Posted by: mog | 01/12/2008

Climate Policy in Times of Financial Crisis

Moritz Gagern

Climate Policy in Times of Financial Crisis

A collection of new perspectives

(Download Document with integrated links to cited reports)
This report reflects reactions to the global financial and economical crisis since September 2008 in relation to climate change. It collects arguments for the sharpened necessity of political framework for green investments, emission trade, and EU/US leadership, on the occasion of some urgent questions resulting from the market crash and in preparation of a crucial year of decisions, running from Poznan in December 08 until Copenhagen in December 09.

Edited sources appear in endnotes. The text provides a number of links to original reports, press releases etc since September 2008, for direct download on a computer. Otherwise the internet-address is listed in the respective endnotes. It’s possible to receive a CD with all original reports along with the printed version.

Content

Introduction

1. Investment and insurance perspective
a) The Goldman Sachs Report
b) The Deutsche Bank Report
c) The Insurance Sector Report

2. Inaction costs perspective
a) The IEA scenario
b) Reactions by the WWF
c) OECD report: The cost of inaction

3. Scientific perspective

4. Integrated perspective
a) The Green New Deal
b) The Green Recovery
c) The German Advisory Council: Climate
Protection in the Financial Crisis

5. International perspective (EU/UN)

6. National perspective (Germany)
a) Statements
b) The Stimulus Package
c) Car Tax
d) Housing Retrofit

Outlook
Annex: Original Material
Introduction

Bill Moyers: You’re talking about this being the end of an era and needing to create a whole new paradigm for the economic model of the country, of the world, right?
George Soros: Yes.

Does the credit crunch change priorities? Does it mean we can’t afford climate protection any more? The prevalent reaction is the other way round: Facing the market crisis, we can’t afford to not set the frame for green investments immediately. There is an economical reason for it and, if you want, a secondary ecological one, that is the idea of saving the limited resources of life after all (air, water, climate, food).

To solve them, we shouldn’t see the two crises as rivals. There is a common denominator by which they can be translated into each other. This isn’t coincidental. Both have the same basic cause: We built our wealth partly on resources we didn’t have. The fleeting financial bulb and the accumulating carbon dioxide cloud are linked together as logical effects of virtual business: The securities of credits have become more and more virtual, the balances that exclude the ecological prices of their economic activities are virtual in the sense of abstracting from the “real” market with an integrated ecological price of any given product. To claim virtual values has turned market’s constructive potential into a source of instability and consumer uncertainty . The present situation offers a late chance to return to a notion of market as something to create value with.

There is a manifold and still growing consensus between economists, banks, insurances, associations, automobile clubs, and scientists of different disciplines, that there are three urgent priorities now:

1. Further creation of ‘green jobs’ by investing in renewables and technologies that make transport, appliances, housing and energy more efficient. Many studies have shown that renewables will become a fundament for solid economic growth in this century.

2. Immediate set-up of reliable global policies like emission trade and efficiency regulations. Political framework is necessary to create a realistic price for fossil fuels. Industry now, rather today than tomorrow, needs a clear and reliable long-term perspective. Short-term costs for the shift towards renewables are unavoidable and have to be fairly redivided between rich and poor countries.

3. The EU and USA must go ahead in a well-coordinated action as unanimous avant-garde of the ecological turn.

Thanks to the crash of the financial market, the ideas of a “Third Industrial Revolution” and a “Green New Deal” on the basis of long-term investments in green technology now seem to be convincing across all political spectra. Yet individual governments still hesitate to draw consequences. Although one of the most hesitating, the U.S., is about to make a turn of 180 degrees, if Obama’s recent speech for the climate summit will be followed by appropriate policy.

1. Investment and Insurance Perspectives
“Today insurers effectively face a clash of two major storms: the global financial crisis and increasing vulnerability to climate change risk. There is a danger some will assume this economic storm eclipses the need for insurers to contend with climate change risk. This is akin to presuming that because one hurricane has hit, there’s no need to prepare for a second.”
Dr Karl Mallon, Climate Risk Pty Ltd Director

a) The Goldman Sachs Report

Since the “Stern Report” in 2006 showed that it will become much more expensive not to invest in climate change mitigation, than to invest (see key points here), there have been many economical and scientific reports pointing in the same direction. One of the latest examples, reacting to the financial crisis, is a new report by the Goldman Sachs Global Investment Research, published in Oct. 2008. From the subjective, profit-oriented perspective of an investment bank, it identifies climate change as “structural trend” that considerably shapes society. Companies who have an answer to this new awareness are the ones to invest in – in all sectors.

