E3G - Third Generation Environmentalism 1 Managing risk: Why the 30% GHG target is important for GDP, political security and economic growth. Climate Summit, Budapest. 19 January, 2011 Sanjeev Kumar

E3G - Third Generation Environmentalism 2 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

E3G - Third Generation Environmentalism 3 Contents What are the risks? The case for doing nothing Expectations from the Hungarian Presidency

E3G - Third Generation Environmentalism 4 Risks facing the EU External Economic Competitiveness

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

6 Large Uncertainty around Climate Sensitivity – mainly on negative side Source: NOAA, 2009 Source: UK CCC, 2008

E3G - Third Generation Environmentalism 7 7 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).

E3G - Third Generation Environmentalism 10 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).

E3G - Third Generation Environmentalism 11 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

E3G - Third Generation Environmentalism 12 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 China plans to spend $300 billion into dedicated high- speed-rail corridors by (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.

E3G - Third Generation Environmentalism 13 External: European security most at risk than other OECD economies

E3G - Third Generation Environmentalism 14 E3G 14 External: Africa is extremely vulnerable

E3G - Third Generation Environmentalism 15 End of cheap conventional oil

E3G - Third Generation Environmentalism 16 External: Energy geopolitics Oil: – EU is major importer of energy. IEA estimates EU energy imports cost €54bn in 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%).

E3G - Third Generation Environmentalism 17 Contents What are the risks? The case for doing nothing Expectations from the Hungarian Presidency

E3G - Third Generation Environmentalism 18 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).

E3G - Third Generation Environmentalism 19 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 So ETS not effective until after (European Commission, May 2010). ETS 3 rd 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 2 nd Phase. (Societe General 2010). PRIMES model estimates EUA price of €16 by 2020 and €18 by 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.

E3G - Third Generation Environmentalism 20 Contents What are the risks? The case for doing nothing Expectations from the Hungarian Presidency

E3G - Third Generation Environmentalism 21 Expectations from the Hungarian Presidency Climate Finance Energy

E3G - Third Generation Environmentalism 22 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.