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Climate Strategies post-COP21 and Sustainable Economies in Europe

Aspen Energy Forum
Florence, 01/07/2016, International Workshop

The Paris Agreement has received mixed assessments, but it is widely recognized that it is indeed a step in the right direction. The framework allows for improvements and adjustments with respect to the key goal: Paris aims for peaking of global Greenhouse Gas (GHG) emissions as soon as possible and undertaking rapid reductions thereafter.

However, the 2°C target is unlikely to be achieved without the adoption of new policies and technologies.

On the positive side, the cost of electricity generated from renewables is coming down. Simultaneously, “climate financing” is growing significantly, although more resources for development and deployment will be necessary as we go forward, especially in developing countries. Many different approaches to combatting climate change are currently under debate in the field, such as phasing out coal, eliminating subsidies to fossil fuels, improving energy efficiency, increasing R&D expenditure and stimulating innovation. All of these suggestions have their own pros and cons, in terms of political feasibility, efficiency, effectiveness and required timescales. In any case, infrastructural projects and adaptation efforts will require massive amounts of financial resources, which in turn is dependent on adequate regulatory frameworks and predictability.

Major economies of the world, both from the developed and developing world are increasing their focus in this area. The strengthened cooperation and the agreement between China and the US prior to the negotiations have been clearly essential to progress in Paris, despite challenges with the implementation of the Chinese government's policies to fight climate change.

The transition to a low carbon economy needs to happen much faster than any other energy system transition we have experienced in the past. In the short time frame we have ahead of us, attitudes towards low carbon alternatives will have to change significantly. We are running a race against time, as further accumulation of GHG emissions in the atmosphere accelerates climate change and amplifies its potential impacts. The longer we wait to act, the more difficult and costlier it becomes to keep the global average temperature increase to within 2°C.

A major transition will need to be politically sustainable despite competing issues, new priorities, or changing political leadership. For instance, in the context of the UN 2015 Sustainable Development Goals, 2 out of 17 general goals are directly related to climate or energy. In reality, the best approach may be to view environmentally sustainable measures as the foundation of all the other goals, in order to make the entire package of policy measures sustainable. The public debate could be framed by looking at sustainable economic measures that are positive for the environment and climate, rather than focusing on climate in isolation. The costs of transformation are significant, but it is important to also present to the wider public the likely costs of climate change – and the better known costs of pollution – in various areas. We are facing a threat to the global quality of life, as well as geopolitical risks of great proportions. Climate change is a global problem that requires the use of both market mechanisms and government interventions to create efficient markets, at different levels of governance ranging from local and national to international.

Two factors were discussed in more depth, and these stand out as essential to the European efforts on climate strategies and on building a more sustainable economy: technological innovation and financing.

It was strongly argued that experimentation is indispensable, as history shows, because we never know in advance with certainty that a given technology will produce the better results or that one specific technology will prove decisive per se. We thus need an ecosystem that favors multiple creative solutions to various challenges, sometimes on a local or regional level. In this spirit, when deploying technologies the whole portfolio of available tools should be considered – i.e. not just new instruments but also mature technologies that sometimes can be deployed or adjusted more quickly. Process efficiencies and business models can be very effective in reaching the main goal, which is really carbon reduction. At the European level, in particular, building a smart infrastructural grid is just as important as investing in new technologies: this will in fact become the main pillar of the Energy Union.

So far, investments in Europe have been hampered by the lack of a true single energy market – especially in light of the fact that energy is a very capital-intensive sector. Despite many uncertainties, global trends over the next decades are clear enough in one respect: all projections agree that growth in consumption will be very rapid, so this is the backdrop against which companies and governments can plan the best energy mix.

Public grants are certainly not going to be sufficient to generate the amount of financing for clean energy over the next decades, and there is currently a large gap in the investments being made. The financial transition currently underway needs to be scaled up, including through divestment from fossil fuels and their infrastructures.

Some needs were identified in this regard such as the establishment of a clear and reliable system of reporting that can support the development of green finance.

Public money can still be very useful in specific ways, such as aggregating projects and more generally helping mobilize private funds: public-private partnerships are thus crucial to encourage private investors and to send the correct market signals.

According to some participants, carbon pricing or a carbon tax could be a key factor in encouraging investments in renewables, despite the great difficulties encountered so far in this area. Others noted that carbon pricing – especially a single price on the global level – is extremely problematic from a technical standpoint and may not ultimately help reach the goal.

There is wide consensus, more generally, that companies need a predictable policy framework in order for investments and planning to shift in new directions.