Goldman Sachs Sustain: A warming investment climate Summary/Introduction
A significant global challenge
While equity markets are focused on more immediate concerns, structural trends will continue to reshape competitive landscapes in global industries through this and future economic cycles. Identifying the companies best placed to sustain leadership in a rapidly changing world makes the assessment of structural trends, such as climate change, key for long-term investors. Climate change is a social issue as much as an environmental one; awareness of climate change has risen significantly, and society has converged on the view that greenhouse gas emissions are responsible and is willing to take steps to address the risks it poses.
All industries will be impacted
Moving to a low carbon economy will entail significant behavioral change across society. As the world adapts to a dramatically different, low carbon economy, the drivers of competitive advantage will be reshaped across all industries and regions.
Importance to long-term investors will grow
We see early indications that the equity market has begun to incorporate companies’ climate-change-related strategies and performances into valuations in those sectors most exposed to near-term, quantifiable regulation. Going forward, we expect the importance of climate-change performance to rise further and extend to an increasing number of sectors where the direct costs and benefits of companies’ different strategies may currently be less quantifiable but will, in our view, become increasingly important aspects of their ability to achieve and sustain industry leadership.
GS SUSTAIN identifies long-term industry leaders
The GS SUSTAIN framework is designed to identify companies in mature industries best positioned to sustain competitive advantage in a rapidly changing world over the long term. This framework integrates assessment of returns on capital, industry positioning and companies’ management of environmental, social and governance issues (including climate-related factors). We expect the relationship between companies’ management of climate-related challenges and opportunities and their financial performances and valuations will become stronger and increasingly important in a widening range of sectors.

b) The Deutsche Bank Report

Also Deutsche Bank points out the coincidence of the financial crisis with the energy issue. A new report called “Investing in Climate Change 2009 – Necessity and Opportunity in Turbulent Times” published in Oct. 2008 by a global research team called Climate Change Investments by the Deutsche Asset Management (DeAM) offers analytical detail and survey. The report argues that, as a sector, climate change has ‘built-in advantages’ for investors, assuming governments are able to set up a functioning carbon market with some level of predictability concerning future prices of emitting CO2.

“The debate around climate change is shifting away from costs and risk towards the question of how to capitalize on exciting opportunities,” states Mark Fulton, head of climate change investment research at Deutsche Bank.  Future growth depends on the governments’ ability to recognize the crucial moment for mid-term decisions.

c) The Insurance Sector

How do insurances value the risk connected to climate change? Referring to the Ernst & Young 2008 “Top Ten Risks For Global Business”- Report (Download), a new report for the insurance sector by Climate Risk Pty Ltd called “From Risk to Advantage” warns not to loose the focus on climate change due to the financial turmoil. It insists in the priority of problems caused by climate change, since they have been identified as the biggest strategic threat for their branch.  (English Version Download, German Press Release)

Conclusion

This is only to name the latest examples of a broad field of unanimous analyses from most different perspectives, individually commissioned by companies, banks or associations. The economical benefit of climate change awareness seems to be not only a theoretical fact of economics and ecology, but also a practical, down-to-earth business one. “Environment remains a top priority, even in the middle of the current crisis hitting the air transport industry,” said the International Air Traffic Association’s (IATA) Director General and CEO .

It’s not so much a conflict of priorities (nor a question of knowledge), but a question of remaining time and realistic political process. Governments have to set up a functioning carbon market and concerted regulations to create a framework for green investments in a much larger scale – in some cases against allies like the automobile and oil industry. If governments don’t act now, they will have to do it later at much higher political costs.

