Tackling climate change requires more than a reduction in emissions

The fight against climate change will require new and innovative models of financing, behaviour and policymaking, argues Bas Verkerk.

By Bas Verkerk

07 Oct 2013

Climate action is a key priority for the EU and funding for projects has grown significantly in recent years. Yet switching to a low-carbon and climate-resilient economy requires clear and stable climate policies, targeted public finance and well-structured financial instruments to bring about a major shift of private capital investment. On the one hand, limited public funds need to be used efficiently to overcome barriers and to mobilise the power of market forces to support climate action. On the other hand, leveraging substantial amounts of private finance is required in order to meet the investment needs that the European commission has identified. According to the commission's low carbon economy roadmap, an additional €270bn on average will be needed annually over the next four decades to achieve the transition to a low-carbon and climate-resilient economy.

"According to the commission's low carbon economy roadmap, an additional €270bn on average will be needed annually over the next four decades to achieve the transition to a low-carbon and climate-resilient economy"

There is no question that within the next EU multiannual financial framework (MFF), climate friendly investments will continue to be on the agenda. Indeed, there are many untapped opportunities to save energy and encourage the use of renewable energy sources in Europe, but market conditions do not always help. It is therefore anticipated that financial instruments for climate action are likely to play a big part in the next MFF, being an innovative way of delivering results and creating stronger incentives for successful projects. In fact, the commission is building on the positive experiences gained under the 2007-2013 MFF by simplifying and expanding the use of financial instruments and thereby making it more accessible to climate-friendly projects.

This is also the reasoning behind the Committee of the Regions' ALDE group's Open Days workshop, which aims to address the need to maximise the relevance of financial instruments for climate change mitigation and adaptation. Integrating climate change and energy efficiency in investment decisions could generate considerable financial savings to government and society, stimulate economic activity and job creation and deliver substantial health benefits.

The green economy has long been a priority for the wider European liberal family: the ALDE party identified 2012 as its focus year for energy transition and adopted the themed resolution 'Liberal roadmap for energy transition in the EU' during its congress. So, too, has the ALDE group in the CoR been a strong supporter of climate friendly projects and initiatives. In 2012, an ALDE delegation visited the Danish island of Bornholm where the EU's most modern experiments in the administration of different sources of renewable energy are being conducted. The EcoGrid EU – a prototype for European smart grids – offers Europe a fast track evolution towards market-based mechanisms in the form of a full-scale real-time test. The goal is to contribute to the EU 2020 goals by demonstrating that it is possible to operate a distribution power system with more than 50 per cent of renewable energy sources using smart communication and smart market solutions. As a microcosm of the green economy, with more than 50 per cent electricity consumption from renewable energy production, Bornholm offers an alternative way to achieving energy transition.

Such initiatives show the need for sector-specific investments. However, insufficient regulatory frameworks may pose challenges, particularly for SMEs. Many SMEs have untapped energy savings potentials, but are dependent on external financing from banks. A lack of communication and information can prevent SMEs from identifying their saving potentials. Given the small scale of projects and the perceived risks that are involved, banks are often discouraged to lend for energy savings in SMEs. In the case of financial instruments, however, support provided by the European Investment Bank (EIB) encourages others to match the EIB's long-term investment that commercial and public lenders may not find easy to make independently. This is particularly relevant at a time of austerity.

The ALDE CoR group sees climate change as a defining challenge for the European Union. Tackling this challenge cannot be achieved merely by reducing emissions; rather it requires new modes of behaviour, creativity and innovation.

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