E3G - Third Generation Environmentalism 1 Managing risk: Why the 30% GHG target is important for GDP, political security and economic growth. Climate Summit,

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Managing risk:

Why the 30% GHG target is important for GDP, political security and economic growth.

Climate Summit, Budapest. 19 January, 2011 Sanjeev Kumar

[email protected]

+32 499 539731

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E3G

• Independent, non-profit European organisation working to

accelerate the transition to sustainable development. Based in

London, Brussels, Berlin, Washington and Beijing.

• Programmes of work on climate diplomacy, climate security and

low carbon economy

• Advises on international climate strategy to major EU governments,

Most Vulnerable Countries, International NGOs and charitable

foundations

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Contents

• What are the risks?

• The case for doing nothing

• Expectations from the Hungarian Presidency

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Risks facing the EU

External

Economic

Competitiveness

Source: Climate Change impacts in Europe. PESETA (2010).

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Large Uncertainty around Climate Sensitivity – mainly on negative side

Source: NOAA, 2009

Source: UK CCC, 2008

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Estimates of likely impacts have been growing over time

Source: Smith et al., 2007 Dangerous Climate Change: An Update of the IPCC Reasons for Concern

2C

Economic: Annual damage to GDP from climate change impacts Source: Climate Change impacts in Europe. PESETA

(2010).

Source: Climate Change impacts in Europe. PESETA (2010).

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Competitiveness: Innovation, markets and wealth

• Producing products and services to satisfy demand. Protectionism and delaying investment reduces gives competitive advantage to the EU’s economic rivals.

• Global market for low carbon goods & services was worth over €3.4 trillion in 2008/2009 (Source: UK Business Dept for Business & Enterprise 2009).

• At €467 billion, climate revenues from the equity market have now outstripped the aerospace and defense sector, and could exceed $2 trillion (€1.76 trillion) by 2020 (Source: HSBC Annual review index 2009).

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Competitiveness: Investment drivers

Stimulus funding

(Source: HSBC)

Smart Grids

(Source: KEMA)

EU €17 billion €1.4 billion

US €84 billion €5.3 billion

China €166 billion €5.6 billion

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Competitiveness: China’s importance

• 14% of EU GDP is dependent on Chinese imports. (Chatham House 2008).

• China is major export market and greater value to EU than US as of 2008.

• China plans to spend $300 billion into dedicated high-speed-rail corridors by 2020. (Business Green)

• 2010 target to create 1 million electric cars by 2020 from 10bn Yuan fund. (China Daily)

• China spending more than any other G20 on low carbon energy (Pew Centre). Most attractive centre for Renewables beating US and Germany.

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External: European security most at risk than other OECD economies

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External: Africa is extremely vulnerable

2000 2050

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End of cheap conventional oil

© OECD/IEA - 2009

Oil productionOil productionin the Reference Scenarioin the Reference Scenario

Sustained investment is needed mainly to combat the decline in output at existing fields, which will drop by almost two-thirds by 2030

NGLs

Unconventional oil

Crude oil – fields yet to be developedor foundCrude oil – currently producing fields

0

20

40

60

80

100

120

2000 2008 2030

mb/

d

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External: Energy geopolitics

• Oil:– EU is major importer of energy. IEA estimates EU energy

imports cost €54bn in 2010. OPEC agreed to produce more to keep prices below $100 barrel (18 January 2011 – FT).

– EU produces 14% of oil that it consumes. 44% imported from Russia (29%) and Norway (15%).

– Since 1998, diesel consumption growing and gasoline consumption falling. Refining capacity has remained split since. So diesel subsidy policy driving closure of gasoline refining capacity increasing oil dependence.

• Gas: – 26% of gas is imported. Main EU producers are UK and

Netherlands. Imports come from Russia (42%), Norway (24%), Algeria (18%) and Nigeria (5%).

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Contents

• What are the risks?

• The case for doing nothing

• Expectations from the Hungarian Presidency

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The case against: It’s too costly

• 40-80% of the additional target can be delivered through no cost measures (CE Delft). Additional 16MtCO2 can come from lucrative and high-value electric car market (Ecofys).

• Energy savings are immense: EU energy import savings of €68bn per year (European Commission). Additional €96bn per can be saved if oil price increases to $148 per barrel (E3G).

• High-value 30% target should generate €45bn. Additional €30.5bn from health-related benefits (HEAL and HWCH Europe).

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The case against: Our companies will leave if no one else does anything….

• EU ETS is largest industrial subsidy in the history of the EU with all sectors making windfall profits.

• Commission estimates 2.4 Gt CO2 of banked allowances and unused international credits in the system by 2020. So ETS not effective until after 2028. (European Commission, May 2010).

• ETS 3rd Phase oversupplied by 99 MtCO2 of allowances. Even if the EU moves to a 30% reduction target and imposes quality restrictions on CDM credits, it would take until 2017 for the market to absorb the excess allowances from 2nd Phase. (Societe General 2010).

• PRIMES model estimates EUA price of €16 by 2020 and €18 by 2020. Today’s is €14. (PRIMES 2010).

• Cement, steel, power generation sectors subject to serious cartel abuse which damages the rest of the EU economy. .

• Other regions are implementing polices: China 5 year plan, Indian energy efficiency scheme, Californian ETS.

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Contents

• What are the risks?

• The case for doing nothing

• Expectations from the Hungarian Presidency

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Expectations from the Hungarian Presidency

Climate

Climate

Finance

Energy

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The priorities for the Hungarian presidency

• Functioning internal market: liberalisation and competition in the cement, steel and power generation sectors. New regulatory system needed to reward energy savings, drive grid investment in electricity markets.

• Financing transformation: Maximising use of EU Budget to deliver transformative change.

• Low carbon industrial policy: Electric car market is vanguard of low carbon world. Large source of green jobs, reduces oil dependence, stimulates new regional infrastructure investments.

• Climate target: Identifying the optimal design of the climate target.

• Securing Head of State Commitment for unilateral move to a domestic 30% GHG target in the March European Council meeting.