2. Inaction Costs – Perspectives

a) The IEA-Scenario

The International Energy Agency (IEA) in its newly released annual report on world energy demand predicts that renewables will make big gains worldwide, increasing their overall market share by 5 percent to meet 23 percent of the world’s total energy needs by 2030. Therefore, a global energy revolution towards low-carbon is needed, no matter how difficult the short-term consequences of the financial crisis might be:

“We cannot let the financial and economic crisis delay the policy action that is urgently needed to ensure secure energy supplies and to curtail rising emissions of greenhouse gases. We must usher in a global energy revolution by improving energy efficiency and increasing the deployment of low-carbon energy,” said Nobuo Tanaka, Executive Director of the International Energy Agency (IEA) in London at the launch of the World Energy Outlook (WEO) 2008 – the latest edition of the annual IEA flagship publication. The report stresses that investments in research for carbon-free energy have to become much higher. The costs may be hurting at first, but the costs of inaction are definitely worse, the report states.

The consequences for the global climate of policy inaction are shocking
The projected rise in emissions of greenhouse gases in the Reference Scenario puts us on a course of doubling the concentration of those gases in the atmosphere by the end of this century, entailing an eventual global average temperature increase of up to 6°C. The Reference Scenario trends point to continuing growth in emissions of CO2 and other greenhouse gases. Global energy-related CO2 emissions rise from 28 Gt in 2006 to 41 Gt in 2030 — an increase of 45%. The 2030 projection is only 1 Gt lower than that projected in last year’s Outlook, even though we assume much higher prices and slightly lower world GDP growth. World greenhouse-gas emissions, including non-energy CO2 and all other gases, are projected to grow from 44 Gt CO2-equivalent in 2005 to 60 Gt CO2-eq in 2030, an increase of 35% over 2005. Three-quarters of the projected increase in energy-related CO2 emissions in the Reference Scenario arises in China, India and the Middle East, and 97% in non-OECD countries as a whole. On average, however, non-OECD per-capita emissions remain far lower than those in the OECD. Emissions in the OECD reach a peak after 2020 and then decline. Only in Europe and Japan are emissions in 2030 lower than today. The bulk of the increase in global energy-related CO2 emissions is expected to come from cities, their share rising from 71% in 2006 to 76% in 2030 as a result of urbanization. City residents tend to consume more energy than rural residents, so they therefore emit more CO2 per capita.
Excerpt Executive Summary
© OECD/IEA, 2008, 46 World Energy Outlook 2008

Considering that the IEA is known as an international agency for analyzing and securing energy supply for energy-intensive countries, the report seems to imply a green turn in the IEA’s policy. But what has been revolutionary a few years ago is conservative now: supply security has become an argument for renewables ( or “low-carbon energy supply”).

“The world’s energy system is at a crossroads. Current global trends in energy supply and consumption are patently unsustainable — environmentally, economically, socially. But that can — and must — be altered; there’s still time to change the road we’re on. It’s not an exaggeration to claim that the future of human prosperity depends on how successfully we tackle the two central energy challenges facing us today: securing the supply of reliable and affordable energy; and effecting a rapid transformation to a low-carbon, efficient and environmentally benign system of energy supply. What is needed is nothing short of an energy revolution.“ – „It is within the power of all governments, of producing and consuming countries alike, acting alone or together, to steer the world towards a cleaner, cleverer and more competitive energy system. Time is running out and the time to act is now.“

b) Reactions by the WWF

Clear words these are, but the consequences are disputable. The IEA-report is definitely more ambitious than in earlier years, says WWF, but still “underestimates what is required.“ The reduction of CO2 emissions must happen earlier and more effective than outlined by the IEA. In other words: we must achieve much more green investments into the power sector than the IEA imagines, because the IEA neglects the economic benefits of the energy turn and the relative benefit compared to the costs of inaction.
The IEA analyzes that most of new investments in the energy sector between now and 2030 must and will go into the power sector – approximately 17 trillion US Dollars. WWF puts these 17 trillion into perspective: “That sounds a lot of cash. But it’s only around 0.5% of global GDP which is far less than the price of inaction in form of the much higher costs of damaging impacts of climate change.” “The various non-climate benefits such as reduced air pollution, new market opportunities for clean technologies, and saved money from energy bills are not included in this calculation.”

