De minister bezoekt de informele Ecofin bijeenkomst in Zweden
Minister Bos heeft vandaag de informele Ecofin bezocht in Göteborg. Op verzoek van voorzitter Zweden heeft hij in een speech de Nederlandse visie op klimaatfinanciering gegeven. Aan de informele bijeenkomst wordt deelgenomen door de gouverneurs van de centrale banken van de lidstaten, en door de presidenten van de Europese Centrale Bank, de Europese Investeringsbank, en de Europese Bank voor Wederopbouw en Ontwikkeling.
Hieronder staat de speech die de minister heeft uitgesproken op de Ecofin.
We all know what a Ponzi scheme is: a greedy swindle that cost a lot of people their savings and that looks and sounds very much like the greedy swindle that caused the financial crisis, where each new generation pays the bill that is passed on by the old generation.
We all know that Ponzi Schemes eventually collapse, and we also know that this can cause great economic and social damage, with the collapse of the Madoff imperium as a recent example.
You must have noticed, as I did, that the comparison with climate change is striking: we are staking our world and our future on a Ponzi Scheme. We force the effect of our CO2 heavy lifestyle on the next generations; on our children and our children's children. Even though we know – contrary to our grandparents – that this cannot go on forever. Yet we find it very hard to ward off the collapse, perhaps because that may take place only in a distant future.
Apart from these similarities, there are also important differences between the financial crisis and the climate crisis.
The financial crisis is cyclical: it will pass sooner or later, and the economy will recover.
The climate crisis is not cyclical at all; it is just getting worse. And we do not know where – or if – the warming will stop once the world has warmed beyond a certain threshold.
Another difference is the response of governments and the international community to the two crises. The financial crisis was taken on with a global sense of urgency. Think about the billions now being thrown at the financial crisis all around the world – not to mention the speed at which this is being done – and compare that with the spending to tackle climate change. The contrast is startling. Of course, as we speak, UNFCCC negotiations are underway in Bangkok, but progress is far too slow.
Moreover, climate change is to a large extent a distributional issue. Although climate change threatens all countries, developing countries are most vulnerable. The World Bank estimates that 75 to 80% of the costs of climate change would be borne by developing countries; the countries that contributed least to the cause of climate change!
Yet this combination of crises also presents unique opportunities. Because now everyone is sitting around the table. After all, countries that are asking for something at one negotiating table have something to offer at another. We want China and India to take more account of the climate as they strive for greater economic growth; they in turn want better access to world trade from us. We want a number of developing economies to amend their interest and exchange rate policies; they want a stronger voice at institutions like the World Bank and the IMF. Now is the time for leadership on the world stage, to break with the past, to link the global problems of our age together, to abandon traditional positions and, working together, make whole what was once divided.
We have little choice. And I believe Europe has a key role to play.
The question is: how?
How to deal with climate change?
I suggest we learn from facts and science – both climate science and economic science.
Economics not only has something to say about the most cost effective instruments to achieve a certain target, as was just explained by Professor Fullerton, but also about the target itself.
Climate change is characterized by deep structural uncertainty, and therefore the economics of climate change is basically a matter of proper risk management. In this respect, two points are worth mentioning.
First, we cannot wait until we know everything for sure. Elevated stocks of CO2 will persist for a very long time, and the full impact on global temperature only materializes with a long time-lag. So waiting until we reached that point is too risky a strategy.
Second, the economics of climate change is all about tail risks. Climate scientists know a lot about the earth’s climate when viewed over the past 800,000 years. But in these data, there is no analogue for the levels of greenhouse gas concentrations that we observe today, nor for the pace at which they have increased or may further increase if we do not take action. This implies that we simply do not know what will happen next and that expected average temperature increases are not a sufficient basis to guide our policy choices. Rather, we must take into account the tail risks. As we learned from the financial models that were telling us that all was well, ignoring the tail risks gives a far too optimistic picture of the actual risk and of what is at stake. Therefore, we can and should not ignore the possibility of extreme temperature increases.
So, we need to take immediate and decisive action to contain global warming.
We need a new Copenhagen Consensus.
Not the Copenhagen Consensus of Bjorn Lomborg. His models by and large ignore the tail risks, and he suggests that we can take our time. That’s the Copenhagen Consensus to wait and see.
