Why the EU should be cutting its greenhouse gas emissions by 30% by 2020

On 5 July 2011, the European Parliament will be asked to endorse an increase in the European Union’s target for greenhouse gas reductions, from 20 to 30 per cent by 2020 compared with the base year of 1990. This would make good economic sense for Europe and for the world, and would be a major step forward in the battle against climate change.

It would put Europe in the vanguard of the technological transformation that will drive economic growth over the next few decades – the new low-carbon industrial revolution – and add great momentum for change in other countries, thus creating still greater opportunities for those that embrace the new technologies.

The existing 20 per cent goal makes it difficult to reach the EU’s ultimate target of reducing emissions by 80 to 95 per cent by 2050; but the economic downturn has created an opportunity for the EU to make greater progress over the next decade. Annual emissions by the 27 Member States in 2009 were 7.1 per cent lower than the year before, and although provisional figures suggest they increased again by 3 per cent last year, the EU is on a significantly lower path than before the downturn.

So a goal of cutting emissions by 30 per cent by 2020 is now easier to reach and its adoption would send a strong policy signal to the private sector, strengthening confidence in the returns from investing in the development of low-carbon technologies and infrastructure. Europe badly needs a growth strategy: now is the time to lay the foundations of the growth story of the future.

The European Commission estimates that a cut of 30 per cent would “cost” €81 billion, or 0.54% of EU GDP, compared with the original estimate of €70 billion for the 20 per cent target. Some have argued that the European Union cannot afford a more ambitious target for emissions reductions by 2020. But this should be understood as a wise investment. The EU needs to replace and upgrade its power infrastructure, and it has a choice between continuing its reliance on fossil fuels or instead developing energy sources that could also offer greater security of supply, as well as a cleaner, quieter and more biologically diverse environment.

The history of technological change shows that industrial revolutions are periods of great creativity, learning, innovation, investment and growth, as research by Chris Freeman and Carlota Perez, amongst others, has shown. Competitive advantage goes to the pioneers and it is this prospect that is driving countries like China and South Korea, for instance, to invest heavily in low-carbon technologies, such as solar and other renewables. It is this understanding of the opportunities in this transformation that underpins the important agreements on green technologies established by German Chancellor Angela Merkel and Chinese Premier Wen Jiabao, earlier this week.

Opponents of increasing the EU’s 2020 emissions reduction target claim that the bloc’s companies will be unable to bear the additional costs, and will re-locate. But careful analyses of the evidence have shown that the costs of complying with environmental regulations over the past few decades have been far outweighed by other factors that affect the bottom line of businesses, such as the investment climate and the availability of skilled labour. The scale of possible re-location to pollution havens is very much less than presented by those who are pleading their own particular short-run self-interests. Driving forward a new industrial revolution will require well-designed and credible public policy. One important aspect of such policy is resistance to rent-seeking special interests.

The relatively small number of companies that are badly affected can and should be helped to adjust through targeted measures. But if they do not change, they risk missing out on major technological advances and could eventually be shut out of ‘cleaner’ markets.

Let us be clear why it is so important that the EU and other countries make more ambitious cuts in their emissions. While all of the major emitters, including the two largest, the United States and China, have made pledges for 2020, the action currently planned will not be sufficient to put global emissions on a path consistent with a 50-50 chance of avoiding global warming of more than 2°C compared with the average temperature in the mid-19th century. Annual global emissions must peak within the next decade, and more than halve by 2050, if the 2°C goal, agreed at the last United Nations climate change meeting in Cancún last December, is to be achieved.

Annual emissions in 2010 match a path that, if sustained for rest of the century, would bring a 50-50 chance of a warming of more than 4°C, to a temperature not seen on Earth for more than 30 million years. Such a change in climate could so disrupt the lives and livelihoods of hundreds of millions, if not billions, of people across the world, that they would have to move, with the risk of severe and extended conflict. This means an attempt at high-carbon growth is likely ultimately to destroy itself.

The decision that the European Parliament and other policy-makers now face is whether the EU should join the front-runners in the low-carbon race, or instead lag behind with those other countries that have yet to recognise that the green growth story offers economic recovery and much better prospects for prosperity. Let that decision be based on an understanding of the new opportunities of the low-carbon industrial revolution, on a proper evaluation of the evidence about why companies re-locate, and on an appreciation of our responsibilities to future generations.