We must be more courageous in order to survive. And we can… “Governments have shown that they have a pivotal role in regulating the financial markets,” said Dr Singer, WWF. “They need to assume a similar role in relation to energy markets and their emissions into the atmosphere.” (German’s Environmental Minister Gabriel borrows this argument, see below.)

c) OECD-Report: The Cost of Inaction

The Organization for Economic Cooperation and Development (OECD) has published (Oct. 08) a report on the costs of green policy inaction, based on a review of literature in four areas including air and water pollution and climate change.  OECD environment ministers demanded such a study in 2004 (EED 21/04/04).  The report highlights “fundamental methodological difficulties” associated with estimating the costs of inaction.  However it is clear that these costs can be “considerable”, authors conclude.  „Inadequate environmental policies can be a significant brake on economic productivity and growth. The costs of not responding adequately to these challenges can be considerable, in some cases representing a significant drag on OECD economies.”

See OECD press release:     www.oecd.org/env/costofinaction and report:      http://www.oecd.org/document/1/0,3343,en_2649_33713_41468801_1_1_1_1,00.html

3. Scientific Perspectives
“It’d be irresponsible to hesitate”.
Hans Joachim Schellnhuber

The short-term investment crisis is serious and old alliances between politics and traditionally important sectors are hard to overcome – yet climate change doesn’t stop. In contrary. It accelerates and the necessary turn becomes more expensive every day.

The common denominator of today’s financial and ecological crises was pointed out recently by leading climate-economist Ottmar Edenhofer (who since October holds the first Professorship for Climate Economy in the world, at the TU Berlin).

“Financial crisis and climate change have a common root, the missing sustainability. We have to adjust this now and develop sustainable strategies for investment”, says Edenhofer. “We mustn’t live off the substance and waste our natural capital any longer.” Instead, investments into energy efficiency, renewables and the great domain of CCS are urgently needed. But the first and most important instrument is a worldwide emission trade. “If we fail here, all measures in climate protection, be it housing retrofit or renewables, won’t achieve anything.” (dpa) “Europe and the US must go ahead and build a transatlantic carbon market”, postulates the climate expert.   See also Edenhofer Interview in Spiegel online (German).

The priority of a global framework is also being brought out by Jürgen Schmid, Professor for Electrical Energy Technique, experimenting for the SuperGrid in Kassel, a scientist who widely overlooks the topic of energy supply. He says the energy turn would simultaneously be a technical (CCS, Renewables) and an economical revolution. Many have called for a „technical revolution“ during the last months and years, also the IEA in June 2008. But the technical revolution will only become the fundament for growth, if the right economical frame is being set. To emit CO2 must become expensive for everybody – not to emit profitable. This presupposes a politically determined global price for emissions. Schmid is generally confident, but in this point he gets serious. If the world falls short in these two tasks, „we’ll have a problem“. Everything else is manageable. Die Zeit 26.10.08       (Extensive Reportage about solar energy from Africa in Die Zeit 06.11.08)

4. Integrated Perspectives
“We must promote growth that can be sustained. Let us learn the lessons and take the opportunity of the coincidence of the crisis and the deepening awareness of the great danger of unmanaged climate change: now is the time to lay the foundations for a world of low-carbon growth.” Ex-Worldbank-Chief-Economist Nicholas Stern in a statement to the current situation.

a) The Green New Deal

The UN Environment Program (UNEP) has an ambitious plan, the start of which has just been formally launched in London. The so called “Green New Deal” – referring to Roosevelt’s package of progressive reforms in the 1930s – calls on world leaders, including the new US President, to promote a massive redirection of investment away from the speculation that has caused the bursting “financial and housing bubbles” and into job-creating programs to restore the natural systems that underpin the world economy.

The Green New Deal aims to convince governments that, far from restricting growth, healing the global environment will be a desperately needed driving force behind growth. Achim Steiner, UNEP’s Executive Director, adverts to new research showing that every year, for example the felling of forests deprives the world of over $2.5 trillion worth of such services in supplying water, generating rainfall, stopping soil erosion, cleaning the air and reducing global warming. By comparison, he points out, the global financial crisis is so far estimated to have cost the world the smaller one-off sum of $1.5 trillion. (These are similar proportions to what other reports state, e.g. the Greenpeace Energy (R)evolution Scenario. – Download and read more   ).

“We are pushing, if not pushing past, the limits of what the planet can sustain,” he says. “If we go on as we are today’s crisis will seem mild indeed compared to the crises of tomorrow”. Switching direction and concentrating on ‘green growth’ will not only prevent such catastrophes, but also rescue the world’s finances. “The new, green economy would provide a new engine of growth, putting the world on the road to prosperity again.”

