Calculating possible cost distribution models for climate protection, RECIPE is helping to guide government leaders at the climate talks in Copenhagen. Allianz SE Board Member Dr. Joachim Faber elaborates.
 | Dr. Joachim Faber, Allianz SE"The willingness of our customers to invest depends upon reliable conditions. It is now up to governments to provide these conditions." (Photo: Allianz) |
RECIPE, a "Report on Energy and Climate Policy in Europe" looks at the costs of climate protection. To help guide government leaders at the climate talks in Copenhagen, RECIPE is calculating possible cost distribution models for climate protection in six regions of the world.
RECIPE compares three energy economy models and used them as a basis for climate policy recommendations. For Europe, RECIPE is examining four CO2-intensive sectors of the economy – energy, industry (cement and steel), transportation, and agriculture – and formulating paths toward reduced emissions.
The study was conducted by PIK, the Potsdam Institute for Climate Research, and four other European research institutes and supported by Allianz SE and the World Wildlife Fund (WWF). We spoke with experts and decisions makers from Allianz, WWF, and about RECIPE.
Joachim Faber, board member of Allianz and CEO of Allianz Global investors:
Mr. Faber, what role will the financial sector play in climate protection?
Enormous investments must be mobilized to reach the ambitious reduction targets for CO2 emissions. The rebuilding of the energy sector alone – the expansion of renewable energy, carbon capture and storage technologies, and new power grids – requires additional investments annually until 2050, or about 1% of global GDP, most of which would have to be provided by the financial markets and industry.
Investors and financial markets can handle this volume, but only if we have stable political conditions in which CO2 is given its due.
What preconditions do your customers – the private investors – expect?
Investors need a market where it is possible to calculate the investment opportunities and risks – potential profits and losses. We need market conditions for the CO2 factor, ideally at the global level to ensure fair competition.
The key tool here is a cap and trade system with full auctioning of all CO2 certificates. Fixed feed-in tariffs for renewable energies are another driver for investments.
What contribution can Allianz make?
We can work together with partners such as WWF or PIK and through studies such as RECIPE to provide better orientation for policymakers, the public and investors. We can also act where conditions are created – as we are doing, for example, through our investments in wind and solar energy in markets such as Germany and Italy, where fixed feed-in tariffs provide incentives.
We would like to expand these investments even further if the right market conditions are created. As an insurance company, we accompany new technologies and, by making sure all risks are insured, guarantee such technologies will quickly gain a foothold in the market.
Ottmar Edenhofer
What will climate protection cost Europe?
The implementation of ambitious climate protection targets will require a massive restructuring of the energy system. We won’t achieve these goals for nothing. But the RECIPE findings show that, given the right political conditions, the accumulated costs over the next 40 years will amount to less than one year of delayed economic growth. These costs are small compared to the potential damage to our climate. But what’s absolutely critical here is that we act quickly: The sooner we undertake climate protection, the lower the costs. What the findings clearly demonstrate is that it definitely makes sense for Europe to move forward with climate protection, even if the other nations are slow in getting on board. The added value of early adoption of a low-carbon path of development and avoiding bad investments in carbon-intensive technology greatly exceeds the additional costs of such a response.
What do the study’s findings mean for the political process?
The costs of climate protection depend to a significant degree on how it is implemented politically. Technological innovation is of central importance in making climate protection affordable. It’s critical, therefore, that investments in clean technologies are economically attractive over the long term. This requires that policymakers create stable long-term conditions for investors, especially with regard to the future CO2 price. It’s also important to actively promote development of low-carbon technologies.
What do you hope to see emerge from the climate talks in Copenhagen?
In July, the world’s largest economies agreed in L’Aquila to limit climate change to 2°C compared to pre-industrial levels. Now it’s time to follow words with actions. To reach this goal, three things need to come out of Copenhagen: First, politicians must agree on what the level of atmospheric carbon should be at the end of the century. Next, they must define an equitable formula for distributing these costs to all nations. Finally, we need a global cap and trade system that ensures an affordable path toward our objectives. Given the current trend of negotiations, however, there is a fear that low-level negotiators will get bogged down in minor details instead of tackling these key issues.
Interview with Regine Günther
What role must the EU and Germany play in Copenhagen?
Copenhagen will only succeed if the EU pitches in. The EU must once again play a leadership role in climate protection, in its own interests and in the interest of all nations. RECIPE shows that the EU benefits economically even by leading the way unilaterally. But the costs of climate protection are lowest if the EU joins all other nations in implementing credible, ambitious measures to protect the climate.
Specifically, the EU can set the right incentives by committing to a binding climate protection plan for the period up to 2020, including an ambitious CO2 reduction target of 40% for Europe. We also need a long-term strategy based on this target for a 95% reduction of our emissions by 2050.
Besides implementing our own reduction measures, industrialized nations are also called upon to support developing and emerging countries in financing their climate protection measures (prevention, adaptation, forest protection). WWF estimates a need for EU government payments of €35 billion annually to developing and emerging nations between 2013 and 2017 to promote the transfer of technology and adaptations to climate change.
As far as implementation in Europe goes, what are the basic climate policy requirements and what technologies must be employed?
The EU Commission has so far failed to examine the enormous potential of energy efficiency. There is almost a total lack of recommendations for what should happen in technological cooperation. WWF is calling for a tenfold increase in technological research and development funding by 2020 – especially for renewable energies, energy efficiency and carbon capture and storage (CCS). The EU should also set up a program to promote technology under the auspices of UNFCCC to protect copyrights and drive innovation.
In addition, the EU should strengthen the cap and trade system. The greatest flaw up to now is that too many emission certificates were given away to companies for free. WWF is calling for certificates in all industries to be auctioned off starting by 2013. This means that everyone should pay to emit CO2 and pollute the earth’s environment.
What is the role of the financial market and industry in climate protection?
WWF expects institutional investors to examine their investments to ensure they are compatible with the path toward a low-carbon economy. Moreover, companies must measure their own emissions as a basis for developing investment and reduction strategies.
WWF sees the primary fields of investment for industry and investors in areas such as renewable energies, storage systems, improvements in efficiency and the development of zero-emission production processes.
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