EUROPE – Ignoring the climate change crisis and continuing business as usual will cost more than speeding up the transition to a low-carbon economy, the EU commissioner for climate action has warned.
Speaking at the IPE Awards Seminar in Copenhagen, Connie Hedegaard said: "If we continue business as usual, it is going to become worse, as, in the end, climate change also serves as a threat multiplier, adding to other kinds of crises, adding to the instability in the world and, by that, also adding to the insecurity [investors] have to deal with."
She referred to the recent reports by the World Bank, the European Environment Agency and the UN Environmental Programme (UNEP) pointing out that climate change is getting worse and that, by not addressing it, the economic burden will worsen too.
Hedegaard also argued that, with resources and commodities on an upward trend, becoming more energy and resource-efficient would make businesses more competitive.
"In 2011," she said, "the EU27 managed to have a combined trade deficit of €150bn, but the bill for our imported oil alone was €350bn, more than double of that. That is why [climate change and energy efficiency] is also related to our macroeconomic situation."
Hedegaard said that while a lot of attention was being paid to the economic and financial crisis, there were in fact two additional crises in Europe, a job and a climate change crisis, which warranted equal attention.
She said finding a way to cope with the climate, energy and resource situation – if it were done in a smart fashion – would benefit the macroeconomics and could be a way out of the financial crisis as well.
"Many of the challenges we have to cope with need long-term solutions, long-term thinking and long-term planning," she said. "But the way our systems often work – both in the business and in the political community – is through short-termism, day-to-day or year-by-year decisions."
At a political level, she said incentives were introduced for a low-carbon economy by putting a price on pollution and resources, such as the European Emissions Trading (ETS) scheme.
However, this is not without difficulties either. The demand for carbon allowances dropped on the back of the economic crisis, meaning the price of carbon plummeted.
To avoid anyone buying carbon credits at crisis prices and banking them, which would hinder investment in energy efficiency and renewables, the European Commission has proposed holding back 900m allowances in the third ETS period, which starts on 1 January, to stop further flooding of the market.
But while politicians do their bit by creating pricing mechanisms and setting political targets, investors should spring into action too, according to Hedegaard.
"Pension funds, which typically have a very long investment horizon, should systematically integrate climate change into their risk management policies and investment decisions," she said.
"Renewable energy is booming, and Europe is leading the world in this sector. This opens new investment opportunities for pension funds.
"Danish and Dutch pension funds have started investing large amounts in wind energy structure and reckon it is a secure investment, which is more profitable than government bonds. But, despite the awareness, despite the good political will and despite the targets, this year we will for the first time in eight years see a drop in global capital investment in wind, solar and biofuels, according to the latest figures of Bloomberg New Energy Finance.
"On the other side, last year we saw an increase of 30% in subsidies for fossil fuels globally to more than $500bn in a year. This is why the phasing-out of fossil fuel subsidies is one of the key priorities for the EU. This will be one of the discussions we hope to have with other ministers at the ministerial roundtable at the international climate negotiations in Doha."
She added: "What we should take care of in Europe is that we do not end up having a budget for the past and not for the future. What we need in the future is to have better infrastructure for transport, for ICT and for energy and to work together on that outside the individual [country] borders."
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