Pavan Sukhdev, the chair of Deutsche Bank’s Global Market Centre, who is leading the UNEP-initiative, says: “Hundreds of millions of jobs can be created, there is no question that traditional industries like steel and cars cannot provide them. But this is a really huge business opportunity.”

– Read full article online: The Independent (UK): A ‘Green New Deal’ can save the world’s economy, says UN. By Geoffrey Lean, Environment Editor, 12 October 2008.
– See also the preliminary “Green New Deal” by the New Economy Foundation: summary on nef-Homepage with link to download.

b) The Green Recovery

Another new report by the Center for American Progress released on Sept. 9th shows how to create jobs in different US-states by saving the climate at the same time (“Green Recovery”, directed by Dr. Robert Pollin and University of Massachusetts Political Economy Research Institute economists).

John Podesta, the Center’s President and Co-Chair of Obama’s transition team: “This report demonstrates how a new Green Recovery program that spends $100 billion over two years would create 2 million new jobs, with a significant proportion in the struggling construction and manufacturing sectors. It is clear from this research that a strategy to invest in the greening of our economy will create more jobs, and better jobs, compared to continuing to pursue a path of inaction marked by rising dependence on energy imports alongside billowing pollution.” (Read more and download)

c) The German Advisory Council: Climate Protection in Financial Crisis

The German Advisory Council on the Environment (Environmental Council) released its “6th Commentary on Environmental Policy: Climate Protection in Financial Crisis” on Dec. 5th 2008 (Download). It sees the latest attempts for compromises of the EU climate package as a fall-back into the erroneous belief that climate protection damages economy and is only affordable in good  times. Science proofs the opposite. Ambitious climate policy creates jobs and new market opportunities. Failed climate policy risks, that Germany becomes the next Detroit. The Environmental Council’s main conclusions are:

•    The EU climate package in its overall balance provides great economic opportunities – especially during the current crisis. The charge for the energy sector and energy intensive industries is comparably low.
•    Exceptions in the emission trading system lead to capital transfer from consumers to a few priviledged companies. Auctioning inures to the benefit of the general public.
•    All in all the pending state investments should support mainly energy-efficient and low-carbon products and structures to combine short-term stimuli with mid-term sustainability.

5. International Perspectives (EU + UN)

“The financial crisis is largely a story of dismissed warnings, but responding late to climate change would be even more devastating and far more costly.” Speaking at the Climate Change Conference in Prague at the end of October, the Commissioner Stavros Dimas reminded participants that it is our generation that will be remembered as the first to be offered solid scientific evidence of climate change. We must now take decisive action to reduce it. (Download speech) But some countries force him to essential trade-offs. As The Economist reported, Dimas considers the cost calculations made by some governments like Italy and Poland to be “entirely out of proportion”, and believes many EU countries should use the crisis as an opportunity to innovate and to prepare for a “low carbon future”. Yet he is being pushed into accepting compromises concerning the ETS and The Economist expects this to be only the beginning of many more.

It is of “greatest importance”, wrote UN General Secretary Ban Ki Moon in a letter to EU-leaders (oct.29), that they pass through the disputed climate package. In times of economical crisis it may be a “challenge” for some states. “But science is unanimous.“ – “We can’t settle on a growth that is driven by the reckless use of carbon-based energy.” If the EU postpones the decision it will be a tough fallback for the climate conference. It’s an important signal, writes Ban, that the EU, as a microcosm, achieves an ambitious agreement.” (dpa)

Ban Ki Moon released another urgent appeal days before the G20 meeting in Washington, published in the International Herald Tribune, together with Susilo Bambang Yudhoyono, Donald Tusk and Anders Fogh Rasmussen.

