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211. Europe’s 2040 climate target: four critical risks and how to manage them

Author:
Conall Heussaff, Johannes Emmerling, Gunnar Luderer, Robert Pietzcker, Severin Reissl, Renato Rodrigues, and Rupert Way
Publication Date:
10-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The European Commission has recommended that the European Union should cut greenhouse gas emissions by 90 percent by 2040 compared to 1990. Modelling shows that this target is feasible technically and is in line with social acceptability and global fairness objectives. Achieving it will require massive expansion of renewable electricity generation, drastic reductions in fossil-fuel use, energy efficiency measures and deep electrification of end-use sectors. Technological advances and strong policies have already enabled the EU to start this transformation and make substantial progress on parts of it. Most technologies required to achieve the emissions-reduction targets are market-proven, and in many cases are cost-competitive with or cheaper than fossil alternatives. After decades of successful innovation, clean-technology deployment is accelerating, with costs of key clean technologies continuing to drop rapidly. Nevertheless, economic, social and political risks threaten ambitious climate policies. The four main risk categories are: geoeconomic instability, technological progress, exacerbated inequality and policy credibility. A global economy with more trade disputes and greater risk of conflict endangers the massive capital investment needed for the transition, while the cost of clean technologies is a primary determinant of the economic viability of decarbonisation. Climate policies will affect people’s everyday lives in disruptive ways, meaning that regressive outcomes must be guarded against, balanced with a concrete commitment to the established climate policy pillars. To succeed, the 2040 climate and energy policy framework needs to be designed to be resilient to such risks. The EU should put distributional issues at the heart of its climate policy, develop an emissions-reduction strategy that monitors geoeconomic and technological risk factors, and put in place contingency plans to manage the impact of negative outcomes and to maximise the societal, economic and environmental co-benefits of the energy transition.
Topic:
Climate Change, Carbon Emissions, Green Deal, and European Commission
Political Geography:
Europe

212. What can central banks do to take the Paris Agreement seriously?

Author:
Dirk Schoenmaker and Hesse McKechnie
Publication Date:
10-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Since the Paris Agreement on climate change was signed in 2015, its 195 signatories have seen financial instability resulting from the climate transition increase by approximately one third, in the context of still-increasing global emissions. In the European Union, emissions have fallen but banks have not fully internalised the costs of transitioning to net-zero. Banks continue to finance the expansion of the fossil-fuel industry. At the systemic level, this is trading a pretence of financial stability now for a more disorderly transition scenario with greater financial instability later. Central banks are increasingly using microprudential supervisory tools to address climate-related financial risks. These tools include reviewing banks’ risk-management processes and giving warnings over shortcomings in banks’ risk models. This approach is helpful, but has so far failed to address the build-up of climate-transition-related imbalances in the financial system. This situation echoes the run-up to the 2007-2008 global financial crisis, when supervisors were busy reviewing the implementation of the latest Basel risk models by individual banks, while failing to see increased imbalances in the financial system caused by rising housing prices. This Policy Brief proposes that central banks should take a macro approach to managing system-wide risks stemming from the climate transition. It is necessary to treat climate as an endogenous, and in many jurisdictions legally-mandated, transition, rather than an exogenous risk. The policy aim for central banks, in their macroprudential supervision capacity, should be to minimise financial instability during that transition. This Policy Brief argues that, all other things being equal, the steadiest path towards net-zero offers the greatest amount of financial stability. Current proposals to impose systemic risk buffers for climaterelated concentration risk may fail to provide such a steady reduction. A guided transition is recommended for banks that have been reluctant to hive off profitable loans to high-emitting companies. A requirement for the financial sector to reduce financed emissions by four percentage points annually from 2025 to 2050 would deliver net-zero with the least amount of financial instability.
Topic:
Climate Change, Monetary Policy, European Central Bank, Paris Agreement, Banking, and Green Transition
Political Geography:
Europe

213. Are Carbon Border Adjustments a Dream Climate Policy or Protectionist Nightmare?

Author:
Gabriella Beaumont-Smith
Publication Date:
07-2024
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
Climate change is an increasingly important consideration in trade policy. For instance, many countries try to limit their greenhouse gas emissions through domestic carbon pricing and regulatory schemes, and many trade agreements now include environmental provisions. In addition, some policymakers are looking to extend carbon pricing schemes to the international level. This has led to proposals for a carbon border adjustment mechanism (CBAM), which would tax the carbon emissions connected to the imported goods at the same rate as the carbon tax applied to domestic products.
Topic:
Climate Change, Carbon Emissions, Protectionism, and Carbon Border Adjustment Mechanism (CBAM)
Political Geography:
Global Focus

214. A climate loss and damage fund that works

Author:
Melanie Pill and Georgia Hammersley
Publication Date:
09-2024
Content Type:
Policy Brief
Institution:
Lowy Institute for International Policy
Abstract:
The new Fund for responding to Loss and Damage should adopt a clear allocation mechanism based on recipient countries’ vulnerability, emission contributions, and climate change policies. Loss and Damage solutions are unlikely to result in clear financial returns, and the Fund should therefore focus on providing fast and efficient grant-based finance to the most vulnerable countries. Simplified procedures for countries and organisations to access financing and a flexible suite of implementation approaches are key. To raise more financial support, the Fund should explore the potential for engagement with philanthropies and encourage donor countries to adopt voluntary market mechanisms such as levies to raise additional funds.
Topic:
Climate Change, Climate Finance, and Loss and Damage (L&D)
Political Geography:
Global Focus

