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Home Opinion The global financial crisis and the prospects for ‘Green Growth’
Financial Crisis • Green Growth • Climate

The global financial crisis and the prospects for ‘Green Growth’

Dieter Helm - 05 October 2012

The global financial crisis offers a big opportunity for progressive politicians to reenergise the green agenda. Dieter Helm assesses why we have failed to tackle the issue of global warming in the past and considers whether ‘Green Growth’ is likely to be a part of global economic recovery

No significant progress has been made in tackling climate change in the last two decades. Since 1990 carbon emissions have kept going up. They were rising at about 2 parts-per-million (ppm) back then. Now they are rising at 3 ppm. The critical threshold of 400 ppm will soon be crossed, which scientists tell us may lead to at least 2 degrees of warming. Worse is to come: at the recent Durban climate conference all that could be agreed was that the leading countries would try to agree by 2015 what might happen after 2020. By that time, on current growth rates, the Chinese and Indian economies will be twice their current size and more than 400 GW of new coal power stations will have been added. We are on a path to 500ppm and beyond.

The failure of Kyoto

All this has been going on in spite of the Kyoto Protocol, in spite of lots of political capital being devoted to climate change and despite a great deal of spending. How could so little be achieved at such cost? That is the question I address in my new book The Carbon Crunch.

At the heart of these efforts has been Europe and European politics. The Commission strongly backed Kyoto and has aspired to global leadership. This provided a political opportunity after the traumas of Lisbon. Europe’s politicians could be globally progressive, and meet the environmental concerns reflected by the emerging Green Parties across member states. The idea was that Europe would demonstrate to the world that it could decarbonise at low cost and others would follow its lead. It’s Emissions Trading Scheme (EUETS) would provide the basis for a world carbon trading scheme. The Renewables Directive, with its emphasis on wind power and rooftop solar, would reengineer the electricity systems and biofuels would start to address transport emissions.

Inconvenient truth

From the outset Kyoto made Europe look good¬—and hence could be presented as a political “success”.  But much was “smoke and mirrors”. Europe has been exiting energy intensive industries, and these have moved to developing countries like China. The collapse of the former Soviet economies accelerated this process. But sadly reducing carbon production in Europe does not — and has not — made much difference to global emissions. Europe just imports the carbon instead – so carbon consumption replaced carbon production. In the UK’s case, between 1990 and 2005, carbon production fell an impressive 15%, but its carbon consumption—its real carbon footprint — went up 19%. No political leader was however prepared to even recognise this “inconvenient truth”.

Kyoto just encouraged the shifting of production to coal-intensive economies like China. The EUETS has not fared much better. Its short term price has proved low and volatile, in a context where what is needed is a long term stable and rising price. The Renewables Directive is short term too, and it has led to a dash for some of the most expensive ways of making marginal emissions reductions. But both created and sustained new political lobbies.

Strip back the political rhetoric and what emerges is that the leading “green” country—Germany—is now switching from nuclear to coal, and building new coal fired power stations. Its emissions are going up. Compared with the US, demonized by many environmentalists, Germany’s performance is now poor. The US has the fastest falling emissions amongst developed countries, despite being outside Kyoto and outside the EUETS. It is switching from coal to gas (which has half the emissions of coal), whilst Germany is currently switching from gas and nuclear to coal.

The climate change problem gets worse whilst the science hardens up

As time passes the climate change problem gets worse, whilst the science hardens up. At the global level – and climate change is a global problem – what matters is getting out of coal as quickly as possible. Allowing for more coal up to 2020 is pretty fatal. By then we will be committed to a lot of climate change. As a transitional fuel, gas provides a relatively cheap way of buying time and heading off disaster. The US is embracing gas, whilst in the face of a concocted political campaign by green lobby groups, Europe is trying to ban shale gas—promoting coal instead! The US is also witnessing a massive gain in competitiveness compared to Europe, and its new unconventional fossil fuels are contributing significantly to employment and economic growth. Gas is five times more expensive in Europe than in the US, and the US is gradually reindustrializing in its energy competitiveness against even China’s cheaper labour costs. Faced already with the sovereign debt crisis of the Eurozone, and low growth, Europe risks losing more of its industrial base.

Europe is heading in the wrong direction — and fast

Europe is heading in the wrong direction — and fast. The idea that a European economy built on wind farms and solar panels can be either environmentally or economically sustainable is implausible. Voters will gradually wake up to the costs—and their bills. Yet it does not have to be like this. There are better and cheaper ways of addressing climate change, and ones which may enhance rather than undermine economic growth.

Gas offers a transitional way of getting emissions down, and Europe can get out of coal and into gas at limited cost. Gas is however only a transitional option unless Carbon Capture and Storage (CCS) works. The way to signal the long term decarbonisation is to have a long term, stable and rising carbon price which addresses not just carbon production, but also carbon consumption. That means that carbon imports should be treated on the same basis as domestic production. Not to tax carbon is a trade subsidy, and a distortion that undermines the European economy. A rising carbon price will in due course ration gas off the energy systems unless CCS works. But confronting voters with the true costs of their carbon consumption is a massive political challenge.

Policies for 'Green' Economic Growth

Gas as a transition, and a rising carbon price, provide the framework within which the serious business of limiting carbon emissions can be addressed. Here another key component comes in. None of the existing technologies are likely to meet the decarbonisation challenge. There simply is not enough land and shallow water for wind or biofuels to make a difference. Current renewables just can’t do it. So we need future renewables, and the good news is that on the technology front there are lots and lots of opportunities. What Europe should do is take some of the hundreds of billions being spent on current expensive renewables and spend it on the future renewables and technologies — on things like the next generation of solar, on batteries, on smart information systems, electric cars and on a host of new concepts. That would make a much bigger contribution to economic growth and to addressing climate change — and without pricing Europe’s industries out of world markets, and driving Europe citizens into ever more fuel poverty.

Dieter Helm is professor of energy policy at the University of Oxford.

The Carbon Crunch is published by Yale University Press


This is a contribution to Policy Network's work on Social Policy and Changing Welfare States.

Tags: Dieter Helm , Opinion , Kyoto , Kyoto Protocol , United Nations Framework Convention on Climate Change , UNFCCC , FCCC , Durban Climate Conference , 2011 United Nations Climate Change Conference , Lisbon Strategy , Lisbon Agenda , Lisbon Process , Green Parties , Emissions Trading Scheme , EUETS , Renewables Directive , 2009/28/EC , Carbon Capture and Storage , CCS , EU , European Union , European Commission , EC , UK , Britain , China , Germany , United States , U.S. , Europe , Eurozone , Global Warming , Climate Change , Carbon Emissions , Renewable Energy , Renewables , Financial Crisis , Global Warming , Green Growth

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The Policy Network Observatory promotes critical debate and reflection on progressive politics. It is centre-left orientated but determinedly challenges social democracy. It is pro-European but restlessly questions EU institutions and practices.

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