Excerpts:
„Scientists agree: To address climate change, we need an energy revolution, a wholesale change in how we power our societies. Economists agree as well: The hottest growth industry in the world is renewable energy.“
„That’s where the jobs of the future are already being created, and where much of the technological innovation is taking place that will usher in the next era of economic transformation.“
„We need an agreed institutional architecture, a serious commitment to an Adaptation Fund and, above all, a willingness of both developing and developed nations to do their part. Financing will be key.“
„In fact, it is already happening. The UN Environment Program estimates that global investment in zero-greenhouse energy will reach $1.9 trillion by 2020 – a significant portion of global GDP.“
„We do not need to await the arrival of new technologies, nor need we worry excessively about the costs of taking action. Studies show that the United States could cut carbon emissions significantly at low or near-zero cost, using existing know-how.“
„With the right policies and incentives we can steer economic growth in a low-carbon direction. With the right policies and the right incentives, we can be sure that developed and developing countries alike contribute to the cause of fighting global warming, without compromising every nation’s right to the economic well-being of its citizens.“
„The most forward-looking chief executives know this. That’s one reason why businesspeople in so many parts of the world are demanding clear and consistent policies on climate change.“
6. National Perspective (Germany)

a) Statements

Germany has been a leading nation in green technology, but the car industry and the heavy steel and aluminum industries as major CO2-emitters are too strong in their economic and lobbying powers to allow for the necessary EU-decisions. The green energy sector is booming, though. The renewables’ domestic business volume in 2007 grew up to 25 billion Euros. About 14,2% of German consumption of electricity came from renewable energy sources, well ahead of all scenarios and goals. By now around 250.000 are working in the renewables sector, which is 90.000 more than in 2004. And all of this saved 115 million tons of CO2 in 2007. Source: BMU (Federal Environmental Ministry) The industry of renewables is strong enough by now to profit from the financial crisis in a long term, even if Germany acts timidly. (taz-article)

That creates a very ambivalent situation for the German government. „The crisis changes priorities“, says German Foreign Minister Steinmeier. In which direction?  The crisis marks the „end of virtual economy and the return to real business“, says Minister for the Environment Sigmar Gabriel. The market for energy and resources is a safe investment, he claims, since it’s one of the biggest markets to be.  Press release

While other reactions swing between horror scenarios like the looming “deindustrialization of Germany” resulting from the EU climate package, as the president of the German chemical industry association seriously cautioned against, and on the other hand proclamations of a “third industrial revolution” , there are some facts that can yet be studied and analyzed. Two studies commissioned by Environmental Agency (Umweltbundesamt) came out most recently that take a look on the numbers. One of them is an economic evaluation of the German climate policy (Download report), especially of five measures of the “Integrated Energy and Climate Program” (IEKP) enacted in Meseberg (Download). It shows that these measures at the end of the day do create jobs and are economically useful: at least 100.000 new jobs in the next 10-12 years. Along the way they save 25.000.000 tons of CO2 until 2020.

There is yet another reason to radically reconsider the distribution of subsidies and investments. Again a study by the German Environmental Agency examines the impact that old style economy-stimuli in Germany have on the climate. Many of the subsidies, like on the energy sector, aviation, building and agriculture, counteract on decisions for a sustainable state budget, because they destroy much more than a lot of little measures for climate protection can save. In Germany in 2006, actually € 42 billion of subsidies had negative effects on health and environment.   (Download) The resulting question of these two studies is: how to redirect stimuli away from climate killers and towards job creating climate savers.

In a paper on ecological politics of industry published in Oct. 08   , Gabriel states: “We need a downright third industrial revolution. (…) Environmental Policy must become the motor for innovations, because in this century ecology will become economy.” See also the Conference Factor X with Gabriel’s and other’s statements. On 29th Oct. 08, Gabriel confirms: „The financial market in its present form, with its extremely short-termed perspective, is the opposite of what we need, in order to deal with the tasks ahead. Therefore a consequent policy of sustainability is the answer to the present financial crisis.”

His cabinet published a report of sustainability in Oct. 08. Gabriel: “The report underpins how crucial a long-term oriented environment policy will be for the development of an economy and society that lasts into the future. The federal government has to design the future in a more determined manner with integrated, crossover strategies and has to make long-term perspectives a decisive factor of politics.” Press Release (German)
The Minister for the Environment seems convinced, but then he supports new coal plants and coal subsidies in the context of financial crisis. Not convinced of Gabriel’s sustainability, his colleagues from the ministry of finances and of economy have proposed a package to curb on economy in Germany.  Only one of the 15 measures is seriously combining market stimulus with green investments.

