Economics, society and the challenge of climate change
Ladies and gentlemen
I’ll start with a quote from Nicholas Stern’s report The Economics of Climate Change which was issued last year: “Climate change represents a unique challenge for economics: it is the greatest and widest-ranging market failure ever seen”.
He could have added: “a unique challenge for society” as well, to underline that it’s a very real challenge to the societies we all live in, not just to their economies.
Stern estimates that the danger of unabated climate change would be equivalent to at least 5 % of global GDP each year – and could be as high as 20 % or more. When we start combating climate change by reducing greenhouse gas emissions, these impacts costs will fall at the same time as we reap the global benefits of avoided impacts.
But even with an ambitious mitigation programme at global level – and we will have to see what the UNFCCC can agree on in Copenhagen in two year’s time – there will still be substantial climate change impacts that we will have to adapt to.
So there will be adaptation costs - building flood defences, improving sewerage systems, finding alternative water supplies for example. There are also effective measures that do not cost much, like heat wave alert systems.
However, even if we can limit the global temperature increase to a maximum of 2 °C (as the EU has determined to do). there will always be residual impacts. We won’t be able to completely avoid any impacts of climate change. Some impacts on biodiversity for example will be unavoidable.
Then there are the mitigation costs – the costs of reducing greenhouse gas emissions. Stern and the IPCC tell us that mitigation costs can be limited to about 1 % to a maximum of 3% of global GDP per year if we take strong, early action. It is important to recognise that the total costs of mitigation and adaptation are lower than costs of impacts without any climate policy action.
Stern’s point is that if markets were functioning perfectly, we wouldn’t have to worry about how to get to such a situation with the lowest global costs.
But markets - like life – are not that simple! So what are the challenges politicians (and the global society as a whole) are facing?
One fundamental problem is that,while at the global level such a cost benefit approach is sensible, it will produce different results at the country level. Stern points out that the poorest countries will suffer earliest and most. The costs of adaptation, for example due to increased flooding in a country like Bangladesh, are expected to be much higher than in European countries. There is emerging political consensus that developed countries would need to pay at least part of such costs. European countries will have higher costs for mitigation measures and in most cases less costs for adaptation, although there are also countries and regions within Europe that are highly vulnerable.
So the picture will be different from region to region in the world, from country to country within the regions, and even from area to area and from individual to individual in the countries.
There is also the time dimension. Some impacts will come earlier than others and impact differently on different regions and countries. Because of the complexity of the climate system and the long lead times, we need to invest now to reduce impacts decades or centuries into the future.
Finally, there are the uncertainties. While our knowledge and understanding of the climate system is growing constantly and we can downscale at a very detailed level (as shown for example in assessments in Sweden and UK), we still cannot predict the consequences of climate change under different emissions scenarios with complete certainty.
Further downscaling may not help much. In order to better design adaptation strategies and measures it seems more important to extend regional climate modelling across Europe. Another challenge is to increase the knowledge and experience on adaptation actions and their costs at the local scale, where most actions will take place.
So the challenge is global, inter-generational solidarity in a situation with uncertainty - but with enough knowledge to understand the risks. It is possible to combat climate change and increase global wealth at the same time - as measured by GDP, but I will come back to that. The challenge is how to get on a pathway to a global post-carbon society.
So what does this mean for us?
While the message from the Stern report is basically optimistic, it would be wrong to think that combatting climate change – and also dealing with the many other environmental problems we are facing – doesn’t require a fundamental rethink about the way our society functions.
Our consumption and production puts high pressures on the environment in Europe and the rest of the world. Let me highlight a few examples:
- In EU-25 as much as 7 billion tonnes of materials - fossil fuels, minerals and biomass – extracted within Europe and outside Europe – are used each year. This amount is expected to grow by around one quarter by the year 2020.
- From 2005 to 2020, the amount of municipal waste in the EU is also expected to grow by a quarter.
- Coming back to climate change - greenhouse gas emissions in Europe fell by about 8 % between 1990 and 2005, but reductions of about 50 % are needed by the middle of the century in order to limit the global temperature increase to a maximum of 2 °C (the EU target).