215. The case for an Indo-Pacific Economic Resilience Bank

Author:
Michelle Lyons, Roland Rajah, and Grace Stanhope
Publication Date:
10-2024
Content Type:
Commentary and Analysis
Institution:
Lowy Institute for International Policy
Abstract:
The world faces a triple crisis of economic insecurity, climate change, and stalled development, but there are deep tensions between the policy agendas being deployed to address them. We propose a new Indo-Pacific multilateral bank that can turn these tensions into complementarities. The bank can accelerate clean energy funding by mobilising new public and private capital investments, primarily for projects in the Indo-Pacific’s developing economies. And it can create multilateral economic security by diversifying green supply chains to dilute the current excessive dependence on China. The bank would create benefits for both developing and advanced economies, fostering new industries and diversified, resilient markets while helping build the multilateral cooperation and capabilities needed to construct a more secure and sustainable world.
Topic:
Climate Change, Development, Banking, Supply Chains, Economic Security, Energy, and Green Transition
Political Geography:
Indo-Pacific

216. Dynamics of the Ecosystem of Environmental Crimes in the Brazilian Legal Amazon

Author:
Igarapé Institute
Publication Date:
08-2024
Content Type:
Special Report
Institution:
Igarapé Institute
Abstract:
The Brazilian Legal Amazon is the site of a complex ecosystem of environmental and related non-environmental crimes that impact both the environment and the people living there. Organized environmental crime contributes in many ways to the destruction and degradation of the forest, significantly accelerating land use changes in the world’s largest tropical forest. The loss of Amazon forest cover is causing irreversible damage to Brazil and the world by accelerating climate change. Despite growing recognition among actors inside and outside the Brazilian state, there is still a lack of systematic and in-depth understanding of the scope, scale, and dynamics of organized environmental crime in the Amazon region. While there has been significant progress in the development of georeferenced information systems to monitor deforestation in the Legal Amazon – an area spanning nine states in the northern region of the country – Brazil lacks data on organized crime to assist the government and society in addressing one of the most significant challenges of our time. In an effort to understand the phenomenon, the Igarapé Institute is launching the Strategic Article Dynamics of the Ecosystem of Environmental Crimes in the Legal Amazon. This article presents an overview of the different crime patterns in the states that make up the Brazilian Amazon based on updated data on Federal Police operations in the region covering 2016 to 2022. This analysis is essential not only to understand the Brazilian State’s efforts in combating organized environmental crime but also to reveal the transnational connections of environmental crime, links between environmental crimes and drug-related offenses, the presence of rural militias, and these crimes in Indigenous Lands.
Topic:
Climate Change, Police, Indigenous, Militias, Organized Crime, Deforestation, and Environmental Crime
Political Geography:
Brazil, South America, and Amazon Basin

217. Measuring Green Jobs: A New Database for Latin America and Other Regions

Author:
Hernan Winkler, Vincenzo Di Maro, Kelly Montoya, Sergio Olivieri, and Emmanuel Vazquez
Publication Date:
09-2024
Content Type:
Working Paper
Institution:
Center for Distributive, Labor and Social Studies (CEDLAS)
Abstract:
A growing body of literature investigates the labor market implications of scaling up “green” policies. Since most of this literature is focused on developed economies, little is known about the labor market consequences for developing countries. This paper contributes to filling this gap by providing new stylized facts on the prevalence of green occupations and sectors across countries at varying levels of economic development. Green occupations are defined using the Occupational Information Network, and green sectors are those with relatively lower greenhouse gas emissions per worker. The paper offers an initial assessment of how the implementation of green policies—aimed at expanding green sectors and strengthening the relative demand for green skills—may affect workers in developing economies. It finds that the share of green jobs is strongly correlated with the level of gross domestic product per capita across countries. When controlling for unobserved heterogeneity, a 1 percent increase in gross domestic product per capita is associated with 0.4 and 4.1 percentage point increases in the shares of new and emerging, and enhanced skills green jobs, respectively. The paper then focuses on Latin America and finds that only 9 percent of workers have a green job with respect to both occupation and sector. The findings show that within countries, workers with low levels of income and education are more likely to be employed in non-green sectors and occupations, and to lack the skills for a greener economy. This evidence suggests that complementary policies are needed to mitigate the potential role of green policiesin widening income inequality between and within countries.
Topic:
Climate Change, Employment, Labor Market, and Green Jobs
Political Geography:
Latin America

218. UK-EU climate and energy relations

Author:
Camilla Born and Joël Reland
Publication Date:
09-2024
Content Type:
Special Report
Institution:
UK in a Changing Europe, King's College London
Abstract:
As the new UK government sets out its plans for a ‘reset’ of EU relations, plenty of attention has been paid to the security and trade aspects of the bilateral relationship. Much less discussed has been the issue of climate and energy cooperation. But, as this report sets out, these policies are inextricably linked to issues of security and trade. What’s more, there is an unusually high degree of potential to deepen UK-EU cooperation on climate and energy. The European Commission actively wants a closer partnership, and there is plenty of low hanging fruit to picked under the current trade agreement. The report covers energy and climate cooperation under the Trade and Cooperation Agreement, highlighting the significant untapped potential for closer relations in terms of pre-existing commitments which have lain dormant. The report also looks at areas where cooperation could be deepened beyond the TCA, such as around trade and supply chains, regulatory divergence, and climate diplomacy. It also considers the politics on both the UK and EU side.
Topic:
Security, Climate Change, Energy Policy, Bilateral Relations, European Union, and Trade
Political Geography:
United Kingdom and Europe