b) The Stimulus Package

The German stimulus package passed the cabinet on November 5th 2008 and was revised on Nov. 13th. Among the various decisions  aiming to provoke investments and buys up to 50 billion Euro, two main issues are concerned with green investments, one only rhetorically (the tax-release on new cars), one also effectively (housing retrofit subsidies). A third measure touching transport investments is giving 2 billion Euros into several planned traffic projects like acoustic shielding of highways and also some improvements of the railway system. (Meanwhile China wants to build no less than 35.000 km of new railway tracks to stimulate economy.  )

68% of the German population at first sight thinks that these measures are generally right. (article 7.11.), although there is a lot of critique from different sides, some even among the leading parties, as the Handelsblatt reported Nov. 5th.  One main critique of the economy is, that it focuses on specific sectors of economy instead of stimulating on a broader scale through tax-releases. Climate-Economist Edenhofer urges to only consider subsidies that would also make sense if there were no crisis. An alternative draft with green emphasis has been presented by the BUND.

The Greens confronted the stimulus package with their version of „grüner New Deal“ on 15 Nov. It has three major aspects: stronger regulation of finance, massive investments in renewables and social adjustments (Frankfurter Rundschau). The government’s package has less of a systematic character but concentrates on several scattered stimuli and subsidies.
Press coverage on the package after Nov. 13th: Handelsblatt, Tagesschau, Spiegel, Sueddeutsche, Reuters.

c) Car Tax

The existing German tax-system is structured proportional to the engine capacity. The bigger the car, the more tax you have to pay. Additionally, if you’re car is in a high pollutant class, you pay again more tax. This system doesn’t account for CO2-emissions. Pollutants can be filtered – at least to some amount -, greenhouse gases can’t. The more fuel is burn’t the more carbon-dioxide will be emitted. That means small cars with less consumption are preferable, but if it needs to be a big car, a lighter big car (e.g. with less electronic devices) should be favoured by the tax system. For years now a new legislation has been worked out on how to change the tax-system according to a car’s C02-emissions. It only needs to be enacted.

Now, among other economic stimuli, the government has decided for tax-releases on new cars: Initially registrated cars will be tax-exempted for one year to invite buys. Automobiles meeting the pollutant norms Euro-5 and Euro-6 will be tax-exempted for even two years. The arrangement starts on Nov. 5th 2008 and ends on June 30th 2009.

By giving preference to low-pollutant vehicles, the government has opted not to take CO2 emissions as criteria. Pollutants harm the air quality, but hardly effect climate change. Though it’s being sold as a climate friendly investment stimulus, it’s clearly a subsidy to help the car builders get rid of outdated models   – a missed chance to give urgently needed long-term impulses to the German car industry and to other nations.

While the associations are in general content , there is massive critique from different sides:  The mighty German Automobile Club (Europe’s strongest mobility lobby!), the Traffic Club, politicians from all parties etc. They all emphasize that it’s a missed chance for subsiding greener cars and aiding the car industry along with it in the long term by moving it towards innovation. Proposals for tax-releases on cars with low CO2-emissions to encourage consumers to buy a climate-friendly car have been waiting all set to be enacted. Even the Association of International Car Builders (VDIK) wants the government to clearly give less emission an advantage. What the private consumers need is a clearer long-term perspective in order to trust in the industry again.

Critical voices:
– VCD: To recompense car buyers instead of users of public transportation has nothing to do with climate protection. It rewards the car industry for its misled product strategy. To direct car buyers into a greener realm, the only useful measure would be to connect the tax-release to emission caps at 120g/km, says the Verkehrsclub (VCD).
– The German Automobile Association ADAC  urged to accompany the tax-release for new cars with an instant, long-term, CO2-oriented reform of the car tax. „Proposals are lying in the drawers of the ministries“, says Vice-President Ulrich Klaus Becker. A general tax-release on new cars advances big cars instead of climate-friendlier ones.   Press Release (German)
After the decision on Nov. 5 the ADAC said it was absolutely unsatisfying, because there is no ecological effect whatsoever. It would have been much better to combine tax-releases with the transformation to a CO2-oriented tax-system. Consumers have to know what environmental requirements to expect in the long run.  Press Release
– The Parliamentary State Secretary of the BMU Astrid Klug (SPD) said, the only way for Germany to survive as a strong player in the global car industry would be higher fuel efficiency and lower emissions. It will become the condition for mobility.   Press Release (German)
– CDU/CSU Press Release (04.11.08)  stresses that the premium class of German cars is also a driver of technological progress, it pays for the small cars and the necessary research. Jobs should not be endangered by CO2 emission caps for cars. That’s why the existing EU proposal has yet to be changed.   Similar arguments by FDP spokesman Michael Kauch.  – This argument forgets that the request for big cars is going down while the request for small cars is going up. Bis cars won’t pay for small cars any longer, when oil prices go up (see IEA Outlook 2008).

