A new EU-led initiative to establish a Climate Investment Community can complement UN negotiations and break the climate deadlock
The present deadlock over a global, legally binding treaty on climate change has caused uncertainty among investors on the future climate regime and on energy investments. The expectations for COP 16 in Cancun are low and the same holds for COP 17 in South Africa in 2011. The G20 meeting in Seoul did not change the uncertainty. It will take years before the main actors are prepared to sign a global, legally binding agreement.
Global warming, however, will not wait for all 192 UN member governments to agree. Therefore, the energy investment deadlock needs to be broken. On the 17th of November we will introduce the report “An International Climate Investment Community – breaking the deadlock” at a seminar held by Policy Network in London. This report launches the idea of a complementary approach to the stalled UN negotiations. The aim is to build momentum for a fundamental transformation of our energy systems.
This is a huge challenge that has been subject to deep analysis by all the main leading global institutions in the field of economy, technology, energy and climate. Taken together, all these reports bring two powerful messages: an energy revolution, based on widespread deployment of low-carbon technologies, is needed to tackle the climate change challenge; and a low-carbon future is also a powerful tool for promoting economic development and enhancing energy security – it is within reach and will help modernise our economies
Studies show that massive investment will be needed to meet the world´s growing energy needs. It will be considerably higher in the low-carbon scenario than in business-as-usual. At the same time the energy technology revolution holds significant potential for very positive returns on investment and lower energy costs compared with business-as-usual.
A technology neutral CO2 price
When designing new policies aimed at transforming the energy system into long term sustainability, all governments face the same dilemma. Theoretically, the choice is between two different options:
- either subsidising low-carbon technologies until they are economically viable in competition with the present dominating fossil technologies, which do not pay the cost for CO2-emissions,
- or putting a price on CO2 – through taxation and auctioning of emission permits – creating a level playing field where all necessary low-carbon technologies can compete with fossil technologies.
We argue for the second option, and what we call “a technology neutral CO2-price”. One advantage is that consumers and businesses, not governments, will choose the technologies. Another is that it will reduce the present too low price expectations on fossil fuel. A third is that it will not only reduce the burden on public finances, but also bring revenues to the national governments.
Our basic idea of a technology neutral CO2 price is based on the insight that the present CO2 price level, around €15 per ton, is too low to make the dominating fossil technologies pay the real costs. In fact, there is a “subsidy” of at least €25 per ton emission of the old fossil technologies. This perverse situation has to be reversed.
To make low-carbon technologies profitable, a CO2-price of at least €40/ton CO2-emisson will be needed no later than 2020. It should level the playing field between fossil technologies and low-carbon technologies.
We suggest a price trajectory that gives business guidance and predictability for long term investment. The price should be established and maintained through cap-and trade, i.e. the European Emission Trading System, ETS, and with complementary national CO2 taxes and other measures.
An International Climate Investment Community
Our suggestion is that the EU takes the initiative to build an International Climate Investment Community together with partners around the world that share the same concern for climate change. Such a Community should have the double aim of tackling the political deadlock and giving new momentum to climate mitigation investment. It should include four basic elements:
- focus on investment and business opportunities, rather than regulations of emissions to let member states benefit from being forerunners
- a technology neutral CO2-price as a driver of new technology and investments, rather than subsidies,
- a gradual and step-by step approach of building a Community of member states, rather than a global deal signed by every government and ratified by all parliaments,
- governance based on the open method of coordination, rather than a comprehensive global legal system.
We think that such a Community must grow step-by-step – much like the European Community. A gradual, step-by-step approach based on established rules and an agreed organisation could over the years grow into something that resembles a global framework with considerable impact on investments and the development and diffusion of new, carbon-efficient technology.
For the Stockholm based thinktank Global Challenge,
Allan Larsson is chairman of the University of Lund and former Swedish minister of finance. Anders Wijkman is a former MEP and a senior advisor to the Stockholm Environment Institute, and vice chairman of the Tällberg Foundation
The authors will present the report at a Policy Network seminar in Westminster on 17th November. Anthony Giddens and Michael Grubb will respond