Yesterday, I went to a seminar about investment in climate control, at Policy Network. This is a London-based social democratic think tank, which does a lot of work on climate change. It has recently published an article called It’s time for a post-Cancun strategy by Allan Larsson and Anders Wijkman. This argues (correctly) that the Cancun climate summit, which starts on 29 November, will not lead to a global legally-binding agreement to cut emissions and that new approaches are needed:
“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 article goes on to stress the economic advantages of low-carbon growth:
“… 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.
“We argue for… ‘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.”
Larsson spoke at the seminar. He was the Swedish Finance Minister from 1990 to 1991 (when Sweden introduced a carbon tax) and subsequently worked in a senior position at the European Commission, so is well placed to understand both politics and policy. He and MEP Mans Lonnroth MEP have recently published a report for the Swedish think tank Global Challenge called An International Climate Investment Community – breaking the deadlock. This argues that there should be an EU-led focus on investment, to give business greater certainty and confidence and to help Europe win the race for green technologies. At the seminar, Larsson stressed the need to move away from the language of ‘burden-sharing’ to the language of opportunity sharing.
He then said that there are two alternative ways to get low-carbon growth:
- A clear price for carbon.
Given public finances, there won’t be many subsidies and, anyway, he prefers a ‘technology-neutral carbon price’. So there should be a floor price in the EU Emissions Trading Scheme (ETS) – meaning that no permits are sold for less than a pre-announced price. There should also be national carbon taxes (as in Sweden). The ETS floor price should be built ‘bottom up’ by co-operation between member states, not top down (that is, decided by the Commission). He said that getting nine member states to do this, as required by Lisbon Treaty, would be possible.
The next speaker was Anthony Giddens, author of a good book called The politics of climate change. He began by saying that it is easier to identify sensible policies than to get them accepted by politicians (which I agree with). He stressed the difficulty of overcoming the enormous influence of the fossil fuel industry, which spends lots to ‘sponsor’ politicians, lobby and campaign. This leads either to political gridlock, as in the US at present, or incoherence, as in Germany where both coal and renewables receive major subsidies.
Next came Michael Grubb, a leading economist and member of the UK’s Climate Change Committee. He agreed that an ETS floor price was necessary and said that some mechanism to ensure that imports (for example, from China) have to pay to reflect their carbon content. He said that this could be consistent with World Trade Organisation rules if based on clear technical criteria. The money raised could be returned to the country the import came from, to fund low-carbon growth there.
Larsson is an impressive operator and this initiative is excellent. He is currently travelling around European capitals trying to get support from governments.
After the seminar I read a press report that a group of large investors have called on governments to:
“… adopt domestic policies that can help drive investment in low carbon infrastructure, including systems to put a price on greenhouse gas emissions, phase out fossil fuel subsidies, incentivise spending on clean technologies, and encourage corporate disclosure of climate risks.”
This statement was signed by 259 investors, who manage a combined total of assets worth over $15 trillion (£9.44 trillion). Governments must now listen to these people and to the progressive voices in the fossil fuel industry, rather than to the backward-looking parts of that industry.