We need a new Copenhagen Consensus, not to wait and see, but to act and commit. A Copenhagen Consensus that acknowledges the need for immediate and ambitious action. We need a Copenhagen Consensus that stresses that we are running out of time and that we must act collectively.
We know what we have to do. Global emissions cannot be allowed to grow after 2020 at the latest and must be halved by 2050 at least. Making that happen is a shared responsibility of all major greenhouse gas emitting countries, both industrialized and emerging economies. We also know the costs: substantial, but manageable. Stern has shown that the costs of action are far less than the costs of inaction. McKinsey and Project Catalyst have shown that limiting global warming to 2-degrees is feasible with current techniques.
The only way to solve this global problem at a reasonable cost is pricing carbon. Here I agree with Professor Fullerton, and his story applies both at the national and at the global level. Therefore, we need a new Copenhagen Consensus to act and commit that lays the foundations for a global carbon market. That way we can establish a global carbon price and reach our climate targets at the lowest possible costs.
If, in such a global framework, we base each country’s emission target on the size of its population, we will have a credible mechanism for the necessary transfer of money from rich to poor countries. This is the difference between a global cap and trade system and a global carbon tax. Moreover, a realistic carbon price will not push us back into the stone age or prevent emerging economies to develop, as some are suggesting. The experience with the EU ETS has shown us that ambitious environmental policy and economic growth can go hand in hand.
It – almost – goes without saying that such a system requires the participation of all major emitting countries and sectors. Without this global coverage, a Copenhagen Consensus will be ineffective and expensive.
It also – almost – goes without saying that this crisis, like every crisis, needs leadership and prompt action. This is exactly what the EU has done and must – and will – continue to do. And it is exactly what we, the Finance Ministers of the EU, must – and will – do.
We have the successful outcome of Copenhagen in our hands and our heads.
Agreeing on the size and scale of the problem is not enough. We now need solutions.
Solutions that take all parties, both developed and developing countries, into account
Solutions that invite all these parties to take their responsibility.
For the EU this means that we must be very clear on what we are willing to offer, and what we expect in return.
And with clear I mean: mentioning concrete numbers and giving specific financial commitments. Of course the cost estimates for 2020 are relevant. But the most important number right now is how much money we are going to put on the table in Copenhagen for the 2010-2012 period. Money to break the deadlock and build trust between developed countries and developing countries. Money for fast-start financing. Money to enable countries to come up with coherent low-carbon growth plans, set up emission inventories and monitoring systems, and to enable them to use carbon market financing. According to the Commission, the EU should make an annual contribution between 500 million and 2,1 billion Euros for the 2010-2012 period. I think 2 billion a year is the figure we should be talking about. I like to hear your opinions on this, because it is essential we agree on our contribution in our meeting of October 20.
Of course, this money is by no means charity. This money is largely an investment in an architecture to spend our future climate investments more effectively.
But this money is just a first instalment. Much more will be needed for the post-2012 period; in this we can and should endorse the estimates of the Commission. The Commission estimates that climate change will cost 100 bln a year starting in 2020. Public investment needed from developed countries in that respect amounts to about some 30 bln. We need to discuss which part of this we should take on our shoulders. In my opinion 20-30 percent of it would be our fair share. We need a result on this very soon and I suggest that we give a mandate to the EFC to come with a proposal in time for the next Ecofin Council.
To convince developing countries that we will scale up the financing, and to give us the confidence that other developed countries will contribute their share, we need to create a credible and effective mechanism that will ensure the money will be raised. That must also be part of the Copenhagen Consensus.
It is crucial that our financial support is matched effectively with the climate actions of developing countries. That is a huge challenge. But without mutual trust no system will work. Our financial offer will be the first step towards this mutual trust. It also means that we live up to our international financial commitments. Let us be frank: why should developing countries trust our promises regarding climate financing if we don’t keep our promises regarding ODA?
When it comes to credibility and effectiveness, I also see an important role for the EU budget. First of all, the EU budget has well-established rules and procedures: these would make funding through the EU budget reliable and transparent. Second, the EU as a whole would be one of the main providers of international public financing. That gives the EU a strong voice in ensuring that the necessary money comes on the table. Of course this would require new priorities in EU expenditure; priorities that will make clear once and for all that climate change is one of the main political challenges we face today!
Because we can not hide away in The Age of Stupid; 2020, that is almost tomorrow.