 2004 terms).

“In traditional economic models, reducing greenhouse gas emissions incurs an extra cost in the short term which is justified by avoiding long-term damages,” said Carlo Jaeger, lead author of the report. “However, what we are showing here is that by credibly engaging on the transition to a low-carbon economy through the adoption of an ambitious target and adequate policies, Europe will find itself in a win-win situation of increasing economic growth while reducing greenhouse gases.”

A unilateral move to a 30% cut in GHGs from 1990 levels, up from the current 20% target, would help stimulate  a rush of investment, the Potsdam Institute argues. The move could create a “virtuous circle of additional investment, learning-by-doing and expectation formation”, the report says, if the EU can “stabilise” investor expectations of the long-term trajectory towards sustainability.

Make green jobs, not war

“After the global crisis of 1929, such a surge of investment in Europe as elsewhere was initiated by the perspective of military armament. Nowadays, this is obviously not an option. However, after the ?nancial crisis of 2007–08, the perspective of sustainable development can mobilise investment in a similar way for a worthier purpose,” the report says.

Around 6 million jobs could be created and the rate of investment in Europe as a percentage of GDP could rise from 18% to 22%, the report predicts.

The EU has promised in international climate negotiations to rise to a 30% target if other states take on comparable cuts, but such a move faces internal political opposition in the EU.

But the Potsdam report claims that the EU would reap the benefits of a 30% target, even if other countries do not go beyond the “modest” pledges made in the Copenhagen Accord in 2009.

“Sticking to the 20% target in a situation where this target has become too weak to mobilise innovations and to stabilise political will is the equivalent of digging deeper while being stuck in a hole,” the report says.

Specific measures recommended in the report include: using revenue from the sale of EU allowances in the bloc’s emissions trading scheme, along with EU structural funds, to help finance reductions in eastern European countries; provide tax relief for low-carbon investments, balanced by increases in other areas; and ensuring public procurement takes low-carbon growth expectations into account. 

By. Jess McCabe

Source: Environmental-Finance




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