Future is blue 30/09/19

Carlos Carnicero Urabayen

2 de Octubre de 2019, 20:27

Dear Future is blue readers,

This week we are covering the emergency to combat climate change and the challenges and opportunities of transitioning towards a greener economy. Raymond Torres, Funcas Europe director, has interviewed Miguel Sebastian, Professor at University Complutense, Madrid, and former Minister of Industry, Trade and Tourism of Spain.

We’re also including some analysis and news on this week’s commissioners’ hearings at the European Parliament and the divisions inside the European Central Bank.

Future is Blue has reached an editorial collaboration agreement with academic journal 'South European Society and Politics' by Taylor&Francis Online. Our readerswill have free access to an article of each quarterly issue of the journal. 

Enjoy the reading and the sun if you can!

Climate change needs urgent action

We´ve seen over the last week a wave of world demonstrations and leaders’ pleas calling for action to fight climate change.

Not convinced yet about the magnitude of this threat? You may want to have a look at the below graphic, published by The Economist, showing the evolution of carbon dioxide emissions over the last century. 

"In 1900 the deliberate burning of fossil fuels—almost entirely, at the time, coal—produced about 2bn tones of carbon dioxide. By 1950 industrial emissions were three times that much. Today they are close to 20 times that much" – You can access The Economist briefing via this link

The UN has published a comprehensive report alerting on climate change severely straining the world’s oceans, creating life threatening risks for coastal cities and food supplies. 

This New York Times article summarizes the main findings of the report. You can access here all UN climate related reports.

"The reduction in fossil energy will improve the national income of most European countries"

The need for action is more and more crystal clear for policy makers around the world. But how about the costs and opportunities of transitioning towards greener economies?

Raymond Torres has reached out to Miguel Sebastian for concrete answers and proposals.

"Firms unable to deliver a good carbon footprint (…) will suffer as much as is the case today with firms which exhibit a high price, a low quality or poor social conditions in the manufacturing country"

RT. There is growing awareness on the need for shifting to patterns of production that do not do further harm to the environment. And yet the green transition is both excessively slow and uneven across countries. To what extent is this due to a conflict between economic and environmental goals? 

MS. There might be such a conflict in some sectors or companies that have not perceived the economic gains of advancing to a carbon free economy and to a more sustainable use of our natural resources. Climate change will have substantial costs on most of the sectors and countries. But it will not only affect the supply side. Social awareness on this issue will affect the demand for goods and services, since concerned consumers will soon ask for the carbon footprint of all products and services purchased, or whether natural resources have been respected and not depleted. And these will be decisive factors for their purchase decisions, to add to the standard variables such as price, quality or labour conditions in the manufacturing countries. Firms unable to deliver a good carbon footprint, in either production, transport or distribution, will suffer as much as is the case today with firms which exhibit a high price, a low quality or poor social conditions in the manufacturing country.

RT. What mix of regulations, tax instruments and technology can be designed to speed up green transitions, while supporting the economy? 

MS. I believe in price signals, so a gradually increasing carbon tax scheme would help for an efficient allocation of resources. The revenues from this tax should be reinvested in the ecological transition: deployment of renewable energies, recycling, electric mobility, etc. But some regulatory measures are also needed in the energy markets, mainly in the electricity market, to further promote the introduction of renewable energy, in particular photovoltaic distributed generation ("self consumption"). Traffic restrictions to non-zero emission vehicles and renewing public transport fleets will also help the transition to e-mobility. But we should also act from the supply side, supporting innovation in the auto industry and providing recharging infrastructures for electric vehicles. Giving a market value to recycling and incentives for energy efficiency should also be considered.

"If the auto industry doesn´t shift to electrical engines, they might disappear in a few decades"

RT. In view of existing international disagreements, what could be a realistic European strategy on this area? 

MS. To keep the compromise with the Paris agreements, even if not everybody in the rest of the world follows, may have costs in the short run, but it is a winning strategy in the long run. Recall the European auto industry. Following the oil crises of the 70s, it shifted to more energy-efficient vehicles. Initially they were more expensive than the heavy energy consumer US cars. But in the 80s everybody, including the American people, preferred those cars, and the US auto industry suffered a lot. That is a good lesson for the auto industry in the future. If they don´t shift to electrical engines, they might disappear in a few decades. Moreover, this lesson does not only apply to the auto industry, but to all other sectors, for the reasons expressed in the first question.

RT. Concretely, what would be the economic and social benefits of green transitions for European countries?

MS. The reduction in fossil energy will improve the national income of most European countries, heavy importers of oil and gas from third countries. And so will the energy savings associated with the ecological transition. But this is just a small part of the expected gain. The development of the renewable energy sector, electrical mobility, recycling and a more sustainable use of natural resources will require technological progress and innovation, pushing for new industrial sectors and new digital services provided across Europe. A cleaner air in the cities will improve the quality of life and reduce health expenditures. A more attractive landscape and cleaner beaches will impulse high-quality tourism, which is one of the main economic activities in our continent.

As Draghi is leaving, divisions inside the ECB grow

We’re also following with interest news about the division inside the European Central Bank after its latest decision to cutting interest rates to a record low of minus 0,5 and relaunching the quantitative easing program of bund purchases. In the last few days, German, French, Dutch and Austrian central banks have publicly criticised those measures.

As Draghi is about to leave, the big question is whether Lagarde, the successor and supporter of her predecessor’s main policies, will be able to unite all sensitivities. That´s the question analysed in this FT article.

Further on this topic, and in the same newspaper, Tony Barber analyses the uneasy historical relationship between the biggest European economy and the ECB. "At the heart of Europe´s 20 year old currency union lies a disturbing paradox. The beating heart of the eurozone economy is Germany. Yet (…) Germans are the most outspoken critics of the unconventional measures taken over the last decade to ensure the eurozone’s survival".

The FT is also publishing today an interview with Mario Draghi where he declares victory in battle over the euro. 

European Parliament flexing its muscles ahead of Commissioners’ hearings

The week has come for the Commissioners’ hearings, remember, the exam that each candidate to join Von der Leyen team has to pass at the European Parliament and its various committees. 

We’ll see this week a Parliament willing to thoroughly examine the CV, knowledge, background and policy proposals of each candidate. As we anticipated, the directly elected institution of the EU is willing to flex its muscles and indeed the chamber has already vetoed two names: Rovana Plumb from Romania, nominated for the transport portfolio, and Laszlo Trocsanyi, from Hungary, nominated to become enlargement commissioner. You can read this Politico analysis with more details.

For more details on timings and process of this week’s hearings, have a look at this web page set up by the Parliament.

Have a nice week!

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