While environmental social and governance criteria remain context dependent and cannot be universally applied, it is key to balance these factors with real world market realities through a technology agnostic approach, writes Valdai Club expert Christof Van Agt.
Policymakers in Glasgow for climate talks this month would do well to remember that climate policy and energy technology choices bring about real-world change when aligned with market fundamentals, the physics of energy technologies, and the producer-consumer partnerships on which energy investment and trade rely.
Policy-driven approaches by signatories to the Paris Agreement or by the European Union (EU) may guide but will not replace the physical and financial market dynamics of interconnected energy systems which are integral to human economic life. Climate neutrality secures the prosperity of people by cutting greenhouse gas emissions not the markets, technologies, and partnerships by which we live.
On 14 July 2021, the European Commission tabled a comprehensive set of proposals to enable the EU to reduce greenhouse gas emissions by at least 55 percent compared to 1990 levels over the next nine years. When adopted, the EU’s “Fit for 55” package of climate, energy, land-use, transport, and taxation measures will set the EU on course to become the first climate neutral continent in the world by 2050, as the President of the European Commission announced at the launch of the EU Green Deal on 11 December 2019. On 29 July the objective to reduce emissions by 55 percent by 2030 and reach climate neutrality by 2050 entered into force after the European Parliament and Council adopted the first ‘European Climate Law’.
The clarion call to action implies a considerable rise in the level of climate ambition by EU Member States and introduces new requirements on EU trade partners as well. Fit for 55 proposals include no less than 13 pieces of legislation to enhance and expand carbon abatement measures across sectors and along the EU external trade border. A new carbon border adjustment mechanism will ringfence the EU’s achievements, incent investment, and reinforce its trade policy with a new climate dimension. This levy on carbon will prevent the loss of economic competitiveness by imposing a cost on overseas markets that do not take measures with similar effect and rewarding EU trade partners that heed its call on climate with more favorable market access. when fully implemented after a transitional period, these proposals will cement the EU’s climate leadership on global markets while also protecting EU industries, skills, and jobs.
The National Recovery and Resiliency Plans already anticipate implementation of the Green Deal’s Fit for 55 proposals. EU Member States’ submissions to gain access to the 900 billion euros earmarked by the NextGenerationEU recovery plan and seven-year budget, suggest allocating around 40 percent of available funds to climate investment and 20 percent to digital opportunities to build back better while overcoming the impact of the COVID-19 pandemic.
Apart from mitigating and adapting to climate change from the perspective of good governance of global commons and prudent risk management, other benefits of EU climate action include:
- Increasing support for the EU project among younger citizens that regard the EU’s four fundamental freedoms as a given, but see future uncertainties loom large,
- Enhancing cohesion among its diverse member states, now that economic integration on core values and governance principles from human rights to competition law are agreed and implementation all but complete, and
- Asserting the EU’s leadership in a complex world by engaging international partners on the climate aspects of foreign trade and investment relations with reciprocal access to markets as the new prize.