Europe is still well-placed in the race to adopt more environmentally-friendly lifestyles and to switch over to electric cars, despite being disadvantaged by its higher energy costs.
From Adam Smith to the present day, nations' wealth has been built on fossil fuels. Coal, oil and gas have become a vital part of our lifestyles. In 2022, they still account for 83% of the world’s primary mix, that is to say what essentially feeds economic activity.
Meeting the European Union’s climate-related and digital ambitions will require a huge additional annual investment effort. In the near term, against a background of slowing growth and the prospect of a recession in 2023, this represents a potential source of resilience. In the medium term, this demand impulse may underpin or even increase inflation, in addition to other factors that could lead to greenflation. This would influence the level of official interest rates as well as long-term interest rates. The latter could also be under upward pressure due to the huge additional financing needs compared to the normal financing flows. The financing mix -banks versus capital markets- plays a key role in this respect.
2022 is not over, but it is likely to set an absolute record for greenhouse gas (GHG) emissions after the 2019 peak. The resumption of air and road traffic, the intensification of the use of coal as a substitute for Russian gas, or simply the fact that the global economy has continued to expand despite a lagging China and the United States, leave little room for doubt. In its latest Global Energy Review, the International Energy Agency (IEA) notes that 2021 already saw CO2 emissions rise sharply in comparison to 2020 (by 6%) due to the post-Covid recovery. Coal, on the other hand, was one of the main drivers of the upturn
At the closing of the COP26 on 13 November, the participating countries renewed their pledge to limit global warming to 1.5°C from pre-industrial times. In the run-up and during the conference, many countries promised to achieve zero carbon emissions by around 2050, although without proposing concrete measures.The International Energy Agency has estimated that, to achieve this goal, investment in global energy systems has to be expanded from an average of USD 2 trillion over the last five years to almost USD 5 trillion annually by 2030 and to USD 4.5 trillion by 2050
The substantial rise in energy costs being seen in European economies undeniably represents a headwind to the economic recovery, notably through its negative impact on household spending. In 2015 – the most recent year for which Eurostat data are available – at the aggregate euro zone level direct energy spending represented between 9% and 10% of total household spending, making it the third largest cost item after food and housing. The weight in total consumption of spending on “electricity, gas and other fuels”, which is defined by France Strategy as ‘pre-committed spending’[1], is negatively correlated with the income level of households
The world is rapidly warming up. Between 2010 and 2020, the average temperature increased by around 0.3°C, taking the global warming up to 1.2°C since the pre-industrial time. At this pace, global warming will exceed the Paris objective of 1.5°C before the end of this decade. The impact of global warming has already been felt in many parts of the world: devastating fires in California and Australia, inundations of coastal areas, and prolonged droughts in already dry places. An annual average of 21.5 million people have been forcibly displaced by weather-related sudden onset hazards – such as floods, storms, wildfires, extreme temperature – each year since 2008 (Source: UNHCR). This number could reach 150 - 200 million by 2050
Certain gases in the atmosphere, such as carbon dioxide (CO2), are largely opaque to the Earth’s infrared radiation and keep heat at the Earth’s surface trapped, like a lid. This is the greenhouse effect, identified in 1824 by French mathematician Joseph Fourier. Its intensity has always varied, but human activity has caused it to disrupt. Since the pre-industrial era – generally accepted as the period from 1850 to 1900 – human activity has caused 2,000 billion tonnes of CO2 to be released into the atmosphere, increasing the Earth’s temperature by 1°C. That increase is now accelerating. It will reach 3-5°C by 2100 if carbon emissions continue at their current trend. Few species can adapt to that rate of change, which is a hundred times faster than during interglacial periods of warming
The usefulness of carbon pricing lies in the abatement incentives that it creates. An implicit carbon price can be derived by dividing the revenues from carbon pricing systems and excise taxes on fuels by the total greenhouse gas emissions. According to this method, prices range from close to 0 in most developing countries but also the US and Canada, to close to 100 euro for 1 tonne carbon emitted in Sweden and Switzerland. The chart confirms that the countries that have relatively high implicit carbon prices also rank high in terms of carbon productivity defined as the amount of GDP produced per unit of carbon emissions. This suggests that in order to increase carbon productivity, i.e
In the European Union, CO2 emissions from fossil fuel combustion declined 2.5% in 2018 compared to the year before. Considering that GDP grew, this implies a reduction in carbon intensity, thereby continuing a long-term trend. The developments in individual countries vary and quite a number of countries have seen an increase in emissions. Likewise, the differences are considerable concerning the emissions per capita depending on the level of economic development, although this is just one factor amongst many which influence the emission intensity.
The Paris climate deal, concluded at the COP21 in 2015, pleads for keeping global warming below 1.5°C above pre-industrial levels. However, in its latest report, the IPCC (Intergovernmental Panel on Climate Change) warns that current mitigation policies are insufficient to obtain this objective. Investments in renewable energy and electricity infrastructure have to be stepped up. The power sector has to be decarbonised, the use of electricity increased, and energy efficiency improved. Low carbon policies are difficult to implement because of commercial interests and social impact, in particular concerning the increase in carbon prices
The recent “economists’ statement on carbon dividends” offers important policy prescriptions for the US to address global warming. It explicitly refers to the need for a border carbon adjustment system so as to maintain competitiveness versus countries that would not have introduced a carbon tax. The authors recommend that the carbon tax proceeds be equally distributed to US citizens. It could be envisaged to use these proceeds in a way which takes into account the distributional aspects of environmental taxes whilst promoting energy efficiency investments.