d) Housing Retrofit

Since 2001 Germany has a program to stimulate real estate owners for efficiency investments in older houses and apartments. An upgraded version for CO2 housing retrofit became part of the IEKP-package (Integrated Energy and Climate Program, “Meseberg”) for energy efficiency, enacted on Dec. 5th 2007. Owners get either direct subsidies or low interest credits for their efficiency expenditures. The amount depends on the house’s year of construction and the effective efficiency growth. The request for this program was big. In 2007 exactly 89.108 accomodation units have been renovated state-aided. The number has increased this year. In September 2008 it reached 109.972.

Costs and impacts of the Meseberg housing retrofit program  in the year 2020:
•    2,43 billion Euros pre-tax costs
•    saved energy per year: 3,20 billion Euros
•    -58 Euro/ton CO2 mitigation costs
•    CO2-savings by 2020: 31 million tons
Source: Fraunhofer ISI (2007). in: Ministry of the Environment, The integrated Energy and Climate Program of the German Government, December 2007

It’s clearly a successful program, that’s why the goal of further developping it was already written into the 2007 IEKP-wording:

„Status quo: 900 million Euros per year (2008 and 2009) for the energetic retrofit of buildings and communal institutions. This aid will be continued past 2009, to include the energy saving potentials. Goal: The existing program is to be developed. The energy saving potential in urban structures and social infrastructure is to be exploited more strongly.“

In the meantime, the budget had already been extended to 1,4 billion Euro. Now, as part of the stimulus package to contain the consequences of the financial crisis, the program for CO2 housing retrofit has again been increased: One billion per year will additionally be put into the program during the next three years. That means in 2009 there will be a boost of altogether around two billion Euros.

The Minister of Transport’s press release on the federal government budget on Nov. 21:
“We’ve reached a record. Next year we’ll invest more money in traffic infrastructure and housing retrofit than ever before. In traffic ways we will invest a record sum of 11.2 billion Euros. We will clearly enlarge our successful programs for energetic retrofit of buildings and cities. Until 2011 we have a billion Euro each year for that [additionally to the existing program, MG]. Against the background of the global financial crisis and the bad economic outlook in Germany we will do everything to conserve and to create jobs. We save the people from the effects of the crisis. Investment in traffic, construction of streets and buildings and the energetic retrofit of apartments are most appropriate for this task.“

Reactions:

The program is being well received (news-coverage, see also above). It’s the economically most efficient way of saving the climate, says the German Institute for Economic Research. The association of German real estate companies considers it to be a solid and sustainable program. Each Euro by the state creates around eight Euros of private investments. It still isn’t enough for the needs of Germany’s 24 million apartments: the stimulus could be doubled and still make sense, says the association.

Outlook

High-carbon economy uses up the planet. At a certain point the costs for repairing vital resources like air, water, climate, and food become higher than the profits from spoiling them. This point is marked by a parallel rude awakening: the liquidity crisis in autumn 2008. Profit must be tied to the earth in order to grow solidly.

Leading companies, economists, scientists, and many politicians today show a clear awareness for the price of high-carbon economy. The future costs of floods, hurricanes, hunger, drought, wars, diseases and migrations could make the financial crisis 2008 pale.

There is a large scope of action to contain these costs: efficiency increases, lighter cars and above all power generation from renewable energy resources. But without political regulations companies and nations aren’t willing to invest in green technology and in research on the necessary large scale. As far as the isolated price of production is concerned, coal energy will be cheaper and more profitable for a long time. But once emissions do cost according to the economic damage they cause, the green energy turn becomes profitable and generates more jobs than any other branch.

That’s why in times of financial crisis some regulations are even more urgently needed than in better times: sustainable energy investments, canalized by courageous national policy and a market for emissions that makes it profitable not to emit CO2. Transparent ecological regulations can now set the frame for profitable investments and paying jobs.

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