- And a final example. Use of chemicals in production processes in for example China cause severe health problems for the workers and can also have negative health effects for the users of the products in Europe. Many of those users are our children.
Europe relies not only on its own resources, but to a large extent on the resources from other parts of the world. And our emissions – for example of greenhouse gases and persistent chemicals – affect not only Europe’s environment but the global environment. The widely cited indicator of the ecological footprint shows in an easily understandable way that the footprint of the EU is larger than our bio-capacity.
So it is time for change. Time to redesign the way we live, consume and produce in Europe. In particular we need action to address the three consumption areas that have been identified as having the highest environmental impacts over their lifecycle: housing, food and drink, and mobility.
Europe can use the concepts of sustainable consumption and production and a post-carbon economy as pathways to help meet the needs of Europe’s citizens without destroying the environment or running into dead-ends.
If we look for example 25 to 30 years ahead. What kind of society would we like to see?
We would like to continue to have a good quality of life in the 2030s – a human well-being based on secure access to clean water and air, healthy food and without dangerous climate change, to mobility and decent housing, with equity in access to education and social security. But without exporting our problems to the detriment of the quality of other regions of the world, or causing irreversible changes or loss of the provisioning, regulating, supporting and cultural services from ecosystems.
To be on the pathway to this vision, we will have to improve substantially the efficiency of our energy, material and land use and to reduce emissions of both greenhouse gases and pollutants.
We will also need a fundamental change in the way we produce electricity and heat, by massively increasing the share of renewable energy.
We should be looking more carefully at the delivery of products and services from cradle to cradle rather than from cradle to grave, at entire supply chains and at eco-design and enhanced environmental performance using such ideas as zero emissions and low carbon projected by leading businesses in a number of major industries.
A shift in employment towards environmental technology industries (e.g. renewable energy) is already happening and can be enhanced.
However more and better research is required to underpin these shifts.
Changes in production have to be accompanied by a shift in our consumer model. One proposal is to gradually move from a society of assets and ownership of goods to one where access to services is the driver. Long-life products and urban settings where most trips can be made by bike, foot or public transport could help deliver this part of the vision. Thus there is a need for more research on societal drivers of change.
The European Commission’s initiative to combine the consultation on the action plan on sustainable consumption and production with that on sustainable industrial policy is a key step forward. The recent EU climate change and energy package is also crucial in moving towards a low-carbon economy.
What is now needed is to establish the pathways to meet the vision. These pathways will include the use of both legal instruments and information. But we also have to give the right price signals to producers and consumers. This is why a green tax reform is necessary, one that gradually shifts away taxes from labour and investments towards taxes on pollution and the inefficient use of materials and energy.
What is also needed is a smarter GDP - going beyond today’s measure to one in which the good things count positively and the bad things count negatively. Hopefully the upcoming conference on ‘Beyond GDP’ can show us a way forward.
However, it’s important to keep sight of the fact that redesigning consumption and production is a challenge that requires all actors to take responsibility and make it happen.
Many large companies have realised that sustainable and low carbon production often is even a win-win-win situation. It generates more profit, helps resource security and is better for the environment.
Consumers across Europe are also increasingly showing their willingness to move towards more sustainable and low carbon consumption, but they need the right information and the right price signals.
One example of how to look at this is the Intervention Diamond, developed by the Department of Environment, Food and Rural Affairs in the UK. Made up of four action areas - the four E’s - enable, engage, exemplify, and encourage, it can be used to catalyse an integrated approach which can evolve as attitudes and behaviours change over time.
Ideas like these, and conferences like this, are what is needed to ensure the necessary research and social acceptance and adoption of the goal of and pathways to sustainable consumption and production and a post-carbon society.
To summarise let me conclude with five of the main research challenges:
- Regional climate downscaling and impact assessments across Europe
- Adaptation options and their costs
- Societal drivers of change
- Increasing efficiency of energy and land use and enhancing renewable energy
- Sustainable supply chains and production from cradle to cradle
I therefore warmly congratulate DG Research on taking this initiative.
Thank you for your attention.
For references, please go to http://www.eea.europa.eu/media/speeches/economics-society-and-the-challenge-of-climate-change or scan the QR code.
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