European Union financial institutions and the International Energy Agency (IEA) have called on Europe “to deliver a clean energy transition which is just, swift and maintains competitiveness”.
An accelerated and competitive energy transition boosts the continent’s industrial potential and reduces costs for consumers, the IEA, the European Central Bank (ECB) and the European Investment Bank (EIB) said in their calls for a more aggressive energy transition in Europe.
The heads of the agencies relayed the shared consensus in opening remarks for a climate conference at the IEA headquarters in Paris, according to an IEA press release Friday.
“In the face of severe disruption in global energy markets, Europe must scale up funding to support an orderly transition and position itself among other industrial heavyweights in the new energy economy”, the news release said.
“The ECB’s second economy wide climate stress test finds that frontloading clean energy investment significantly reduces medium-term costs and risks for firms and households”, it added. The September 2021 ECB report said that while Europe’s economy would grow under any of the clean energy transition scenarios from the worst-case to the best-case scenarios, “[t]ransition costs incurred would already affect the macro economy in the very short term, whereas damage from natural catastrophes would be expected to have a significant impact on real GDP [gross domestic product] at a longer horizon”.
“For this reason, in the very short term real GDP would increase more in the hot house world scenario as compared with the baseline scenario”, the ECB report stated, referring to the scenario in which no policies exist to rein in climate change. “However, in the medium to long term the macroeconomic costs associated with physical risk would become more significant than those related to transition risk”.
“Finally, the higher transition costs associated with a disorderly transition would imply a larger negative impact on GDP, even when compared to the hot house world scenario: this situation however reverses after 2045, when the increased frequency and severity of natural catastrophes starts to prevail, with increasingly negative effects on GDP until the end of the century”, the ECB report added, referring to the scenario in which needed policies exist and are implemented in a timely and effective manner.
The report said it had based its analysis on “financial and climate information for millions of corporates worldwide”.
In Friday’s press statement, the IEA warned, “But besides geopolitical tension and high inflation, private sector investment faces a number of market barriers including policy uncertainty and lengthy permitting procedures that delay projects, deter investors and lead to cost overruns for developers”.
“European industry also finds itself at a competitive disadvantage regarding the price of energy”, the IEA added. “Compared with other regions, these prices are relatively high, and ambitious industrial programs are being introduced in countries such as the United States, China, India, Japan and Korea to build up domestic supply chains, resource security and manufacturing capacity.
“Accelerating energy transition investment will help Europe limit dependence on major fossil-fuel producers and often volatile fuel markets”.
IEA Executive Director Fatih Birol said in opening remarks for the conference, “Europe’s quick response to the global energy crisis meant that it managed to pivot away from its main energy supplier, Russia, more smoothly than many could have imagined”.
“But now the region must learn to grow and thrive in this new reality. Last winter, I stressed that Europe needed a new industrial masterplan to keep pace with other advanced economies”, Birol added. “Despite its large internal market, skilled workforce and world-beating research and development, we’re yet to see how Europe will put its ambitions into practice”.
ECB President Christine Lagarde said in her own remarks, “The green transition is a uniquely difficult policy challenge, because the stakes of failure are so high and yet the path to success is so complex”.
“But the answer is to follow through with the transition, which means understanding the challenges it entails and ensuring the costs are shared fairly”, Lagarde said. “More needs to be done to foster the market for green finance, which would reduce risk premia and help lower financing costs”.
EIB President Werner Hoyer said, “Only massive and swift investment in net zero technologies will make sure that Europe remains an attractive place do business, a place where innovation thrives, where new ideas flourish, and wealth and jobs are created”.
The IEA-ECB-EIB Conference on Ensuring an Orderly Energy Transition took place ahead of the United Nations’ main climate forum scheduled for November 30 to December 12. COP28, or the 28th gathering of the Conference of the Parties (the decision-making body of the UN Framework Convention on Climate Change), will be hosted by the United Arab Emirates.
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