Potential in the Moment

The European Climate Law

As we shifted our focus to Europe, we spent a lot of time researching to compare how the US and Europe have approached climate change, and their approaches couldn’t be more different. The European Union has approached the climate change problem by setting binding targets with its Member States that are implemented through a common legislative framework. Specifically, they’ve adopted the European Climate Law, which commits the EU to achieve climate neutrality by 2050 and establishes intermediate targets. The US on the other hand has not passed major climate change legislation, relies on executive actions and state-level initiatives, and while its pledge to reduce emissions by 50% by 2040, it lacks a national strategy mandated by the US Congress. Overall, the EU has a more ambitious and comprehensive climate change framework than the US, but that doesn’t mean it’s without problems.

In Tuesday’s piece we looked at how the political system in Germany has enabled small, single-issue parties to codify their philosophy into policy, which resulted in Germany, a technologically-advanced first-world country, to phase out their nuclear power generation. Unfortunately, this problem isn’t unique to Germany. Climate sensitivity is becoming a more significant part of the public and political narratives. In Sweden, a center right coalition that is dependent on the hard-right has cut the climate budget. In Italy, Prime Minister Giorgia Meloni has called the Green Deal “climate fundamentalism”. France is facing pressure to weaken its climate commitments as they’ve struggled to cut emissions from transportation and agriculture sectors as well as the social unrest in 2018 over the proposed fuel tax increase. And the UK has postponed the phase out of combustion cars and gas boilers while licensing new oil and gas developments. That all paints a slightly different picture, but we get it. 

Transitioning to a low carbon economy is hard.

At its inception, the potential impact of the European Climate Law was expected to be positive in the long run; it fosters job creation, innovation, and competitiveness. According to the European Commission, their expectations were that achieving the 55% emissions reduction targets by 2030 could increase the EU’s GDP by 0.5% and create 1.2 million new jobs in sectors like renewable energy, sustainable transport, and green infrastructure. The Climate law also incentivizes research and innovation in clean technologies, resulting in advancements in energy storage, renewable energy, carbon capture & storage, and more. These innovations in turn create economic growth and enhance the EU’s competitiveness in the global market. 

We agree that all sound great, the issue isn’t with the vision. It is about the path to get there. And we’ve all experienced this; something may sound great on paper or in a presentation, but when it comes time to execute…  

The Climate law poses some significant short-term challenges and costs. As we saw in Germany with their phaseout plan for nuclear power, German citizens pay 3-4x for electricity compared to France, in part driven by the massive government subsidies required to stand up their renewable fuel infrastructure. Transitioning to a low carbon economy requires sizable upfront costs for industries and businesses to adapt to new regulations, standards, and technologies. That hits the energy intensive sectors, like chemicals, cement, and steel manufacturing, harder as they will face greater challenges due to higher costs from rising energy costs, carbon pricing, and emissions reduction measures. And remember, 19 of the 20 largest companies in the EU produce physical goods as their primary revenue stream. That is going to affect a lot.

The Carbon Capture & Storage Silver Bullet    

Phasing out coal, converting fossil fuel power to renewable sources, and electrifying industry and transportation will take time, innovation, and resourcing. To support the decarbonization of industry, the European Commission has also proposed measures to promote carbon capture and storage research and technologies; these are carbon removal projects such as afforestation, reforestation, and direct air capture. 

Currently there are 10 CCS projects planned in the EU, but so far there is not a fully operational CCS plant in Europe. While these projects are important to test the feasibility and scalability of different CCS technologies, they are not a solution we have today. And even if all 10 projects work, their expected combined carbon capture capacity is still less than what is necessary for the EU to meet its targets.

But putting that aside, let’s assume their projects work on time and better than expected. There would still be two key pieces policymakers need to resolve; (1) developing sustainable financing mechanisms to incentivize carbon removal technology scale up and development and (2) avoid disincentivizing greenhouse gas emission reductions in industries where it is feasible in the near future.  

Citizens have legitimate concerns and fears over loss of jobs in carbon heavy industries and rising prices to meet emission standards. Not to belabor the example, but Germany’s experience with the nuclear phaseout is a good example. To create, scale, and develop the infrastructure to support their citizens and economy, progress was heavily subsidized resulting in higher future prices while the technology pays back its upfront investment. Setting up the right public-private partnerships and architecting the GTM plan for these new technologies is critical.    

You can only borrow so much from tomorrow.   

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