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Kempen's Commentary: Paris: no guts no glory

13 December 2019

 

For two weeks, no fewer than 25,000 people met in Madrid to discuss our climate. The fact that this climate conference eventually took place in Europe after Brazil and Chile had both cancelled, is symbolic of Europe’s pioneering role in this debate. Is this position an opportunity or a risk? 

The chances of achieving the Paris objectives seem small for now. According to calculations by the IPCC, the United Nations body that assesses the risks of climate change, CO2 emissions from human activities should be reduced to zero in the next 30 years (2050). The currently announced policy implies an increase of approximately 3 degrees, a further increase of 2 degrees compared to the current temperature. So, to limit the rise to 1.5 degrees (which is the Paris goal) is still quite a task.

How do we make this happen?

Although calculations, for example by the Dutch central bank, show that economic growth would decrease ‘considerably but manageably’, most economists argue for a higher CO2 price to tackle the root problem of emissions. In the last two years, the price of emission allowances has risen considerably from 5 to around 25 euros. In this way, market forces can achieve the target as economically as possible.

In addition, Europe is the continent ahead with the new EU taxonomy and various countries that enter into obligations and implement laws. With Frans Timmermans as the new super commissioner for climate issues, we are working hard on plans to halve emissions over a 10-year period. The EU estimates that around € 180 billion in additional investments is needed every year to meet its climate goals. This corresponds to approximately 6% of the current investments. According to the IPCC, an additional investment of around $ 700 billion per year is required worldwide to limit global warming to 1.5 degrees by 2050.

Dropping out
But not all countries are joining Europe. Following the announcement by the US in 2017 to withdraw from the agreement, the US submitted the official documents last month. By the end of the year, the withdrawal will be a fact. And despite the fact that the US is the only country so far to have done this, other large countries such as Australia, Japan, Brazil and Russia are now deliberately lagging behind. The current trend of deglobalisation is reducing the chances of climate success, as international cooperation is crucial for this.

Good investors know that it’s important to choose the long term over the short term, even if this isn’t always easy. The same goes for the climate and the economic consequences. The fact that Europe chooses to be so far ahead of the rest is not only a chance but also a risk. However: no guts no glory. And besides that I call it common sense, both for the economy and the climate.

The author

Ivo Kuiper

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