Less CO2-emissions = more economic growth

Press Release by the Potsdam Institute for Climate Impact Research (PIK):

21/02/2011

EU climate target: Less CO2-emissions could trigger more economic growth.

Increasing the EU’s 2020 greenhouse gas reduction target from 20% to 30% could help boosting European investments from 18% to up to 22% of GDP, leading to a GDP increase of up to €620bn ($840bn) and the creation of up to 6 millions additional jobs. These are the key findings of a report launched today.

The report, A New Growth Path for Europe – Generating Growth and Jobs in the Low-Carbon Economy, was commissioned by the German Federal Ministry of the Environment, Nature Conservation and Nuclear Safety, and conducted by an international consortium of researchers led by Professor Carlo C. Jaeger from the Potsdam Institute for Climate Impact Research (PIK).

Traditional models assume a ‘single stable equilibrium’, where investments are determined by an assumption of business-as-usual economic trends. The financial crisis however has exposed the fact that different expectations can lead to different investment behaviors, turning those expectations into self-fulfilling prophecies. The new model highlights the importance of policy in shaping investors’ expectations, leading to a virtuous circle of increased investments, faster ‘learning by doing’ in technology and manufacturing and enhanced expectations by investors in the market.

This study shows that the European economy could be shifted into a new ‘low-carbon equilibrium’ through a decisive move to a domestic 30% emissions reduction target and independently of an international post-2012 agreement, thereby setting expectations for growth of the European economy at a higher level. European industry can maintain and enhance its competitiveness by developing the low carbon materials and technologies that will shape the future.

Lead author of the report, Prof. Carlo C. Jaeger, from PIK, said:

“In traditional economic models, reducing greenhouse gas emissions incurs an extra cost in the short term which is justified by avoiding long term damages. However what we are showing here is that by credibly engaging on the transition to a low-carbon economy through the adoption of an ambitious target and adequate policies, Europe will find itself in a win-win situation of increasing economic growth while reducing greenhouse gases”.

“It is time for Europe to understand the opportunities and the challenges from the transition to a low-carbon economy. This study makes a compelling case for an increase of EU’s climate target to 30% that will strengthen the European economy.”

Note to editors:

The study was conducted by a consortium of experts from the following institutions:
• Potsdam Institute for Climate Impact Research (PIK)
• Oxford University
• University of Paris Panthéon-Sorbonne
• National Technical University of Athens (NTUA)
• European Climate Forum

The study builds on recent theoretical work which incorporates the positive external effect of additional investment on technical progress and the role of investors’ expectations, and applies them to the GEM E3-model used by the European Commission for its analysis of the impact of a 30% GHG reduction target.

Weblink to the Synthesis Report

For further information please contact the PIK press office:
Phone: +49 331 288 25 07
E-mail: press@pik-potsdam.de

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Press and public relations
tel: +49 331 288 25 07
fax: +49 331 288 25 70
e-mail: press@pik-potsdam.de

Potsdam Institute for Climate Impact Research
Telegraphenberg A 31
P.O. Box 60 12 03
D-14412 Potsdam
www.pik-potsdam.de

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